Document and Entity Information
Document and Entity Information | 12 Months Ended |
Dec. 31, 2015shares | |
Document and Entity Information [Abstract] | |
Document Type | 20-F |
Amendment Flag | false |
Document Period End Date | Dec. 31, 2015 |
Document Fiscal Year Focus | 2,015 |
Document Fiscal Period Focus | FY |
Entity Registrant Name | Ku6 Media Co., Ltd |
Entity Central Index Key | 1,294,435 |
Entity Current Reporting Status | Yes |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Non-accelerated Filer |
Entity Voluntary Filers | No |
Entity Well-known Seasoned Issuer | No |
Entity Common Stock, Shares Outstanding | 4,771,610,860 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $ 7,697,926 | $ 4,380,328 |
Accounts receivable, net of allowance for doubtful accounts | 91,326 | 113,816 |
Accounts receivable due from related parties | 12,117 | 972 |
Prepaid expenses and other current assets | 527,700 | 490,355 |
Other receivables due from related parties | 2,924 | |
Total current assets | 8,329,069 | 4,988,395 |
Property and equipment, net | 514,573 | 293,567 |
Investments in affiliates | 168,610 | |
Deposits and other non-current assets | 347,963 | |
Total assets | 9,012,252 | 5,629,925 |
Current liabilities: | ||
Accounts payable | 2,824,167 | 3,075,591 |
Accounts payable due to related parties | 912,534 | 709,911 |
Accrued expenses and other current liabilities | 5,689,608 | 5,980,164 |
Accrued expenses due to related parties | 253,365 | |
Related party loan | 4,631,190 | |
Current portion of service obligation to related party affiliate | 24,700 | |
Total current liabilities | 14,335,564 | 9,765,666 |
Long-term service obligation to related party affiliate | 160,548 | |
Total liabilities | $ 14,496,112 | $ 9,765,666 |
Commitments and contingencies | ||
Shareholders' deficit: | ||
Ordinary shares ($0.00005 par value; 12,000,000,000 shares authorized; 4,763,360,860 and 4,771,610,860 shares issued and outstanding as of December 31, 2014 and 2015, respectively) | $ 238,533 | $ 238,120 |
Additional paid-in capital | 184,904,855 | 184,538,349 |
Accumulated deficit | (189,147,067) | (187,095,885) |
Accumulated other comprehensive loss | (1,480,181) | (1,816,325) |
Total shareholders' deficit | (5,483,860) | (4,135,741) |
Total liabilities and deficit | $ 9,012,252 | $ 5,629,925 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
CONSOLIDATED BALANCE SHEETS | |||
Ordinary shares, par value | $ 0.00005 | $ 0.00005 | $ 0.00005 |
Ordinary shares, authorized | 12,000,000,000 | 12,000,000,000 | |
Ordinary shares, issued | 4,771,610,860 | 4,763,360,860 | |
Ordinary shares, outstanding | 4,771,610,860 | 4,763,360,860 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Net revenues: | |||
Third parties | $ 10,793,324 | $ 4,266,544 | $ 737,874 |
Related parties | 115,715 | 4,317,098 | 12,404,031 |
Total net revenues | 10,909,039 | 8,583,642 | 13,141,905 |
Cost of revenues: | |||
Third parties | (7,533,657) | (11,231,164) | (15,649,173) |
Related parties | (510,854) | (909,775) | (335,504) |
Total cost of revenues | (8,044,511) | (12,140,939) | (15,984,677) |
Gross profit (loss) | 2,864,528 | (3,557,297) | (2,842,772) |
Operating expenses: | |||
Product development | (1,385,138) | (3,496,393) | |
Selling and marketing | (1,804,611) | (941,760) | (1,796,980) |
General and administrative | (3,223,731) | (7,087,924) | (8,089,086) |
Impairment of goodwill and intangible assets | (27,225,907) | ||
Total operating expenses | (5,028,342) | (9,414,822) | (40,608,366) |
Operating loss | (2,163,814) | (12,972,119) | (43,451,138) |
Interest income: | |||
Third parties | 187,759 | 43,152 | 83,815 |
Related parties | 3,388 | 28,856 | |
Total interest income | 187,759 | 46,540 | 112,671 |
Interest expense: | |||
Related parties | (260,830) | (16,365) | |
Total interest expense | (260,830) | (16,365) | |
Other income, net | 202,582 | 745,958 | 4,101,039 |
Gain from disposal of equity interest in affiliate | 1,451,979 | ||
Loss before income tax benefits | (2,034,303) | (10,727,642) | (39,253,793) |
Income tax benefits | 4,826,059 | ||
Equity in losses of affiliate, net of tax | (16,879) | ||
Net loss | (2,051,182) | (10,727,642) | (34,427,734) |
Net loss | (2,051,182) | (10,727,642) | (34,427,734) |
Other comprehensive income (loss), net of tax: | |||
Currency translation adjustments of subsidiaries | 336,144 | 193,864 | (97,774) |
Comprehensive loss | $ (1,715,038) | $ (10,533,778) | $ (34,525,508) |
Ordinary shares | |||
Loss per share - basic and diluted: | |||
Net loss per share | $ 0 | $ 0 | $ (0.01) |
Weighted average shares used in per share calculation - basic and diluted | 4,767,742,804 | 4,746,324,022 | 4,728,185,434 |
ADS | |||
Loss per share - basic and diluted: | |||
Net loss per share | $ (0.04) | $ (0.23) | $ (0.73) |
Weighted average shares used in per share calculation - basic and diluted | 47,677,428 | 47,463,240 | 47,281,854 |
CONSOLIDATED STATEMENTS OF OPE5
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Parenthetical) | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | |||
Number of ordinary shares represented by one share of ADS | 100 | 100 | 100 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT - USD ($) | Ordinary shares. | Additional paid-in capital | Accumulated deficits | Accumulated other comprehensive income /(loss) | Total |
Beginning balance at Dec. 31, 2012 | $ 236,575 | $ 177,182,895 | $ (141,940,509) | $ (1,912,415) | $ 33,566,546 |
Beginning balance, shares at Dec. 31, 2012 | 4,732,446,560 | ||||
Share repurchase | $ (290) | (57,857) | (58,147) | ||
Share repurchase, shares | (5,798,200) | ||||
Exercise of stock options | $ 200 | 46,200 | 46,400 | ||
Exercise of stock options, shares | 4,000,000 | ||||
Stock-based compensation expense | 1,023,871 | 1,023,871 | |||
Currency translation adjustments of subsidiaries | (97,774) | (97,774) | |||
Net loss | (34,427,734) | (34,427,734) | |||
Ending balance at Dec. 31, 2013 | $ 236,485 | 178,195,109 | (176,368,243) | (2,010,189) | 53,162 |
Ending balance, shares at Dec. 31, 2013 | 4,730,648,360 | ||||
Exercise of stock options | $ 1,635 | 336,928 | 338,563 | ||
Exercise of stock options, shares | 32,712,500 | ||||
Stock-based compensation expense | 600,995 | 600,995 | |||
Equity contribution from Shanda | 5,405,317 | 5,405,317 | |||
Currency translation adjustments of subsidiaries | 193,864 | 193,864 | |||
Net loss | (10,727,642) | (10,727,642) | |||
Ending balance at Dec. 31, 2014 | $ 238,120 | 184,538,349 | (187,095,885) | (1,816,325) | $ (4,135,741) |
Ending balance, shares at Dec. 31, 2014 | 4,763,360,860 | 4,763,360,860 | |||
Exercise of stock options | $ 413 | 84,562 | $ 84,975 | ||
Exercise of stock options, shares | 8,250,000 | ||||
Stock-based compensation expense | 281,944 | 281,944 | |||
Currency translation adjustments of subsidiaries | 336,144 | 336,144 | |||
Net loss | (2,051,182) | (2,051,182) | |||
Ending balance at Dec. 31, 2015 | $ 238,533 | $ 184,904,855 | $ (189,147,067) | $ (1,480,181) | $ (5,483,860) |
Ending balance, shares at Dec. 31, 2015 | 4,771,610,860 | 4,771,610,860 |
CONSOLIDATED STATEMENTS OF CHA7
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) (Parenthetical) - $ / shares | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) | |||
Ordinary shares, par value | $ 0.00005 | $ 0.00005 | $ 0.00005 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
Net loss | $ (2,051,182) | $ (10,727,642) | $ (34,427,734) |
Adjustments to reconcile net loss to net cash used in operating activities: | |||
Share-based compensation | 281,944 | 600,995 | 1,023,871 |
Depreciation and amortization | 543,861 | 1,048,398 | 3,388,950 |
Impairment of intangible assets | 0 | 0 | 20,993,137 |
Impairment of goodwill | 6,232,770 | ||
Deferred taxes | (4,826,059) | ||
Provision for Seed Music receivable | 980,000 | ||
Bad debt provision (reversal credited to income) | 988,135 | (310,699) | |
Gain on derecognition of aged operating liabilities | (13,891) | (206,533) | (2,938,250) |
Exchange losses (gains) | 344,667 | 226,641 | (133,064) |
Equity in losses of affiliated companies | 16,879 | ||
Gain from disposal of equity interest in affiliate | (1,451,979) | ||
Gains on disposal of property and equipment | (114,379) | (403) | (237,874) |
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | |||
Accounts receivable | 22,490 | (1,037,273) | 260,100 |
Prepaid expenses and other current assets | (37,345) | (104,388) | 137,414 |
Amount due from related parties | (8,221) | 6,563,757 | (2,093,669) |
Deposits and other non-current assets | 347,963 | (9,281) | |
Accounts payable | (236,377) | (676,200) | 1,295,525 |
Accrued expenses and other current liabilities | (290,556) | (1,207,465) | (1,123,760) |
Amount due to related parties | (328,516) | 783,970 | 255,094 |
Net cash used in operating activities | (1,522,663) | (5,209,268) | (11,524,248) |
Investing activities: | |||
Purchases of property and equipment | (22,601) | (209,539) | (29,566) |
Proceeds from disposal of property and equipment | 114,379 | 1,510 | 238,087 |
Payment for licensed video copyright | (67,999) | ||
Proceeds from disposal of equity interest in affiliate | 1,451,979 | ||
Loan repayments from related parties under common control of Shanda | 498,583 | 3,300,000 | |
Cash paid for investment in affiliate | (46,312) | ||
Net cash provided by investing activities | 45,466 | 1,742,533 | 3,440,522 |
Financing activities: | |||
Proceeds from exercise of stock options | 84,975 | 338,563 | 46,400 |
Repurchase of ordinary shares | (58,147) | ||
Cash received from third party to fund investment in affiliate | 46,312 | ||
Borrowings from related party | 4,631,190 | ||
Equity contribution from Shanda | 5,847,070 | ||
Repayment of borrowings from related parties under common control of Shanda | (3,303,760) | ||
Net cash provided by (used in) financing activities | 4,762,477 | 6,185,633 | (3,315,507) |
Effect of exchange rate changes on cash and cash equivalents | 32,318 | (9,800) | (524) |
Net increase (decrease) in cash and cash equivalents | 3,317,598 | 2,709,098 | (11,399,757) |
Cash and cash equivalents, beginning of year | 4,380,328 | 1,671,230 | 13,070,987 |
Cash and cash equivalents, end of year | 7,697,926 | 4,380,328 | 1,671,230 |
Supplemental disclosure of cash flow information: | |||
Loan interest paid to related parties | 210,909 | ||
Supplemental disclosure of non-cash investing and financing activities: | |||
Accounts payable related to purchase of property and equipment | 1,001 | 2,157 | 19,779 |
Amount due to related parties related to purchase of property and equipment | 784,504 | $ 190,837 | |
Financing of equity interest in affiliate with long-term service obligation | 138,936 | ||
Net effect of borrowings from and receivables due from Shanda affiliates waived as to repayment and recharacterized as equity contribution | $ 5,405,317 | ||
Refinancing of related party loan - assumption of loan by Shanda affiliate from former related party | $ 4,888,674 |
ORGANIZATION AND PRINCIPAL ACTI
ORGANIZATION AND PRINCIPAL ACTIVITIES | 12 Months Ended |
Dec. 31, 2015 | |
ORGANIZATION AND PRINCIPAL ACTIVITIES | |
ORGANIZATION AND PRINCIPAL ACTIVITIES | 1. ORGANIZATION AND PRINCIPAL ACTIVITIES Ku6 Media Co., Ltd. (the “Company”), a Cayman Islands corporation, together with its subsidiaries and consolidated variable interest entities (“VIEs”) (collectively, the “Group”) provides online advertising services and online promotional marketing services in China via its online video sharing platform, www. k u6.com. The Group’s business model focuses on the delivery of video content (user-generated content, or “UGC”) to end users. Via the associated web traffic, the Group is able to create multiple opportunities for advertisers and business partners to market to the Group’s user base in exchange for fees received by the Group. In the fourth quarter of 2015, management added virtual reality (“VR”) to the Company’s development strategies. The Company has established a VR community on its website and its video social communities will serve as the core platform for users to experience this state-of-the-art technology. The Company has started to look for investment and cooperation opportunities involving other VR-focused companies. Organization As of December 31, 2015, the Group ’s ownership structure is summarized as follows. Names of Major Subsidiaries, Variable Interest Entities and Affiliate(s) Date of incorporation Percentage of ownership or economic interest Subsidiaries Ku6 (Beijing) Technology Co., Ltd. (“Beijing Technology”) March 5, 2007 % Wei Mo San Yi (Tianjin) Science and Technology Co., Ltd. (“Tianjin Technology”) December 23, 2008 % Kusheng (Tianjin) Technology Co., Ltd. (“Kusheng”) August 26, 2011 % Variable Interest Entities Ku6 (Beijing) Information Technology Co., Ltd. (“Ku6 Beijing Information”) April 20, 2006 % Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. (“Tianjin Information”) March 20, 2009 % Tianjin Ku6 Network Communication Technology Co., Ltd. (“Ku6 Network”) December 14, 2011 % Beijing Ku6 Culture Media Co., Ltd. (“Ku6 Culture”) June 22, 2010 % Affiliates Beijing Modo Media Co., Ltd. (“Beijing Modo”) August 4, 2015 % Shanghai Yisheng Network Technology Co., Ltd. (“Yisheng”) November 22, 2007 % Bale Interactive (Beijing) Culture Media Co., Ltd. (“Bale”) April 10, 2012 % Business developments Following a major strategic shift in 2011, the Group (1) appointed Shanghai Shengyue Advertising Ltd. (“Shengyue”), a wholly owned subsidiary at that time of Shanda Interactive Entertainment Limited (“Shanda”), a leading interactive entertainment media company in China, as the Group’s primary agent for the sale of online advertising services, and (2) changed its business focus from purchasing long-form licensed video content to relying on UGC and short-form video content. Shengyue operated an advertising system known as Application Advertisement (“AA”) and charged advertisement fees to its end customers based on the advertising effects, including but not limited to views, clicks, responses, etc. (“performance advertisement”). After the appointment of Shengyue as its primary sales agent, the Group relied on Shengyue to sell online advertising services for all but a small portion of its capacity and relied upon contract terms which provided for fixed minimum advertising revenue guarantees. This business strategy involving Shengyue continued through mid-2014, at which time the Group ceased its relationship with Shengyue. The Group generated advertising revenues of $12.4 million and $2.7 million from Shengyue for the years ended December 31, 2013 and 2014, respectively, representing 94.4% and 31.5% of net revenues, respectively, for those periods. Historically, including through early 2014, Shanda held a controlling ownership interest in the Group’s common shares. As of December 31, 2013, Shanda’s equity interest in the Company was 70.5%. 2014 Share Purchase Transaction On March 31, 2014, Shanda Media, the affiliate of Shanda directly owning Shanda’s share of the Company’s equity, entered into an agreement with Mr. Xudong Xu (“Mr. Xu”) to transfer approximately 41% of the Company’s total outstanding ordinary shares, or 1,938,360,784 shares, to Mr. Xu in exchange for a contemporaneously dated promissory note with a maturity of three years pursuant to which Mr. Xu committed to repay, in cash, the purchase value of the shares approximating $47 million (based upon an average of share prices immediately preceding the share transfer) to Shanda Media (the “Share Purchase Transaction”). The promissory note which was used by Mr. Xu to finance the purchase of the shares was accompanied by a share pledge in favor of Shanda Media. Additionally, Mr. Xu granted powers of attorney and voting proxy power to Shanda Media, exerciseable only upon occurrence of a continuing event of default, in order to more effectively secure the obligations to Shanda Media under the promissory note. The share transfer was completed on April 3, 2014 and decreased Shanda’s ownership percentage to 29.5%, thus discontinuing Shanda’s controlling majority shareholder status. At that time, Shanda ceased to be the controlling shareholder of the Group, but continued to be a related party. As of December 31, 2014, Mr. Xu’s equity interest in the Company was 41%, and Shanda’s equity interest in the Company was 29%. In connection with the Share Purchase Transaction, Shanda, through its affiliate, extended a loan of $3.2 million (RMB20.0 million) to the Group on April 3, 2014. This loan was interest-free and originally due on April 2, 2015. Shanda waived the Group’s obligation to repay this loan in order to satisfy one of the closing conditions under the share purchase agreement for the Share Purchase Transaction. Also, related party receivables due from an affiliate of Shanda, amounting to $1.2 million, were forgiven by the Group as a condition for receipt of the $3.2 million (RMB20.0 million) promised monies. The total net benefit, amounting to $2.0 million, from the aforementioned transactions was reflected as an equity contribution in the accompanying consolidated statement of shareholders’ deficit. On April 10, 2014, the Group received the cash of RMB20.0 million from Shanda. On May 19, 2014, Shanda, through its affiliate, entered into an agreement to provide a loan of $3.4 million (RMB21.4 million) to the Group. This loan was interest-free and originally due within twelve months. Similar to the previous loan in early April, this loan was immediately waived as to repayment. As part of the loan transaction, existing related party payables to certain affiliates of Shanda, amounting to $0.8 million (RMB5.3 million), were waived as to repayment as part of the $3.4 million (RMB21.4 million) promised loan monies. The total benefit from the waived loans and payables of $3.4 million (RMB21.4 million) was reflected as an equity contribution in the accompanying consolidated statement of shareholders’ deficit. On May 30, 2014, the Group received cash of $2.6 million (RMB16.1 million) from Shanda, representing the promised monies of $3.4 million (RMB21.4 million) less the forgone existing related party payables of $0.8 million (RMB5.3 million). The $3.2 million received as described in the foregoing paragraph and the $2.6 million received in May were characterized as a financing cash inflow in the accompanying consolidated statement of cash flows. The Share Purchase Transaction in early 2014 was undertaken in the context of adopting fundamental changes to the Group’s business strategy, with the following major changes having occurred since that time. Advertising Agency Agreement with Shengyue On April 30, 2014, the Group entered into a n ew advertising agency agreement with Shengyue, which was no longer owned by Shanda Interactive following Shanda Interactive’s sale of the business to an outside party (after the transfer of ownership, “New Shengyue”); accordingly, New Shengyue became an independent third party. P ursuant to the new agreement, the minimum guaranteed advertising revenue amount was substantially lower than that under the previous advertising agency agreement with Shengyue prior to March 31, 2014 (when Shengyue was a related party). This new advertising agency agreement was effective from April 25, 2014 and was to expire on December 31, 2014. On August 14, 2014, the Group sent a written notice to New Shengyue terminating the new advertising agency agreement. According to the notice of termination, the advertising agency agreement was terminated on August 28, 2014. There were no financial penalties associated with the termination payable by the Group. Contemporaneous with the termination of the new advertising agency agreement with New Shengyue, the Group re-evaluated the collectability of the remaining receivables from Shengyue associated with both the old and new advertising agency agreements (pre-April 2014 and post-April 2014) and concluded that such receivables were likely not collectible. This evaluation excluded amounts received in cash during the second quarter of 2014. The Group recorded a provision of $0.92 million (RMB5.71 million) for all remaining receivables under the old advertising agency agreement with Shengyue (emanating from the time Shengyue was owned by Shanda Interactive) during the second quarter of 2014 given the subsequent termination in August. Following the termination, the Group further evaluated remaining receivables due pursuant to the new Shengyue advertising agreement and recorded a provision of $0.05 million (RMB0.35 million) in the third quarter of 2014 for all remaining receivables under the new advertising agency agreement with Shengyue that was terminated August 28, 2014. Advertising Agency Agreement with Third Party Huzhong On August 29, 2014, the Group entered into an advertising agency agreement with Huzhong Advertising (Shanghai) Ltd. (“Huzhong”), an unrelated third party, pursuant to which Huzhong agreed to act as the Group’s exclusive advertising agent for standard media resources and as a non-exclusive advertising agent for highly interactive advertising resources. According to the agreement, the Group guarantees a certain amount of web traffic per day. In return, Huzhong guarantees to the Group a minimum amount of advertising revenues per day. The minimum guarantee amount under this agreement is higher than that under the agency agreement with New Shengyue terminated on August 28, 2014. If the Group fails to meet the web traffic target, the minimum guarantee amount will be adjusted downward proportionally. Huzhong prepays 50% of the minimum guaranteed amounts with the Group prior to the beginning of each month, and the balance is settled monthly. The advertising agency agreement started on August 29, 2014 and will expire on December 31, 2017. In August 2015, the Group amended the agreement with Huzhong and raised the unit price for its advertising resources. Revenue Sharing Cooperation with Qinhe On April 30, 2014, the Group entered into an agreement with Shanghai Qinhe Internet Technology Software Development Co., Ltd., (“Qinhe”), a company controlled by Mr. Xu, which operates iSpeak, a social platform that allows users to engage in real-time online group activities through voice, text and video. This agreement committed the Group to assist Qinhe by providing online game marketing services via the direction of new customers from the Group’s video viewer base to Qinhe. Qinhe, in exchange, committed to share a portion of its profits that are generated from the Group’s video viewers who play Qinhe’s games after linking to them through advertisements on the Group’s websites. Profits are calculated as revenues from the games operated by Qinhe, net of licensing fees payable to game developers. The Group provided these game marketing services to Qinhe from April 3, 2014 onward. On May 4, 2014, the Group entered into a separate agreement with Qinhe to provide interactive entertainment marketing services under a similar arrangement to that described above. Pursuant to this agreement, the Group agreed to share a certain percentage of Qinhe’s revenues generated from the Group’s video viewers who visited the iSpeak platform by linking thereto from advertisements on the Group’s website and who spent monies with iSpeak. On May 4, 2014, the Group started to provide these marketing services to Qinhe. The Group generated promotional marketing revenues, classified as related party revenues, of $1.61 million and nil from Qinhe for the years ended December 31, 2014 and 2015, respectively, representing 18.80% and nil of net revenues, respectively, for those periods. Revenues for 2015 were nil as a result of the exit by Mr. Xu of his ownership in, and involvement with, the Company in early 2015. 2015 Developments and Share Re-Acquisition Transaction On February 2, 2015, the Group entered into a loan agreement with Mr. Xu, pursuant to which Mr. Xu agreed to provide a loan of RMB30.0 million to the Group. The term of the loan was one year, with principal repayable at the maturity date of February 2 , 2016 . The loan bears interest at a rate of 6.5% per annum, payable at maturity . The Group received RMB30.0 million on March 4, 2015. On May 11, 2015, Mr. Xu consummated a share repurchase agreement with Shanda Media to sell the 1,938,360,784 ordinary shares of the Company originally acquired in the 2014 Share Purchase Transaction back to Shanda Media (the “Share Re-Acquisition Transaction”). In exchange for the shares re-acquired, the promissory note originally entered into on April 3, 2014, pursuant to which Mr. Xu had agreed to pay Shanda Media $47 million in exchange for the original acquisition of the shares was extinguished and Mr. Xu was fully released from the payment obligation. This shareholder-to-shareholder transaction did not have an effect on the Group’s financial statements insofar as the payment obligation from which Mr. Xu was released represented a negotiated amount between two willing and able parties and moreover simply represented, in substance, the rescission of the original Share Purchase Transaction. After the share re-acquisition was completed, Mr. Xu ceased to be a shareholder of the Group and ceased to be a related party (Note 11). As of December 31, 2015, Shanda’s equity interest in the Company was 71%. Subsequent to the Share Re-acquisition Transaction, the revenue sharing agreements and cooperation with Qinhe were terminated. In connection with the Share Re-Acquisition Transaction, on May 12, 2015, Mr. Xu transferred all of the rights and obligations relating to his loan to the Company to Shanda Computer (Shanghai) Co., Ltd. (“Shanda Computer”), a wholly owned subsidiary of Shanda, in exchange for a payment from Shanda Computer to Mr. Xu of RMB 30.3 million representing principal and accrued unpaid interest. Accordingly, Shanda Computer became the counterparty to the related party loan (Note 11) and effectively re-financed the loan to the Company. The terms of and the rate associated with the loan were not changed at the time of Shanda Computer’s assumption of the creditor role. In January 2016, the Company and Shanda Computer reached an agreement to extend the loan maturity date to later in 2016 (Note 20); the terms of and the rate associated with the loan were not changed. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2015 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Basis of presentation; liquidity and going concern The accompanying consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Significant accounting estimates reflected in the Company’s financial statements include allowances for doubtful accounts, assessments of impairment for long-lived assets and investments in affiliates, useful lives for property and equipment, share-based compensation expense, loss contingencies, and the amortization period for a long-term service obligation to a related party affiliate. Actual amounts may differ from these estimates under different assumptions or conditions. The Group has incurred significant net losses and negative cash flows from operations in each of the three most recent years. As of December 31, 2015, the Group had cash and cash equivalents of $7.7 million, had an accumulated deficit of $189.1 million, reported a working capital deficit of $6.0 million, and had negative operating cash flows of $1.5 million for the year then ended. Following several years of gross losses, the Group generated gross profit in 2015; however, the Group continues to generate operating losses and net losses. Despite the trend of improvement towards reduced losses, substantial doubt exists as to the Group’s ability to continue as a going concern, primarily due to (a) uncertainties associated with the amount of and growth in revenues from (i) an advertising agency agreement with Huzhong, the Company’s new third party advertising agent since late August 2014 and (ii) other sources; and (b) uncertainties as to the availability and timing of additional financing with terms acceptable to the Company. A shift towards generation of operating cash inflows is dependent upon successful execution with respect to growth in revenues, diversification of revenue sources, and continued reduction of controllable costs. The Group expects to derive its 2016 revenues from Huzhong. Revenue amounts and growth in revenues depend on achievement of the guaranteed amounts of web traffic per day and contractual terms agreed to with Huzhong. There is no assurance that the Group will be able to negotiate and procure additional financing from related parties, or from third parties, as was recently carried out with a related party loan procured from Mr. Xu which was subsequently re-financed via an affiliate of Shanda. In order to reduce operating cash outflows, the Group reduced its headcount by approximately 40% in various departments in April 2014. The Group has also taken other cost reduction measures, including improving the efficiency of its network to reduce infrastructure costs, reducing capital expenditures, and reducing content acquisition costs. The foregoing factors raise substantial doubt about the Group’s ability to continue as a going concern. In order to continue its operations, the Group must generate sufficient revenues, reduce costs, and/or raise more funds to achieve profits and positive cash flows. (2) Consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries, and VIEs. All inter-company transactions and balances have been eliminated upon consolidation. Affiliated compan ies in which the Company has partial ownership and controls more than 20% but less than 50% of the investment are accounted for using the equity method of accounting. The Company’s share of earning s (loss es ) of such equity investment s is included in the accompanying consolidated statements of operations and comprehensive loss; the carrying value of such investments was $168,610 as of December 31, 2015 (2014: nil) . The Company follows the guidance relating to the consolidation of VIEs in ASC 810-10, which requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. To comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provide advertising services and hold Internet Content Provider licenses and/or Licenses for Transmission of Audio-Visual Programs through the Internet, the Group conducts substantially all of its advertising business through its VIE s . The paid-in capital balances of VIEs Ku6 Beijing Information, Ku6 Network and Ku6 Culture were funded by the Company through loans extended to authorized individuals (“nominee shareholders”); Tianjin Information was incorporated by Ku6 Beijing Information . The Company has various agreements with its VIEs, through which the Company holds all the variable interests of the VIEs and has the power to direct the activities of the VIEs. Consequently the Company is the primary beneficiary of these VIEs. Details of certain key agreements with the VIEs are as follows. Loan Agreements. Beijing Technology, Kusheng and Tianjin Technology (the “Subsidiaries”) have granted interest-free loans to the nominee shareholders with the sole purpose of providing funds necessary for the equity capital of Ku6 Beijing Information, Ku6 Network and Ku6 C ul ture. The portions of the loans for equity capital are eliminated with the capital of Ku6 Beijing Information, Ku6 Network, and Ku6 Culture in consolidation. The interest-free loans to the nominee shareholders of Beijing Information, Ku6 Network and Ku6 Culture as of December 31, 2015 were RMB 20 million , RMB 10 million and RMB1 million , respectively. Beijing Technology, Kusheng and Ku6 Culture are able to require the nominee shareholders to settle the loan amount through the entire equity interests of Ku6 Beijing Information, Ku6 Network and Ku6 Culture and nominate someone else to hold the shares on Beijing Technology, Kusheng and Ku6 Culture ’s behalf. Proxy Agreements. The nominee shareholders of the VIEs irrevocably appointed the Subsidiaries ’ officers to vote on their behalf on all matters they are entitled to vote on, including matters relating to the transfer of any or all of their respective equity interests in the VIEs, making all the operational and financial decisions, and the appointment of the directors, general managers and other senior management of the VIEs. Equity Interest Pledge Agreements. The nominee shareholders of the VIEs have pledged their respective equity interests in the VIEs as collateral to secure the nominee shareholders’ obligations under other agreements and for the payment by the VIEs under the exclusive business cooperation agreements and the loan agreements. The pledges have been registered with the applicable local branches of the State Administration for Industry and Commerce. The nominee shareholders of the VIEs cannot sell or pledge their equity interests to others without the approval from the Subsidiaries , and the nominee shareholders of the VIEs cannot receive any dividends without the approval of the Subsidiaries . Exclusive Call Option Agreements. The nominee shareholders of the VIEs granted the Subsidiaries the exclusive and irrevocable right to purchase from the nominee shareholders, to the extent permitted under PRC laws and regulations or at the request of the Company, all of the equity interests in these entities for a purchase price equal to the amount of the registered capital or at the lowest price permitted by PRC laws and regulations. The Subsidiaries may exercise such options at any time. In addition, the VIEs and their nominee shareholders agreed that without the Subsidiaries ’ prior written consent, they will not transfer or otherwise dispose of the equity interests or declare any dividends. Exclusive Business Cooperation Agreements. The Subsidiaries are the exclusive provider of technical, consulting and related services and information to the VIEs. Under these arrangements, the Subsidiaries have the unilateral right to charge service fees to the VIEs to recover substantially all of the VIEs’ profits. As a result of the above contractual agreements, the Company determined that it has the power to control the economic activities most significant to the VIEs and is the primary recipient of the economic rewards or risks, as the case may be. As such, the Company consolidates the VIEs as required by ASC 810-10. As of December 31, 2014 and 2015, the assets of the VIEs were as follows: December 31, 2014 December 31, 2015 Cash and cash equivalents Accounts receivable Amounts due from related parties Property and equipment — Investment in affiliates — Deposits and other non-current assets — Total assets These balances are reflected in the Group ’s consolidated financial statements with intercompany transactions eliminated. Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs, and can have assets freely transferred out of the VIEs. Therefore, the Company considers that there is no asset in any of its consolidated VIEs that can be used only to settle obligations of the VIEs, except for registered capital and PRC additional paid-in capital of the VIEs in the amount of $4.8 million as of December 31, 2015 (2014: $ 4.9 million). As all the VIEs are incorporated as limited liability companies under PRC Company Law, creditors thereof do not have recourse to the general credit of the Group for any of the liabilities of the VIEs. As of December 31, 2014 and 2015, the liabilities of the VIEs were as follows: December 31, 2014 December 31, 2015 Accounts payable Amounts due to related parties within the Group Accrued expenses and other current liabilities Other payables due to related parties within the Group Current portion of service obligation to related party affiliate — Total current liabilities Long-term service obligation to related party affiliate — Total liabilities As of December 31, 2015, the total deficit of the VIE subsidiaries was $28.2 million (2014: $27.4 million). For the years ended December 31, 2013, 2014 and 2015, the summarized operations of the VIEs were as follows: Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Net revenue Net profit (loss) ) ) Currently there is no contractual arrangement that requires the Company to provide additional financial support to the VIEs. However, as the Company is conducting online business substantially through the VIEs, the Company has, in the past, provided and will continue to provide financial support to the VIEs considering the business requirements of the VIEs and the Company’s own business objectives in the future, which could expose the Company to a loss. For the year ended December 31, 2015, the net revenue of VIEs included charges from the VIEs to the wholly owned subsidiaries of the Company in the amount of $1.5 million for services provided by the VIEs as requested by the local authorities (2013 and 2014: $2.3 million and $2.6 million). The VIE revenue charge and derecognition of aged operating liabilities resulted in the net profit of the VIEs for the year ended December 31, 2013. Please refer to “Contingencies” under Note 19 for risks relating to the VIE arrangements. (3) Significant risks and uncertainties The Group participates in a dynamic high technology industry and believes that , in addition to the factors relating to the substantial doubt regarding going concern, changes in any of the following areas could have a material adverse effect on the Group ’s future financial position, results of operations or cash flows: i) changes in the overall demand for services and products; ii) changes in business offerings; iii) competitive pressures due to new entrants; iv) advances and new trends in new technologies and industry standards; v) changes in bandwidth suppliers; vi) reliance on Huzhong for the Group’s revenue ; vii) regulatory considerations; viii) copyright regulations; and ix) risks associated with the ability to attract and retain employees necessary to support growth. (4) Fair value The Group follows ASC Topic 820, “ Fair Value Measurements and Disclosures ” . This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under US GAAP, certain assets and liabilities must be measured at fair value, and the guidance details the disclosures that are required for items measured at fair value. Financial assets and liabilities are to be measured and disclosed using inputs from the following three levels of the fair value hierarchy. The three levels are as follows: Level 1 inputs are unadjusted quoted prices in active markets for identical assets that the management has the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 includes unobservable inputs that reflect management’s judgments about the assumptions that market participants would use in pricing the assets or liabilities. Management develops these inputs based on the best information available, including their own data. (5) Business combinations and non-controlling interests The Group accounts for business combinations using the purchase method of accounting. This method requires that the acquisition cost be allocated to the assets, including separately identifiable intangible assets, and liabilities the Company acquired based on their estimated fair values. The Group follows ASC 805, “ Business Combinations , ” with respect to business combinations. Pursuant thereto, the cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent consideration and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest(s) in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement. The Group follows guidance in ASC Topic 810 regarding non-controlling interests. Non-controlling interests are classified as a separate component within equity; however, such amounts were zero for all periods presented with respect to the accompanying consolidated balance sheet and consolidated statement of operations and comprehensive loss. Consolidated net income on a total enterprise basis is adjusted within the statement of operations and comprehensive loss for net income attributed to non-controlling interests and consolidated comprehensive income is adjusted for comprehensive income attributed to non-controlling interests; howevr, such amounts were zero for all periods presented. (6) Foreign currency translation The functional currency and reporting currency of the parent company is the United States dollar (“U.S. dollar”). The Group’s Subsidiaries and VIEs use Renminbi (“RMB”) as their functional currency. Assets and liabilities of the Subsidiaries and VIEs are translated at the current exchange rates quoted by the Federal Reserve Bank of New York in effect at the balance sheet dates, equity accounts are translated at historical exchange rates, and revenues and expenses are translated at the average exchange rates in effect during the reporting period to the U.S. dollar. Translation adjustments resulting from foreign currency translation to reporting currency are reported as cumulative translation adjustments and recorded in accumulated other comprehensive income (loss) in the consolidated statements of changes in shareholders’ deficit for the years presented. Transactions denominated in currencies other than the Company’s or its Subsidiaries’ or VIEs’ functional currencies are remeasured into the functional currencies at the exchange rates quoted by the People’s Bank of China prevailing at the dates of the transactions. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations and comprehensive loss. Monetary assets and liabilities denominated in foreign currencies are remeasured into the applicable functional currencies using the applicable exchange rates quoted by the People’s Bank of China at the balance sheet dates. All such exchange gains and losses are included in the statements of operations and comprehensive loss. Pursuant to the People’s Republic of China State Administration of Foreign Exchange (“SAFE”), the conversion of U.S. dollars to RMB is governed as to amount and a uniform exchange rate is set by the People’s Bank of China on a daily basis pegged to a basket of major currencies. Correspondingly, RMB to U.S. dollar conversion does not carry the same ease as conversion may with other major currencies. The rates of exchange for the U.S. dollar used for translation purposes were RMB 6.2046 on December 3 1 , 2014 and RMB 6.4778 on December 3 1 , 201 5. The average rates of exchange for the U.S. dollar used for translation purposes were RMB 6.1620 and RMB 6.2831 for 2014 and 2015, respectively. (7) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investments placed with bank or other financial institutions with no restriction to withdrawal or use, which have original maturities of three months or less. Included in cash and cash equivalents are cash balances denominated in RMB of approximately RMB45,692,943 and RMB21,691,760 (equivalent to approximately $7,053,757 and $3,496,083) as of December 31, 2015 and 2014, respectively. ( 8 ) Allowances for doubtful accounts The Group determines allowances for doubtful accounts when facts and circumstances indicate that receivables are unlikely to be collected by taking into account an aging analysis of receivable balances, historical bad debt records, repayment patterns, and other factors such as the financial conditions of customers. In 2014, the Group recorded a provision of $0.97 million for all remaining receivables under the old and new advertising agency agreements with Shengyue based on the termination of a business relationship in August 2014 (Note 1). ( 9 ) Investments in affiliate s Affiliated companies are entities which the Group does not control. Investments in affiliated companies are accounted for by the equity method of accounting or the cost method of accounting. Under the equity method, when the Group has significant influence over an investee, the Group’s share of the post-acquisition profits or losses of affiliated companies is recognized in the consolidated statements of operations. Unrealized gains on transactions between the Group and its affiliated companies are eliminated to the extent of the Group’s interest in the affiliated companies; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an affiliated company equals or exceeds its interest in the affiliated company, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the affiliated company (no such obligations or payments have been undertaken or made for the periods presented). With respect to the cost method, where the Group does not have significant influence and the underlying investment does not have a readily determinable fair value, the investment is originally recorded at cost. The Group continually reviews its investments in affiliated companies to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Group considers in its determination are the length of time that the fair value of the investment is below the Group’s carrying value and the financial condition, operating performance and near term prospects of the investee. In addition, the Group considers the reason for the decline in fair value, including general market conditions, industry specific or investee specific reasons, changes in valuation subsequent to the balance sheet date, and the Group’s intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than temporary, the carrying value of the investment is written down to fair value. There were no impairments of such investments for the year s ended December 31, 2013, 2014 and 2015 (Note 6) . One of the Group’s affiliate investments accounted for by the equity method of accounting, an investment in Beijing Modo, was not financed through cash funding provided by the Group, but rather was financed through the assumption by the Group of a commitment to provide technical services to the investee over an assumed period of time in exchange for a 30% equity interest (Note 6). (1 0 ) Property and equipment, net Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives: Furniture and office equipment 3 years Telecommunications equipment 3 years Leasehold improvements Lesser of original lease term or estimated useful life Expenditures for maintenance and repairs are expensed as incurred. Gain or loss on the disposal of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of operations as a component of general and administrative expenses. (1 1 ) Acquired intangible assets, net An intangible asset is required to be recognized separately from goodwill in a purchase business combination based on its estimated fair value if such asset arises from a contractual or legal right or if it is separable as defined by ASC 805. Acquired intangible assets previously recorded consisted of intangible assets with finite lives , as detailed in Note 5, acquired through direct purchases and various business acquisitions and were amortized on a straight-line basis over their estimated useful economic lives. As further described in Note 5, the Group provided a full impairment provision on its intangibles in 2013; net book value was zero as of both December 31, 2014 and 2015. The estimated useful economic lives by major intangible asset category used by the Company were as follows. Trademark 20 years Technology 7 years (1 2 ) Video production and acquisition costs The Company contracts third parties for the production of and self produces and self-generates video copyrights for content to exhibit on its website ku6.com. Following the guidance under ASC 926-20-25, video production (which mainly includes direct production costs and production overhead) and acquisition costs are capitalized , if the capitalization criteria are met, and are stated at the lower of unamortized cost or estimated fair value. With respect to production and acquisition costs, until the Group can establish estimates of secondary market revenues, capitalized costs for each video produced are limited to the amount of revenues contracted for that video . The costs in excess of revenues contracted for that video are expensed as incurred on an actual basis, and are not restored as assets in subsequent periods. Once the Group can establish estimates of secondary market revenues in accordance with ASC 926-20-35-5(b), it capitalizes subsequent film costs. Capitalized video production costs are amortized in accordance with the guidance in ASC 926-20-35-1 using the individual-film-forecast-computation method, based on the proportion of the revenues earned in a period to the estimated remaining unrecognized ultimate revenues as of the beginning of that period. The Group estimates total revenues to be earned (“ultimate revenues”) throughout the life of a video. Ultimate revenue estimates for the produced or acquired videos are periodically reviewed and adjustments, if any, will result in changes to amortization rates. Estimates used in calculating the fair value of the self produced content are based upon assumptions about future demand and market conditions. The capitalized costs are subject to assessment for impairment in accordance with ASC 926-20-35-12 to 35-18, if an event or change in circumstances indicates that the fair value is less than unamortized cost. During each of the three year s ended December 31, 201 5 , video production and acquisition costs did not meet the criteria for capitalization and as a result all the video production costs were expensed as incurred. (1 3 ) Goodwill Goodwill represents the excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed as a result of the Group’s acquisitions. The Group’s goodwill was subject to a full impairment charge in 2013. The Group’s goodwill was asso ci ated with the Group’s single reporting unit. The Group tests goodwill for impairment by performing a two-step goodwill impairment test, which can be preceded by an optional qualitative assessment to determine if the two-step goodwill impairment test needs to be followed. The optional qualitative assessment relies upon qualitative factors to determine if it is “more likely than not” (more than 50% probable) that the fair value of a reporting unit is less than the carrying value of the reporting unit. The Group did not apply the qualitative assessment and proceeded directly to the two-step test. The first step compares the calculated fair value of a reporting unit to its carrying amount, including goodwill. If, and only if, the carrying amount of a reporting unit exceeds its fair value as per step one, the second step is executed to compare the implied fair value of the affected reporting unit’s goodwill to the carrying value of that goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. In the quarter ended December 31, 2013, considering facts and circumstances regarding future revenues and cash flows described in Note 1 underpinning substantial doubt about the Group’s ability to continue as a going concern, which had developed adversely by that time, the Group recorded an impairment charge to write off, in its entirety, the reporting unit’s (the entire Group)’s goodwill by $6.2 million. See Note 7 for additional information. (1 4 ) Impairment of long-lived assets The Group reviews its long-lived assets including property, plant and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets. The Group uses estimates and judgments in its impairment tests and if different estimates or judgments are utilized, the timing or the amount of the impairment charges could be different. The Group recognized a full impairment loss of $21.0 million for its acquired intangible assets in 2013, based upon substantial uncertainties surrounding future revenues and cash flows, and the concomitant uncertainty associated with recovering various assets regarding future net cash inflows and an assessment of reduced expectations for the Group’s future projected results of operations. No impairment was provided on fixed assets as the carrying value of fixed assets was less than fair value. There was no impairment loss recorded in 2014 or 2015. (1 5 ) Financial instruments Financial instruments include cash and cash equivalents, accounts receivable, prepayments and other current assets, amounts due from/to related parties, accounts payable, related party loan, and accrued expenses and other current liabilities. As of December 31, 20 14 and 2015, their carrying values approximated their fair values because of their generally short maturities. There were no financial assets or liabilities that were measured at fair value at December 31, 2014 or 2015. (1 6 ) Revenue recognition and cost of revenues In accordance with ASC Topic 605, “ Revenue Recognition , ” the Group recognizes revenues when the following criteria are met: persuasive evidence of an arrangement exists, the sales price is fixed or determinable, delivery has occurred and collectability is reasonably assured. Revenues are recorded net of indirect taxes. The Group makes credit assessments of customers to assess the collectability of contract amounts prior to entering into contracts. For those contracts for which the collectability is assessed as not reasonably assured, the Group recognizes revenue only when cash is received and all revenue recognition criteria are met. Online advertising services The Group derives the majority of its revenue from online advertising services, where advertisers (including third parties and related parties) pay to place their advertisements on the Company’s online video platform in different formats. Such formats include but are not limited to banners, buttons, links, and pre-roll or post-roll video advertisements. Advertising contracts are signed to establish the price and advertising services to be provided. Advertisements are charged either based on the agreed measurement numbers, including but not limited to impressions and clicks, or fixed during a determined period of time. In the former case, the delivery of service occurs when those measurement numbers are achieved. In the latter case, the delivery is not linked to advertisement displays but occurs over the lapse of time. The Group’s online advertising services revenue is principally generated under fixed -term contracts with specific advertising agent customers serving as intermediaries between the Group and ultimate advertisers; these fixed-term contracts were responsible for substantially all of the Group’s online advertising services revenue in 2013 and 2014 and all of its online advertising services revenue in 2015. Under two prior arrangements with Shengyue, the Group’s previous exclusive ad agent for standard advertising resources and non-exclusive ad agent for highly interactive advertising resources, which terminated by August 2014 (Note 1), and the Group’s |
PREPAID EXPENSES AND OTHER CURR
PREPAID EXPENSES AND OTHER CURRENT ASSETS | 12 Months Ended |
Dec. 31, 2015 | |
PREPAID EXPENSES AND OTHER CURRENT ASSETS | |
PREPAID EXPENSES AND OTHER CURRENT ASSETS | 3 . PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of: December 31, 2014 December 31, 2015 Staff advances and other receivables Prepaid expenses Advances to suppliers |
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET | 12 Months Ended |
Dec. 31, 2015 | |
PROPERTY AND EQUIPMENT, NET | |
PROPERTY AND EQUIPMENT, NET | 4 . PROPERTY AND EQUIPMENT, NET Property and equipment, net, consists of: December 31, 2014 December 31, 2015 Furniture and office equipment Telecommunications equipment Leasehold improvements Less: Accumulated depreciation ) ) Depreciation expense for the years ended December 31, 2013, 2014 and 2015 was $ 1,829,963 , $1,048,398 and $543,861 , respectively. Total property and equipment disposal gains in 2013, 2014, and 2015 were $237,874, $403, and $114,379, respectively (sales proceeds less zero remaining net book value). These gains mainly related to the disposal of computer hardware and networking equipment and are included as a component of general and administrative expenses. |
ACQUIRED INTANGIBLE ASSETS, NET
ACQUIRED INTANGIBLE ASSETS, NET | 12 Months Ended |
Dec. 31, 2015 | |
ACQUIRED INTANGIBLE ASSETS, NET | |
ACQUIRED INTANGIBLE ASSETS, NET | 5 . ACQUIRED INTANGIBLE ASSETS, NET December 31, 2013 Gross carrying amount Accumulated amortization Impairment Net carrying amount Trademark ) ) — Technology ) ) — ) ) — The Group’s acquired intangible assets were fully impaired in 2013. At December 31, 2013, 2014 and 2015, net book value of intangible assets was zero. Amortization expense s for the years ended December 31, 20 13, 2014 and 2015 were $1 , 558 , 987, nil and nil , respectively. As of December 31, 2013, based upon the evolution by that time of the facts and circumstances described in Note 1 (related to the Group’s going concern uncertainty) which involved significant uncertainty regarding future net cash inflows and an assessment of reduced expectations for the Group’s future projected results of operations, the trademark and technology intangible assets were determined to be fully impaired. This assessment was reached after determining that the future undiscounted cash flows expected to be recovered from these assets were significantly less than the carrying value thereof. In arriving at this conclusion, the Group considered the persuasive evidence of future discounted cash flows implied by the Group’s public share price and its market capitalization (a market based approach, as a per-share price can be interpreted as evidence of discounted future cash flows). However, management concluded, given the significant changes commenced with respect to the Group’s business model (changes to the Shengyue advertising arrangements and cost reductions) in early 2014, that an income approach was warranted as it related to the Group’s intangible assets and goodwill. The Group’s public share price and market capitalization at December 31, 2013 did not fully incorporate the reduced expectations and/or significant uncertainties regarding future revenues and cash flows associated with the strategic changes commenced in early 2014. Therefore, in management’s judgment, an income approach to valuation was necessary to adequately take into account the Group’s business challenges and associated liquidity concerns, regardless of the positive evidence supplied by a market capitalization view. Projections of future cash flows related to the asset group (the entire company, or the Group’s sole reporting unit, where the trademark intangible is the primary asset) were prepared; these projections took into account the uncertainties associated with future revenues and cash flows. The analysis indicated that the future undiscounted cash flows were significantly less than the Group’s carrying value. Accordingly, further analysis, using a discount rate representing the Group’s cost of equity capital plus an appropriate risk premium calibrated to the significant uncertainties associated with future cash flows and unproven changes to the business model, was undertaken to compute the present value of the undiscounted cash flows. Based on this analysis, it was indicated that the entire amount of intangible assets was impaired. However, considering relevant U.S. GAAP provides that impairment charges are allocated amongst the assets comprising an asset group on the basis of relative carrying value, the Group did not provide any impairment on other long lived assets or fixed assets as available market evidence indicated that those assets had fair values which exceeded their carrying values and were therefore individually recoverable. The Group recorded a further significant impairment charge for goodwill in 2013 (Note 7). |
INVESTMENTS IN AFFILIATES
INVESTMENTS IN AFFILIATES | 12 Months Ended |
Dec. 31, 2015 | |
INVESTMENTS IN AFFILIATES | |
INVESTMENTS IN AFFILIATES | 6 . INVESTMENTS IN AFFILIATES Investment in Yisheng The Group holds a 20% equity interest in Yisheng, an online audio business, over which it exercises significant influence. Accordingly, the Group accounts for this investment under the equity method. The carrying value of the investment, and equity in losses of the affiliate, were zero for all periods presented. The Group has no obligation to fund continuing losses of the investee. The operations of the investee are insignificant to the Group. Investment in Beijing Modo In August 2015, the Company entered into an agreement with Beijing Catshow Media Co., Ltd (“Beijing Catshow”) and Beijing Jingying Crossing Performance and Arts Co., Ltd. (“Beijing Jingying”), pursuant to which the parties set up a new media company, Beijing Modo Media Co., Ltd. (“Beijing Modo”). The new company operates a social networking platform which offers broadcasts of performances by modeling talent contributed by Beijing Catshow. Customers are able to purchase virtual items on the social networking platform, such as for providing digital “gifts” to the modeling talent. Beijing Jingying contributed cash of RMB 4.00 million ($0.62 million) to Beijing Modo. Of this cash contribution, RMB 0.30 million ($0.05 million) and RMB 0.55 million ($0.08 million) were paid directly from Beijing Jingying to the Group and Beijing Catshow, respectively, for the two parties to each contribute their 30% and 55% shares of registered capital of RMB 1.00 million to the new business. Beijing Jingying funded the remaining RMB 0.15 million ($0.02 million) of registered capital to Beijing Modo. The remaining RMB 3.00 million ($0.46 million) of the total RMB 4.00 million ($0.62 million) cash contribution to Beijing Modo, after the registered capital funding previously described, was treated as capital surplus (additional paid-in-capital) of Beijing Modo. Beijing Jingying has a 15% equity interest, Beijing Catshow has a 55% equity interest, and Ku6 has a 30% equity interest. The principal parties involved are Beijing Jingying, a party new to this type of business that was able to contribute cash, rather than know-how, and Beijing Catshow, which committed its own modeling talent (human capital) to act as hosts on the social networking platform of Beijing Modo. The Group (other than the registered capital payment contributed to it by Beijing Jingying) did not contribute cash to the business venture. Rather, the Group contributed technology resources including technical support, R&D services, and website content support to Beijing Modo in exchange for its 30% equity interest. The Group cannot separately charge Beijing Modo for the technology services to be provided pursuant to the agreement as the receipt of the equity interest was agreed as fair consideration for the future services to be provided. Although a time period over which the future services are to be provided was not agreed amongst the investors or with Beijing Modo, the Group’s best estimate of the life of the business venture, and therefore the period of time over which technical services would be provided, was 10 years at the date of formation of Beijing Modo. The Group determined that, while Beijing Modo was a VIE under the provisions of ASC 810-10, the Group is not the primary beneficiary, principally due to the fact the Group is the party contributing the least significant resources to Beijing Modo (the other parties hold 70% of the equity interest and contributed the necessary cash and human capital). The Group’s investment in Beijing Modo is represented by common shares, and it has the ability to exercise significant influence over operating and financial policies given the Group has one of three board seats and other privileges. Considering the aforementioned factors, the Group applied the equity method of accounting to account for the investment in Modo . The Group recorded an initial investment of RMB 1.2 million ($0.19 million) representing the Group’s 30% interest in the initial value of assets contributed, or RMB 4.00 million. As a result of PRC company laws, the Group has a legal right to 30% of the Company total equity, regardless of which party funded the paid-capital and capital surplus. Offsetting the initial carrying value, the Group recognized a liability for the service obligation (both current and non-current portions) to Beijing Modo, due to the fact that the Group has a substantive obligation from inception to provide future services. This service obligation liability is being derecognized over the estimated 10 year period. The discharge of the service obligation was not specifically quantified as to volume of services, cost of the services, number of personnel to be employed, or timing of provision of services with the co-investors or with Beijing Modo. Given the inability to conclude that services provided have a fixed or determinable recognition pattern, the Group concluded that, for purposes, amortization of the service obligation would be recorded in other income (expense), net on a straight-line basis over the estimated 10 year period. This period will be re-evaluated in future periods and adjustments, if any, to the estimated service period will be accounted for prospectively. The receipt of RMB 0.3 million ($0.05 million) directly from Beijing Jingying to fund the registered capital of Beijing Modo was recorded as a financing cash inflow, while the funding of the registered capital was recorded as an investing cash outflow. The remaining RMB 0.9 million ($0.14 million) of the investment was not transacted using cash, but rather was financed with the balance of the service obligation. Accordingly, the remaining RMB 0.9 million is a non-cash investing activity. As of December 31, 2015 and for the year then ended, balances and activity related to the Group’s variable interest in Beijing Modo and the equity investment follow. December 31, 2014 Investments Share of losses Foreign currency translation December 31, 2015 Equity interest in Beijing Modo — ) — ) The maximum exposure to loss as it relates to the Group’s variable interest in Beijing Modo is the recorded carrying value of the investment. Insofar as the Group financed its participation in the business venture via the assumption of a service obligation for technology services, the maximum exposure to loss is limited to the remaining carrying value of the asset. There are no, and the Group does not plan to enter into, any side arrangements with the co-investors regarding the financing or operations of Beijing Modo. The Group, and its co-investors, severally and jointly have no legal obligation to fund future losses of Beijing Modo or contribute any further assets. Any decisions to contribute further resources or assets to Beijing Modo will be solely at the discretion of the Group and/or the co-investors; any such decisions made by the Group at its own discretion could expose the Group to future losses. Subsequent to December 31, 2015, the Group disposed of the Beijing Modo investment (Note 20). Investment in Bale On April 10, 2012, an equity investee in which the Group holds a 20% interest, Yisheng, disposed of a portion of its equity interest in Bale, an underlying company in which Yisheng maintained an investment, to the Group, resulting in the Group receiving 20% of Bale and having significant influence thereover. This investment was originally classified as an equity method investment. The transfer was recorded at carrying value as, at the time, Yisheng and the Group were under the common control of Shanda. The original cost basis recorded was zero due to the presence of accumulated losses. Since the initial receipt of the investment, the carrying basis continued to be zero. On June 16, 2014, the Group entered into an agreement with YiYangLianDong (Beijing) Investment Consulting Co., Ltd (“YiYang”), owned by Mr. Yao Jianjiang, the founder and controlling shareholder of YiYang, to sell half of its interest (or 10% of the total equity interests) in Bale to YiYang at a price of RMB 9 million. The Group collected such amount on July 4, 2014 and the registration of this change with the local Administration for Industry & Commerce was completed on July 25, 2014. A net $1,451,979 (RMB 9,000,000) gain from the disposal of the Group’s equity interest in Bale to YiYang was realized. Subsequent to this transaction, Bale issued additional shares to other parties, resulting in further dilution of the Group’s equity interest to 7%. Following the sale of half of the Group’s interest and a reduction in the Group’s involvement with Bale, the investment was re-classified as a cost method investment. The carrying value was zero for all periods presented. |
GOODWILL
GOODWILL | 12 Months Ended |
Dec. 31, 2015 | |
GOODWILL | |
GOODWILL | 7 . GOODWILL The changes in the carrying amount of goodwill are as follows. December 31, 2012 Impairment ) December 31, 2013 — Impairment — December 31, 2014 — Impairment — December 31, 2015 — ASC Topic 350 requires that the goodwill impairment assessment be performed at the reporting unit level. The Group has one reporting unit, which is equivalent to the consolidated Group, as the Group has only one operating segment. As of December 31, 2013, based upon the evolution by that time of the facts and circumstances described in Note 1 (related to the Group’s going concern uncertainty) which involved (and continue to involve) significant uncertainty regarding future net cash inflows and an assessment of reduced expectations for the Group’s future projected results of operations , management concluded that observable market data was of substantially reduced relevance in terms of indicating a fair value of the reporting unit. Regardless of the Group’s public share price at that time, the existence of liquidity difficulties and the necessity of adopting changes to the business model to enhance the Group’s prospects were more compelling than a pure market approach analysis. The Group’s public share price at December 31, 2013 did not incorporate the reduced expectations and uncertainties regarding the amount and timing of future revenues and cash flows associated with the early 2014 significant shifts in business strategy (such as changes to the Shengyue arrangements and cost reduction measures) described in Note 1. Given the substantial dependence of the Group’s future revenues and cash flows upon changes to its business model and new agreements with different parties providing for future revenues, an income approach was adopted as the basis for the evaluation. In estimating the fair value of the reporting unit in the first step of the impairment test, significant management judgement was required. The underlying assumptions used in the first step of the impairment test considered the forecasted cash flows of the Group, which were subject to further significant reduction through a discount rate in excess of 20% which considered the Group’s cost of capital and a risk premium calibrated to the significant uncertainty associated with the Group’s future revenue generating plans and business model. The most significant computational factors were the future projected revenues and the discount rate. The Group determined that the fair value of the reporting unit was less than the carrying value, which required performance of the second step of the impairment test. In the performance of the second step of the impairment test, it was determined that the fair values of other assets subsumed the fair value of the reporting unit, implying the fair value of goodwill was zero. As a result, the Group impaired all of the goodwill and recorded $6,232,770 of impairment expense in 2013. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 12 Months Ended |
Dec. 31, 2015 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | 8 . FAIR VALUE MEASUREMENTS As of December 31, 2014 and December 31, 2015, the carrying amounts of the Company’s cash and cash equivalents, accounts receivable, prepayments and other current assets, amounts due from/to related parties, accounts payable, related party loan, and accrued expenses and other current liabilities approximated fair value due to their short maturities. Accounts receivable, prepayments and other current assets, amounts due from/to related parties, accounts payable, and accrued expenses and other current liabilities, which are measured at carrying value, would represent Level 3 fair value measurements if carried at fair value due to the presence of significant unobservable inputs. As of the same dates, the Company’s cash equivalents would have represented either Level 1 or Level 2 measurements depending on the presence of significant observable inputs such as interest rates. There are no financial assets or liabilities that are being measured at fair value on a recurring basis at December 31, 2014 or December 31, 2015. During the years ended December 31, 2013, 2014 and 2015, the Group recognized impairment losses of $21.0 million, nil and nil for its intangible assets, respectively, and recognized a full impairment loss of $6.2 million for goodwill in 2013. The Group has not presented tabular disclosures or further qualitative information regarding fair value for these long-lived Level 3-classified assets because the related assets were fully written off in 2013 and the related fair values are zero. See Notes 5 and 7 for additional information, including rollforward information pertaining to the assets. |
ACCRUED EXPENSES AND OTHER CURR
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | 12 Months Ended |
Dec. 31, 2015 | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | 9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of: December 31, 2014 December 31, 2015 Accrued professional service fees Accrued welfare benefits Accrued litigation provision Accrued promotion expenses — Accrued payroll Advances from customers Indirect taxes payable Other accrued expenses |
OTHER INCOME, NET
OTHER INCOME, NET | 12 Months Ended |
Dec. 31, 2015 | |
OTHER INCOME, NET | |
OTHER INCOME, NET | 10. OTHER INCOME, NET Year ended Year ended Year ended December 31, 2013 December 31, 2014 December 31, 2015 Reimbursement from depository bank related to ADR program Sub-lease income Gain on derecognition of long-aged operating liabilities Government subsidies — Provision for Seed Music receivable (related party) ) — — Other ) Total For the year ended December 31, 2014, gains arising from derecognition of long-aged operating liabilities of $ 206,533 were recognized related to write-offs of sales rebate payables included in accounts payable in 2014. Amounts related to 2015 were insignificant. For the year ended December 31, 2013, a gain arising from derecognition of long-aged operating liabilities of $2,938,250 was recognized. These amounts included $1,077,242, $818,914 and $1,042,094 in write-offs of sales rebate payables (included in accounts payable), third-party commissions (included in accounts payable), and other accrued expenses payable. The write-offs in 2013 and 2014 all related to the Group’s previous (pre-2011) advertising sales business model. These amounts were significantly aged and have been monitored through time; based upon no or very little further claims activity, payment was judged to be remote based upon the Group’s policies and past experience. In 2013, based upon changed facts and a revised assessment indicating unlikely collection of a $980,000 loan receivable originated to Seed Music (a former subsidiary of the Group sold to Shanda Interactive in 2010) for which collection was being sought from a shareholder of Seed Music unrelated to the Group, the Group fully provided for the impaired loan and reduced its net value to zero. In light of the character of the original loan (which represented a cash outflow reported in investing activities) and the lack of relation to the Group’s ongoing operations, as well as the fact that Seed Music is a related party not under common control, the Group recorded the corresponding charge as other expense within “other income, net”. |
RELATED PARTY TRANSACTIONS AND
RELATED PARTY TRANSACTIONS AND BALANCES | 12 Months Ended |
Dec. 31, 2015 | |
RELATED PARTY TRANSACTIONS AND BALANCES | |
RELATED PARTY TRANSACTIONS AND BALANCES | 1 1 . RELATED PARTY TRANSACTIONS AND BALANCES Current Related Parties The following entities were related parties of the Group as of December 31, 2015. Entity Relationship to Ku6 Media Co., Ltd. Shanda Interactive Entertainment Limited (“Shanda”) Largest shareholder Shanda Computer (Shanghai) Co., Ltd. (“Shanda Computer”) Wholly owned affiliate of Shanda Shanghai Shanda Network Development Co., Ltd. (“Shanda Network”) Wholly owned affiliate of Shanda Shanda Media Group Ltd. (“Shanda Media”) Wholly owned affiliate of Shanda Shanda Capital Ltd. (“Shanda Capital”) Wholly owned affiliate of Shanda Shanghai Shengle Information Technology Co., Ltd. (“Shengle”) Wholly owned affiliate of Shanda Shanghai Shengjin Software Development Co., Ltd. (“Shengjin”) Wholly owned affiliate of Shanda Shanghai Sheng Payment Services Co., Ltd. (“Sheng Payment”) Wholly owned affiliate of Shanda Beijing Modo Media Co., Ltd. (“Beijing Modo”) Equity investee (30% interest) Shanghai Yisheng Network Technology Co., Ltd. (“Yisheng”) Equity investee (20% interest) Former Related Parties Due to the Share Re-Acquisition Transaction conducted by Shanda Media and Mr. Xu in May 2015, and certain sale transactions conducted by Shanda in 2014 resulting in Shanda’s disposal of certain of its affiliates to third parties, the following entities were in the past but are no longer related parties of the Group. Entity Relationship to Ku6 Media Co., Ltd. Xu Xudong (“Mr. Xu”) Former significant shareholder until May 2015 and former CEO Shanghai Qinhe Internet Technology Software Development Co., Ltd. (“Qinhe”) Wholly owned affiliate of Mr. Xu Shanghai Shengyue Advertising Co., Ltd. (“Shengyue”) Wholly owned affiliate of Shanda until April 2014 sale to a third party Shanghai Shulong Computer Technology Co., Ltd. (“Shanghai Shulong Computer”) Consolidated affiliate of Shanda Games Limited (no longer owned by Shanda Interactive) Hurray! Media Co., Ltd. Wholly owned affiliate of Shanda until May 2014 Shanda Games Limited (“Shanda Games”) Majority owned affiliate of Shanda Interactive until September 2014 Annual Related Party Activities During the years ended December 31, 2013, 2014 and 2015 significant related party and former related party transactions were as follows. Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Online advertising revenue from Shengyue (Note A) — Promotional marketing revenue from Qinhe (Note A) — — Promotional marketing revenue from Beijing Modo (Note A) — — Sub-lease income from Sheng Payment — — Technical service fees in cost of revenues paid to Shanda Network (Note B) Technical service fees in cost of revenues payable but forgiven by Shanda Network (Notes B, C) — — Rental fee payable but forgiven by Shanda Network (Note C) — — Rental fee payable but forgiven by Shengjin (Note C) — — Interest expense payable but forgiven by Shanda Media Group Ltd. (Note C) — — Receivables due from Hurray! Media Co., Ltd. but forgiven as to repayment (Note C) — — Purchase of equipment from companies under control of Shanda — — Purchase of fixed assets from Shanda Network (Note B) — — Equity contribution from Shanda (Note C) — — Loan borrowing from Mr. Xu (Note E) — — Loan repayment from Shanda Capital Limited (Note D) — — Loan repayment from Shanda Games Limited — — Loan repayment to Shanghai Shulong Computer — — Loan to Shanda Capital Limited — — Interest income from Shanda Games Limited — — Interest income from Shanda Capital Limited (Note D) — Interest expense for loan from Mr. Xu subsequently refinanced by Shanda Computer (Note E) — — Interest expense for loans from Shanghai Shulong Computer and Shanghai Shulong — — Assumption of liability for service obligation to Beijing Modo (Note 6) — — Note A. The Group entered into an original advertising agency agreement with Shengyue in 2011, when Shengyue was controlled by Shanda. Under this agreement, Shengyue was appointed as the Group’s primary agency to secure advertisements from various end advertisers. The Group provided advertising capacity/spots to Shengyue on its online video portal. The original agreement covered a period of 1 year and 9 months commencing April 1, 2011 and was extended thereafter through early 2014. In early 2014, following the disposition of Shengyue by Shanda to an independent third party, a new agreement was reached (Note 1). Amounts depicted in the foregoing table only relate to the period of time when Shengyue was a related party (under Shanda’s ownership). During 2014, the Company entered into two agreements and a supplemental agreement with Qinhe, a company controlled by Mr. Xu, stipulating the provision of promotional marketing services (Notes 1 and 2(16)). In early 2015, following the Share Re-Acquisition Transaction conducted by Shanda Media and Mr. Xu, the agreements with Qinhe were terminated. In August 2015, the Group, along with co-investors, set up a new media company, Beijing Modo, in which the Group holds a 30% equity interest (Note 6). The Group is obligated to provide future technology services to Beijing Modo. Additionally, the Group entered into an agreement with Modo under which the Group shares a portion of Beijing Modo’s revenue related to referrals of video viewers from the Group’s website who spend monies with Beijing Modo. Note B. In April 2013, the Group entered into a technical services agreement with Shanda Network, which continued in 2014. Pursuant to this agreement, Shanda Network provided technical support services including computer cabinet management, server maintainance, and other items. The service fees are settled on a monthly basis. In November 2015, the technical services agreement was modified, pursuant to which Shanda Network will continue to providing technical support services to the Group until June 2016. In addition, in late 2015, the Group agreed to purchase computer server equipment from Shanda Network; this payable was settled subsequent to December 31, 2015. Note C. During April and May 2014, Shanda provided loans totaling $5.8 million (RMB 36.1 million) to the Group. The loan were interest-free and were immediately unconditionally forgiven as to repayment. Related thereto, certain existing related party payables, amounting to $0.8 million, and receivables, amounting to $1.2 million, involving certain companies controlled by Shanda were forgiven as to repayment. The net effect of the foregoing was a $5.4 million equity contribution reflected as an increase in the Group’s additional paid-in capital (Note 1). Note D. In 2014, the Group’s remaining loan receivable from Shanda Capital Limited was repaid in full. Note E. On February 2, 2015, the Company entered into a loan agreement with Mr. Xu, pursuant to which Mr. Xu agreed to provide a loan of RMB30.0 million (US$4.84 million) to the Company. The term of the loan was one year, and the loan bore interest at a rate of 6.5% per annum. The Company received RMB30.0 million from Mr. Xu on March 4, 2015. After the Share Re-Acquisition Transaction (Note 1), Mr. Xu transferred all of the rights and obligations relating to the shareholder’s loan to Shanda Computer on May 12, 2015 in exchange for a payment of RMB 30.3 million, representing loan principal and accrued unpaid interest, making Shanda Computer the counterparty to the related party loan. The terms of and rate associated with the loan were not changed. Subsequent to December 31, 2015, the loan’s maturity date was extended (Note 20). Year-End Related Party Balances At Decem ber 31, 2014 and December 31, 2015, the amounts receivable from and payable to related parties included in the consolidated balance sheet mainly represent the outstanding amounts arising from the transactions described in the preceding section. Accounts receivable balances due from related parties are as follows. December 31, 2014 December 31, 2015 Accounts receivable due from related parties Beijing Modo — Sheng Payment December 31, 2014 December 31, 2015 Other receivables due from related parties Shanda Computer — — Accounts payable balances due to related parties are as follows. December 31, 2014 December 31, 2015 Accounts payable due to related parties Shanda Network Payables to Shanda Network as of December 31, 2015 related to technical service fees and payables related to purchase of computer servers, as described under Note B above. Payables to Shanda Network for technical service fees in 2014 were partially forgiven by Shanda Network as to repayment, as described under Note C above. The balances for a loan due to a related party are as follows. December 31, 2014 December 31, 2015 Related party loan Shanda Computer — — December 31, 2014 December 31, 2015 Accrued expenses due to related parties Shanda Computer — — On February 2, 2015, the Group entered into a related party loan agreement with Mr. Xu, pursuant to which Mr. Xu agreed to provide a loan of RMB30.0 million ( $ 4.8 million ) to the Group. The term of the loan was one year, with a maturity date of February 2, 2016, with principal and accrued interest repayable at maturity. The loan bore interest at a rate of 6.5% per annum. The Group received the loan principal from Mr. Xu on March 4, 2015. Due to the the Share Re-Acquisition Transaction conducted by Shanda Media and Mr. Xu in May 2015, Mr. Xu transferred all of the rights and obligations relating to the shareholder’s loan to Shanda Computer on May 12, 2015 in exchange for a payment of RMB 30.3 million, representing principal and accrued unpaid interest, making Shanda Computer the counterparty to the related party loan. The terms of and the rate associated with the loan were not changed. Subsequent to December 31, 2015, the loan’s maturity was extended (Note 20). Interest payable to Shanda Computer amounting to $253,365 was all related to the related party loan and was reflected within accrued expenses as of December 31, 2015. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2015 | |
INCOME TAXES | |
INCOME TAXES | 1 2 . INCOME TAXES The Company is a tax exempted company incorporated in the Cayman Islands. The Subsidiaries or VIEs in the PRC are subject to PRC Enterprise Income Tax at a corporate income tax rate of 25%. There are no reduced tax rates afforded to the Group’s PRC entities. Provision (benefit) for income taxes is as follows for each annual period. Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Current income tax expense (benefit) — — — Deferred income tax expense (benefit) ) — — ) — — During the year ended December 31, 2013, the deferred tax benefit recognized related to the derecognition of remaining deferred tax liabilities associated with the Group’s full impairment of remaining intangible assets (Note 5). The principal components of deferred taxes are as follows. December 31, 2014 December 31, 2015 Current deferred tax assets: Cost and expense accruals Revenue recognition Less: valuation allowance ) ) Current deferred tax assets, net — — Non-current deferred tax assets: Depreciation and amortization Net operating loss carry forwards Less: valuation allowance ) ) Non-current deferred tax assets, net — — A reconciliation between the PRC statutory income tax rate of 25% and the Company’s effective tax rate is as follows. The primary driver of the Company’s effective tax rate is the adjustments to the valuation allowance for deferred tax assets that are, as assessed under ASC 740, likely to not be realized in the foreseeable future. The primary drivers of the Company’s effective tax rate for 2013 are non-deductible impairment charges for intangible assets and goodwill (Notes 5 and 7), as well as the derecognition of deferred tax liabilities in relation thereto which is included in the preceding table containing the components of current and deferred tax expense (benefit). Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Statutory tax rate % % % Differential statutory tax rates )% )% )% Non-deductible expenses )% )% )% Change in deferred tax liabilities % — — Change in valuation allowance )% )% )% Effective tax rate % % % The movements of valuation allowances were as follows: Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 At beginning of year ) ) ) Current year additions ) ) ) Current year reversals — Effect of exchange rate changes ) ) ) ) At December 31, 2014 and 2015, tax loss carry forwards (on a gross basis prior to measurement via the tax rate) amounted to approximately $88.1 million and $54.6 million, respectively, which will expire in various years through 2018. The Group’s tax loss carry forwards exist only in the PRC, where the carry forward period is limited to five years. The Group determines whether or not a valuation allowance is required at the level of each taxable entity within a tax jurisdiction. A valuation all owance of $ 23,863,461 and $ 16,606,440 has been estab lished as of December 31, 2014 and 2015, respectively, in respect of all deferred tax assets as it is considered more likely than not that all of the Group’s deferred tax assets will not be realized in the foreseeable future. During 2014 and 2015, reversals of the valuation allowance related solely to the expiry of carried-forward tax losses. As noted in Note 2(23), the Company accounts for the financial statement effects of uncertain tax positions under the provisions of ASC 740-10. At December 31, 2014 and 2015, there were no liabilities for unrecognized tax benefits as the Company did not have any significant uncertain tax positions requiring recognition and measurement under ASC 740-10. In accordance with the PRC EIT Law, dividends which arise from profits of foreign invested enterprises (“FIEs”) are subject to a 10% withholding income tax if and when remitted. Since there are no undistributed earnings of the Group’s subsidiaries located in the PRC that are available for distribution given the accumulated loss positions of the Group’s subsidiaries, no provision has been made for withholding taxes. Further, the Group does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future and intends to retain most of its available funds and any future earnings for use in the operation and expansion of its business in the PRC. |
REPURCHASE OF SHARES
REPURCHASE OF SHARES | 12 Months Ended |
Dec. 31, 2015 | |
REPURCHASE OF SHARES | |
REPURCHASE OF SHARES | 1 3 . REPURCHASE OF SHARES Pursuant to a share repurchase program announced December 30, 2011, the Company’s Board of Directors authorized the Company to repurchase up to $3.2 million of its outstanding ADSs from time to time, based on market conditions. In 2013, the Company repurchased a total of 57,982 ADSs for aggregate consideration of $58,147 from unrelated third parties, at a weighted average price of $1.00 per ADS. The excess of the repurchase price above par value was charged to additional paid-in capital. In 2014 and 2015, the Company did not repurchase any ADSs. |
EQUITY COMPENSATION PLANS
EQUITY COMPENSATION PLANS | 12 Months Ended |
Dec. 31, 2015 | |
EQUITY COMPENSATION PLANS | |
EQUITY COMPENSATION PLANS | 1 4 . EQUITY COMPENSATION PLANS 2004 Share Incentive Plan Ku6 Media’s 2004 Share Incentive Plan (“2004 Plan”) allows the Company to offer incentive awards to employees, directors, consultants or external service advisors of the Company. Under the terms of the Plan, options were generally granted at prices equal to or greater than the fair market value on the grant date, expire 10 years from the date of grant, and generally vest over 3 - 4 years. Stock options under these plans were all granted prior to 2006 and as of January 1, 2006 all granted stock options were vested. There were 1,620,000 and zero options outstanding as of December 31, 2014 and 2015, respectively. Pursuant to the resolution of the Company’s Board on December 3, 2010, the 185,550,800 remaining ordinary shares available for future grants under the 2004 Plan were terminated and unavailable for future use. The remaining options as of December 31, 2014 expired in early 2015 unexercised. Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value $ $ Outstanding at January 1, 2013 — Granted — — — — Exercised — — — — Cancelled or Expired ) — — Outstanding at December 31, 2013 — Granted — — — — Exercised — — — — Expired ) — — Outstanding at December 31, 2014 — Granted — — — — Exercised — — — — Expired ) — — Outstanding at December 31, 2015 — — — — The aggregate intrinsic values are calculated as the differences between the market values of $0.0282, $0.0100 and $0.0086 of ordinary shares as of December 31, 2013, 2014 and 2015, respectively, and the exercise prices. There were no options exercised during the years ended December 31, 2013, 2014 and 2015. 2010 Equity Compensation Plan — share options In December 2010, the Company authorized an equity compensation plan (“2010 Equity Compensation Plan”) that provides for issuance of options to purchase up to 698,381,300 ordinary shares of the Company. Under the 2010 Equity Compensation Plan, the directors may, at their discretion, grant any officers (including directors) and employees of the Company and/or its subsidiaries, and individual consultant or advisor (i) options to subscribe for ordinary shares, (ii) share appreciation rights to receive payment, in cash and/or the Company’ ordinary shares, equal to the excess of the fair market value of the Company’ ordinary shares, or (iii) other types of compensation based on the performance of the Company’ ordinary shares. On May 7, 2013, the Company granted stock options to purchase up to 254,100,000 ordinary shares under the 2010 Equity Compensation Plan at an exercise price of $0.0103 per share to its employees and senior management. Of all the stock options granted, 140,000,000 were granted to senior management of the Company, 50,600,000 were granted to employees of the Company, and 63,500,000 were granted to senior management and employees of Shanda. The contract term of the options is six years. On June 3, 2013, the Company granted stock options to purchase up to 69,800,000 ordinary shares under the 2010 Equity Compensation Plan at an exercise price of $0.0113 per share to its senior management. The contract term of the options is six years. There were no options granted in 2014. On July 17, 2015, the Company granted stock options to purchase up to 137,400,000 ordinary shares under the 2010 Equity Compensation Plan at an exercise price of $0.0108 per share to its employees. The contract term of the options is six years. The options granted to directors and employees vest over a four year period, with 25% of the options to vest on each of the first, second, third and fourth anniversaries of the grant date as stipulated in the stock option agreements. Options which were granted to senior management prior to 2013 vest in 16 instalments. The first 2 of 16 instalments - options earned in the first two quarters after the grant date - shall vest and become exercisable at the first anniversary of the grant date. There are no performance conditions attached to the first 2 instalments. For each quarter during the four-year period after the grant date (the “Performance Period Start Date”), one 1/16th instalment of the total options have the opportunity to be earned for each quarter contingent on the achievement of positive quarterly operating income for the quarter, provided the aggregate number of options earned in the Performance Period shall not exceed 14 of the 16 instalments comprising the total options granted. On each of the first, fourth, eighth and twelfth quarter earnings release dates from the first quarter of the Performance Period, all of the earned options during the four quarters preceding such earnings release date shall vest and become exercisable, in each case, provided that the employment with the Company remains on such vesting date. The options granted to senior management in 2013 vest over a four year period, with 25% of the options to vest on each of the first, second, third and fourth anniversaries of the grant date as stipulated in the stock option agreements. Option Modification On December 11, 2013, the Board of Directors approved option modifications to modify the vesting conditions of certain outstanding options (granted to senior management) that were granted by the Company under the 2010 Equity Compensation Plan. The modifications waived the performance conditions attributable to the periods from the third quarter of 2011 to the third quarter of 2013, resulting in 60% of the options attributable to that period immediately vesting. Simultaneously, the performance condition was eliminated from the fourth quarter of 2013 prospectively. Other terms of the option grants remain unchanged. All eligible option grantees affected by such changes entered into amendments to their original share option agreements. The effect of the modification on the estimated fair value of the options was computed under relevant U.S. GAAP; the modifications resulted in total incremental compensation cost of $0.37 million, of which $0.18 million was recorded during the year ended December 31, 2013 for options that were fully vested. The remaining $0.19 million is being amortized over the remaining vesting periods of the respective options. In accordance with ASC Topic 718, the Company recognizes share-based compensation expense for the options granted to directors and employees as well as the options to senior management vested only based on passage of time and continued employment with the Company, net of a forfeiture rate, using the straight-line method. For the options granted to senior management earned contingent on the achievement of quarterly performance targets, the Company recognized share-based compensation expense for the options earned in each quarter during the Performance Period using the graded-vesting attribution method when the Company concluded that it was probable that the performance targets would be achieved, net of a forfeiture rate. Share-based compensation expense related to the stock options granted by the Company to its employees, senior management and directors under the 2010 Equity Compensation Plan amounted to $1,023,871, $600,995 and $258,454 for the years ended December 31, 2013, 2014 and 2015, respectively. Share-based compensation costs related to the option awards granted by the Company to senior management and employees of Shanda under the 2010 Equity Compensation Plan amounted to $ 52,888, $15,475 and $ 20,243 for the years ended December 31, 2013, 2014 and 2015, respectively and were recognized as dividends distributed to Shanda. The movements in stock options under the 2010 Equity Compensation Plan as of and for the years ended December 31, 2013, 2014 and 2015 are set out below. Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value $ $ Outstanding at January 1, 2013 — Granted — — Exercised ) — Cancelled or expired ) — — Outstanding at December 31, 2013 Granted — — — — Exercised ) — Forfeited ) — — Outstanding at December 31, 2014 — Granted — — Exercised ) — Forfeited ) — — Outstanding at December 31, 2015 — Vested and expected to vest at December 31, 2015 — Vested and exercisable at December 31, 2015 — The intrinsic values as of December 31, 2013, 2014 and 2015 are calculated as the differences between the market values of $0.0282 , $0.0100 and $0.0086 of ordinary shares as of December 31, 2013, 2014 and 2015 and the exercise prices of the options. The weighted average grant-date fair value of options granted during the years ended December 31, 2013, 2014 and 2015 were $0.0071, nil and $0.0057, respectively. Options vested during the years ended December 31, 2014 and 2015 were 51,602,500 and 34,232,500, respectively. As of December 31, 2015, there was $ 0.79 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to stock options granted by the Company to its employees, senior management and directors under the 2010 Equity Compensation Plan. This cost is expected to be recognized over a weighted average period of 1.55 years. Total compensation cost may be adjusted for future changes in estimated forfeitures. The Black-Scholes option pricing model is used to determine the fair value of the stock options granted under the 2010 Equity Compensation Plan. The Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility and the sub-optimal early exercise factor. The risk-free rate for periods within the contractual lives of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The fair values of stock options were estimated using the following weighted-average assumptions: Options Granted in 2013 Options Granted in 2014 Options Granted in 2015 Fair value of ordinary shares ($) 0.0106~0.0131 — Exercise price ($) 0.0103~0.0113 — Expected volatility (%) % — % Expected dividend yield (%) % — % Expected term (years) — Risk-free interest rate (per annum) (%) 1.3445%~1.3843% — % (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. 2010 Equity Compensation Plan — restricted shares On June 17, 2015, the Company granted 62,600,000 restricted shares to the Company’s employees under the Company’s 2010 Equity Compensation Plan. The awards vest in equal installments over four years from the grant date, subject to the employee’s continued employment with the Group, as the case may be. Share-based compensation expense related to the restricted share awards granted by the Company under the 2010 Equity Compensation Plan amounted to $23,489 for the year ended December 31, 2015. The restricted shares granted to the employees of the Company were measured at fair value at the grant date in the amount of $538,360. The movements in restricted shares under the 2010 Equity Compensation Plan as of and for the year ended December 31, 2015 are set out below. There were no grants prior to 2015. Outstanding Awards Weighted Average Exercise Price $ Outstanding at December 31, 2014 — — Granted Exercised — — Forfeited ) Outstanding at December 31, 2015 Vested and expected to vest at December 31, 2015 As of December 31, 2015, there was $0.33 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to restricted shares granted by the Company to employees under the 2010 Equity Compensation Plan, which will be recognized as expense over a weighted average period of 3.55 years. |
SEGMENT INFORMATION
SEGMENT INFORMATION | 12 Months Ended |
Dec. 31, 2015 | |
SEGMENT INFORMATION | |
SEGMENT INFORMATION | 1 5 . SEGMENT INFORMATION The Company follows the provisions of ASC 280, which establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Group has only one operating segment made up of the Company’s advertising and promotional marketing services business (“Advertising Services”), which is presented in the consolidated statement of operations and comprehensive loss. Geographic Information The Company primarily operates in the PRC and derives all of its revenues (see Note 17 for revenue information) from the PRC; all of the Company’s long-lived assets are located in the PRC. |
NET LOSS PER SHARE
NET LOSS PER SHARE | 12 Months Ended |
Dec. 31, 2015 | |
NET LOSS PER SHARE | |
NET LOSS PER SHARE | 1 6 . NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share (1 ADS = 100 Shares): Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Numerator: Net loss ) ) ) Denominator: Weighted-average ordinary shares outstanding for basic calculation Dilutive effect of potential ordinary shares — — — Weighted average ordinary shares outstanding for diluted calculation Weighted-average ADS used in per basic ADS calculations Dilutive effect of potential ADS — — — Weighted-average ADS used in per diluted ADS calculations Loss per share — basic and diluted Net loss per share — basic and diluted ) ) ) Loss per ADS — basic and diluted Net loss per ADS — basic and diluted ) ) ) Incremental ordinary shares with dilutive effect are calculated using the treasury stock method for stock options and restricted stock. Under the treasury stock method, the proceeds from the assumed conversion of options are used to repurchase outstanding ordinary shares using the average fair value for the period. For all periods presented, all potentially dilutive securities associated with the Company’s stock options and restricted stock (Note 14) have not been reflected in the dilutive calculations due to the presence of a net loss in each period as the inclusion of such potential common shares would be anti-dilutive. |
CONCENTRATIONS
CONCENTRATIONS | 12 Months Ended |
Dec. 31, 2015 | |
CONCENTRATIONS | |
CONCENTRATIONS | 1 7 . CONCENTRATIONS (1) Revenue concentrations, including related party revenues In 2013, 2014, and 2015, revenues of $13.1 million, $7.0 million, and $9.9 million were derived from online advertising services (Note 2(16)). In 2013, 2014, and 2015, revenues of nil, $1.61 million, and $0.12 million were derived from promotional marketing services (Note 2(16)). Under agreements with Shengyue (Note 1), Shengyue was previously appointed as the Group’s primary agent to secure advertisement sales from various end advertisers. In 2013, 2014 and 2015, 94.4%, 31.5% and nil of net revenues, respectively, were derived from Shengyue. Refer to Note 11 for discussion of receivables due from Shengyue at December 31, 2014 and 2015. Under a new advertising agency agreement with Huzhong consummated on August 29, 2014, Huzhong was appointed as the Group’s primary agent to secure advertisement sales from various end advertisers. In 2014 and 2015, 32.4 % and 87.1%, resepectively, of net revenues were derived from Huzhong. ( 2 ) Credit risk Accounts receivable are unsecured and are derived from revenue earned from customers and agencies in China. The risk with respect to accounts receivables is mitigated by credit evaluations the Company performs on its customers and its ongoing monitoring process of outstanding balances. December 31, 2014 December 31, 2015 Accounts receivable Allowance for doubtful accounts ) ) Accounts receivable, net of allowance for doubtful accounts The movements of the allowance for doubtful accounts were as follows: Mo vement of allowance for doubtful accounts Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Balance at beginning of the year Provisions — — Reversed ) ) — Accounts written off ) ) — Translation difference ) ) Balance at the end of the year In 2013 and 2014, based on continued collections efforts on the doubtful receivables, $0.3 million and $0.05 million of amounts previously written down were collected; accordingly, reversal adjustments were recorded. No allowance or reversal adjustments were made in 2015. |
MAINLAND CHINA CONTRIBUTION PLA
MAINLAND CHINA CONTRIBUTION PLAN | 12 Months Ended |
Dec. 31, 2015 | |
MAINLAND CHINA CONTRIBUTION PLAN | |
MAINLAND CHINA CONTRIBUTION PLAN | 18 . MAINLAND CHINA CONTRIBUTION PLAN Full time employees of the Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to accrue for these benefits based on certain percentages of the employees’ salaries. The total amounts charged to the statements of operations and comprehensive loss for such employee benefits were $ 1,816,719, $1,059,305 and $629,238 for the years ended December 31, 2013, 2014 and 2015, respectively. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2015 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | 19 . COMMITMENTS AND CONTINGENCIES Operating lease commitments The Company entered into leasing arrangements relating to office area and internet bandwidth in 2013, 2014 and 2015. Leasing expenses for the years ended December 31, 2013, 2014 and 2015 were $9,175,500, $8,367,927 and $6,030,705, respectively. Future minimum lease payments under non-cancellable operating lease agreements are as follows: Within 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years — Total Litigation The Group is subject to claims and litigation, which may arise in the normal course of business. The Group is involved in a number of cases pending in various courts and arbitration as of December 31, 2015. These cases are substantially related to alleged copyright infringement. Adverse results in these lawsuits may include awards of damages and may also result in, or even compel, a change in the Group’s business practices, which could impact the Group’s future financial results. The Group has recorded an accrual balance of $1,002,284 in “Accrued expenses and other liabilities” in the consolidated balance sheet as of December 31, 2015 (Note 9). The accrual was based on judgments handed down by courts and out-of-court settlements and related to alleged copyright infringement arising before December 31, 2015. The accrual is based upon management’s best estimation according to the historical actual compensation amount per video of the Group for similar legal actions and advice from PRC counsel. The Group also considers the frequency and pattern of claims for infringement and the fact that claims are often submitted, and judgments rendered, long after the alleged underlying infringement activity occurred. Furthermore, while claims for alleged infringement may be term limited in certain cases, parties alleging infringement may be able to renew their claims by re-filing them upon expiry, leading to continuation of the claim resolution process. The Group is in the process of appealing certain judgments for which the loss has been accrued. During the year ended December 31, 2015, management of the Group re-evaluated the accrued litigation provision related to alleged copyright infringement and revised its estimates based upon favourable resolution experience and the pattern of incidence of new claims; this revision resulted in a de-recognition of $584,008 of amounts previously accrued, which was recorded as a reduction to general and administrative expenses. A rollforward of the Group’s accrued litigation provision related to alleged copyright infringement is as follows. Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 At beginning of year Current year additions (reversals) ) ) Payments during the year ) ) ) Balance at end of year There are no accruals for any additional losses related to unasserted claims or any other amounts. Contingencies The Group accounts for loss contingencies in accordance with ASC 450, “ Contingencies ”, and other related guidance. Set forth below is a description of certain loss contingencies as well as the opinion of management as to the likelihood of loss. Current PRC laws and regulations place certain restrictions on foreign ownership of companies that engage in Internet business, including the provision of online video and online advertising services. Specifically, foreign ownership in an Internet content provider or other value-added telecommunication service providers may not exceed 50%. Since the Company is incorporated in the Cayman Islands, neither the Company nor its PRC subsidiary is eligible to engage in Internet business. To comply with PRC laws and regulations, the Company conducts its operations in China through a series of contractual arrangements entered into among its wholly owned PRC subsidiaries, Beijing Technology, Tianjin Technology and Kusheng (collectively “PRC subsidiaries”), and the consolidated affiliated entities in the PRC, namely Ku6 Beijing Information, Tianjin Information, Ku6 Culture and Ku6 Network (collectively “VIEs”) and their respective shareholders. Under the equity pledge agreements among the PRC subsidiaries, the VIEs and the shareholders of the VIEs, the shareholders have pledged all of their equity interests to the PRC subsidiaries by recording the pledges on the shareholders’ registers of the respective entities. However, according to the PRC Property Rights Law, a pledge is not valid unless it is registered with the relevant local administration for industry and commerce; such registration has been accomplished for all of the Group’s VIEs. Ku6 Beijing Information, Tianjin Information, Ku6 Culture and Ku6 Network hold the licenses and permits necessary to conduct the Group’s online video, online advertising and related businesses in China. In the opinion of management, (i) the ownership structure of the Group, its PRC subsidiaries and the VIEs in the PRC are in compliance with existing PRC laws and regulations; (ii) the contractual arrangements with the VIEs in the PRC are valid and binding, and will not result in any violation of PRC laws or regulations currently in effect; and (iii) the Company’s business operations are in compliance with existing PRC laws and regulations in all material respects. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to its opinion. If the current ownership structure of the Company and its contractual arrangements with the consolidated affiliated entities in the PRC were found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its ownership structure and operations in the PRC to comply with the changing and new PRC laws and regulations. Under PRC Ministry of Commerce (“MOFCOM”) security review rules promulgated in September 2011, a national security review is required for certain mergers and acquisitions by foreign investors raising concerns regarding national defense and security. Foreign investors are prohibited from circumventing the national security review requirements by structuring transactions through proxies, trusts, indirect investment, leases, loans, control through contractual arrangements, or offshore transactions. Management has concluded there is no need to submit the existing contractual arrangements with the consolidated affiliated entities in the PRC and their shareholders to the MOFCOM for national security review based upon analysis of the rules. However, there are substantial uncertainties regarding the interpretation and application of the MOFCOM security review rules, and any new laws, rules, regulations or detailed implementation measures in any form relating to such rules. Therefore, the Company cannot be assured that the relevant PRC regulatory authorities, such as the MOFCOM, would not ultimately take a contrary view to the opinion of management and the Company’s PRC legal counsel. If the MOFCOM or other PRC regulatory authority determines that the Company needs to submit the existing contractual arrangements with the consolidated affiliated entities in the PRC and their shareholders for national security review, the Company may face sanctions by the MOFCOM or other PRC regulatory authority, which may include, among others, requiring the Company to restructure its ownership structure, discontinuation or restriction of operations in the PRC, or invalidation of the agreements that the wholly owned PRC subsidiaries have entered into with the consolidated affiliated entities in the PRC and their shareholders. MOFCOM published a discussion draft of a proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. MOFCOM is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of the Group’s current corporate structure, corporate governance and business operations in many aspects. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the Ministry of Commerce, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. In this connection, “foreign investors” refers to the following subjects making investments within the PRC: (i) natural persons without PRC nationality; (ii) enterprises incorporated under the laws of countries or regions other than China; (iii) the governments of countries or regions other than the PRC and the departments or agencies thereunder; and (iv) international organizations. Domestic enterprises under the control of the subjects as mentioned in the preceding sentence are deemed foreign investors, and “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding, directly or indirectly, not less than 50% of shares, equities, share of voting rights or other similar rights of the subject entity; (ii) holding, directly or indirectly, less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to materially influence the board, the shareholders’ meetings, or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a catalogue of “special administrative measures,” which is classified into the “catalogue of prohibitions” and “the catalogue of restrictions”, to be separately issued by the State Council later. Foreign investors are not allowed to invest in any sector set forth in the catalogue of prohibitions. However, unless the underlying business of the FIE falls within the catalogue of restrictions, which calls for market entry clearance by MOFCOM, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE. The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including the Group, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. Under the draft Foreign Investment Law, variable interest entities that are controlled via contractual arrangements would also be deemed FIEs if they are ultimately “controlled” by foreign investors. Therefore, for any companies with a VIE structure in an industry category that is on the “catalogue of restrictions,” the VIE structure may be deemed a domestic investment only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as FIEs and any operation in the industry category on the “catalogue of restrictions” without market entry clearance may be considered illegal. The draft Foreign Investment Law has not taken a position on what actions shall be taken with respect to the existing companies with a VIE structure, whether or not these companies are controlled by Chinese parties, and MOFCOM is soliciting comments from the public on this point. Moreover, it is uncertain whether the industry in which our variable interest entities operate will be subject to the foreign investment restrictions or prohibitions set forth in the “catalogue of special administrative measures” to be issued. If the enacted version of the Foreign Investment Law and the final “catalogue of special administrative measures” mandate further actions, such as MOFCOM providing market entry clearance, to be completed by companies with an existing VIE structure like the Group, the Group faces uncertainties as to whether such clearance can be timely obtained, or at all. The draft Foreign Investment Law, if enacted as proposed, may also materially impact the Group’s corporate governance practices and increase compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from an investment information report required at each investment, and investment amendment reports, which shall be submitted upon changes to investments, it is mandatory for entities established by foreign investors to submit an annual report, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities. With respect to the aforementioned security review rules and draft Foreign Investment Law, and any other matters creating uncertainty regarding VIEs, the Group may not be able to operate or control its business in the same manner as it currently does, and therefore, may not be able to consolidate the affiliated entities in the PRC. In addition, the relevant regulatory authorities would have broad discretion in dealing with such violations which may adversely impact the financial statements, operations and cash flows of the Group (including restrictions on carrying out business). If the VIEs in the PRC and their shareholders fail to perform their respective obligations under the current contractual arrangements, the Group may have to incur substantial costs and expend significant resources to enforce those arrangements and rely on legal remedies under PRC laws. The PRC laws, rules and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws, rules and regulations involve substantial uncertainties. These uncertainties may impede the ability of the Group to enforce these contractual arrangements, or suffer significant delay or other obstacles in the process of enforcing these contractual arrangements and may materially and adversely affect the results of operations and the financial position of the Group. In the opinion of management, the likelihood of loss in respect of the Group’s current ownership structure or the contractual arrangements with the VIEs in the PRC is remote. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2015 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | 20. SUBSEQUENT EVENTS Failure to meet certain NASDAQ listing requirements The Group’s ADSs are traded on the NASDAQ Global Market. Requirements that the Group must meet in order to remain listed thereon include maintaining a minimum bid price of $1.00 per share and a minimum $50.0 million market value. In February 2016, the Group received formal notice from NASDAQ that it had failed to comply with the minimum market value requirements, and a hearing was subsequently held on March 31, 2016. A further decision has yet to be communicated by, and received from, NASDAQ in relation to this matter. Actions taken by NASDAQ could ultimately lead to the delisting of the Group’s ADSs from NASDAQ. While this determination is subject to appeal, the possibility remains that the Group’s ADSs could be delisted. Going-private transaction On February 1, 2016, the Group received a preliminary non-binding proposal letter (the “Proposal”) from Shanda Interactive Entertainment Limited (“Shanda”), the controlling shareholder of the Company. According to the Proposal, Shanda proposes to acquire the Group in a “going private” transaction for US$0.0108 per ordinary share, or US$1.08 per ADS. According to the Proposal, the offer price represents a premium of 54% over the closing price of the Group’s ADSs on January 29, 2016, a premium of 42% over the average closing price of its ADSs during the last 30 trading days and a premium of 52% over the average closing price of its ADSs during the last 60 trading days. According to the Proposal, the proposed transaction is intended to be financed with available cash of Shanda. On February 2, 2016, the Group’s Board of Directors formed a special committee (the “Special Committee”) of three independent directors who are not affiliated with Shanda to evaluate the Proposal. The Special Committee retained its own independent financial advisor and legal counsel to assist it in its evaluation. The Special Committee recommended proceeding with the going-private transaction. On April 5, 2016, the Group entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Shanda Investment Holdings Limited (“Shanda Holdings”) and Ku6 Acquisition Company Limited, a wholly-owned subsidiary of Shanda Holdings (“Merger Sub”). Pursuant to the Merger Agreement, Shanda Holdings will acquire the ordinary shares of the Company not already owned by Shanda Holdings for cash consideration equal to US$0.0108 per ordinary share or US$1.08 per ADS. As of the date of the Merger Agreement, Shanda Holdings beneficially owned approximately 69.9% of the Company’s issued and outstanding ordinary shares. The Group’s Board of Directors, acting upon the unanimous recommendation of the Special Committee, approved the Merger Agreement and resolved to recommend that the Company’s shareholders vote to authorize and approve the Merger Agreement and the transactions contemplated thereby, including the merger. The Special Committee negotiated the terms of the Merger Agreement with the assistance of its financial advisor and legal counsel. The going-private transaction is currently expected to close in the second half of 2016. If completed, the going-private transaction will result in the Group being privately-held and its de-listing from NASDAQ. There can be no assurance this transaction will occur, and uncertainty regarding the consummation of the transaction or its terms may impact the Group’s ability to procure financing or carry out other business activities. Disposal of Beijing Modo On January 25, 2016, the Group entered into an agreement with a private Chinese citizen (“the transferee”), pursuant to which the Group transferred all of its 30% equity in Beijing Modo (Note 6) to the transferee for total consideration of RMB3.0 million ($0.46 million). The transferee paid RMB2.0 million ($0.31 million) to the Group in January 2016 and the remaining RMB1.0 million ($0.15 million) was settled on March 22, 2016. The Group procured necessary consents from the co-investors in Beijing Modo to effect the sale of the equity interest. This sale will result in the recognition of a disposal gain in the Group’s financial statements for the first quarter of 2016. Repayment and extension of related party loan On January 8, 2016, the Group repaid RMB 1.95 million ($0.31 million) of the loan payable to Shanda Computer (Note 11). On March 2, 2016, the Group entered into a loan agreement in respect of the same related party loan with Shanda Computer, pursuant to which Shanda Computer agreed to extend the maturity date of the loan to September 3, 2016. In January 2016, Shanda Technology extended a loan of $0.3 million to the Group, effectively refinancing the amount previously due to Shanda Computer. The term of the loan is one year, and the loan bears interest at a rate of 6.5% per annum. The Group received the monies from Shanda Technology on January 8, 2016. 2010 Equity Compensation Plan and 2016 Equity Compensation Plan In March 2016, the Group terminated the 2010 Equity Compensation Plan, which became effective in December 2010. In March 2016, the Board of Directors of the Group adopted a 2016 Equity Compensation Plan which became effective in March 2016. There was no impact to the Group’s existing equity incentive awards. |
RESTRICTED NET ASSETS
RESTRICTED NET ASSETS | 12 Months Ended |
Dec. 31, 2015 | |
RESTRICTED NET ASSETS | |
RESTRICTED NET ASSETS | 21 . RESTRICTED NET ASSETS Relevant PRC laws and regulations permit PRC companies to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, the Company’s VIE subsidiaries can only distribute dividends upon approval of the shareholders after they have met the PRC requirements for appropriation to statutory reserves. The statutory general reserve fund requires annual appropriations of 10% of net after-tax income to be set aside prior to payment of any dividends. As a result of these and other restrictions under PRC laws and regulations, the PRC subsidiaries and affiliates are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances, which restricted portion amounted to approximately $31.5 million, which was in excess of the Group’s total consolidated net assets as of December 31, 2015. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries and affiliates for working capital and other funding purposes as all business is principally conducted inside the PRC, the Company may in the future require additional cash resources from its PRC subsidiaries and affiliates due to changes in business conditions, to fund future acquisitions and developments, or to declare and pay dividends to or distributions to the Company’s ordinary shareholders. Accordingly, the Company has included Schedule I in accordance with Regulation S-X promulgated by the United States Securities and Exchange Commission. |
ADDITIONAL INFORMATION - CONDEN
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS | 12 Months Ended |
Dec. 31, 2015 | |
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS | |
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS | 22 . ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS The following condensed financial statements have been prepared in accordance with SEC Regulation S-X Rules 5-04 and 12-04. The financial information of the parent company, Ku6 Media Company Limited, has been prepared using the same accounting policies as set out in the preceding footnotes to the consolidated financial statements except that the Company records its investment in subsidiaries under the equity method of accounting. Such investment and long-term loans to subsidiaries are presented on the balance sheet as “Investment in subsidiaries” and the profit of the subsidiaries is presented as “Equity in losses of subsidiaries” on the statement of operations. These statements should be read in conjunction with the preceding notes to the consolidated financial statements of the Group. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. As of December 31, 2014 and 2015, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements of the Group, if any. December 31, 2014 December 31, 2015 (in U.S. dollars, except number of shares) Assets Current assets: Cash and cash equivalents Prepaid expenses and other current assets Amount due from related parties — Total current assets Investments in subsidiaries Total assets Liabilities and shareholders’ deficit Accrued expenses and other current liabilities Amounts due to subsidiaries and variable interest entities Total current liabilities Shareholders’ deficit: Ordinary shares ($0.00005 par value; 12,000,000,000 shares authorized; 4,763,360,860 and 4,771,610,860 shares issued and outstanding as of December 31, 2014 and 2015, respectively) Additional paid-in capital Accumulated deficit ) ) Accumulated other comprehensive loss ) ) Total shareholders’ deficit ) ) Total liabilities and shareholders’ deficit FINANCIAL INFORMATION OF KU6 MEDIA CO., LTD. CONDENSED STATEMENTS OF OPERATIONS Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 (in U.S. dollars, except number of shares) Operating expenses: Product development — Selling and marketing General and administrative Total operating expenses Loss from operations ) ) ) Interest income Interest expense — — — Other (expense) / income ) Foreign exchange ( loss) / gain ) ) Equity in losses of subsidiaries ) ) ) Net loss ) ) ) FINANCIAL INFORMATION OF KU6 MEDIA CO., LTD. CONDENSED STATEMENTS OF CASH FLOWS Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 (in U.S. dollars, except number of shares) Operating activities: Net loss ) ) ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Share-based compensation Provision for Seed Music receivable (related party) — — Exchange gains ) — — Equity in losses of subsidiaries Changes in operating assets and liabilities: Prepaid expenses and other current assets Amount due from related parties ) Accrued expenses and other current liabilities ) Amounts due to subsidiaries and variable interest entities — — Net cash provided by (used in) operating activities ) ) Investing activities: Loan to subsidiaries ) — — Repayment of loans from related parties under common control of Shanda — Net cash provided by (used in) investing activities ) — Financing activities: Proceeds from exercise of options Repurchase of ordinary shares ) — — Net cash provided by (used in) financing activities ) Effect of exchange rate changes on cash and cash equivalents — — — Net increase (decrease) in cash and cash equivalents ) ) Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year |
SUMMARY OF SIGNIFICANT ACCOUN31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of presentation; liquidity and going concern | (1) Basis of presentation; liquidity and going concern The accompanying consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Significant accounting estimates reflected in the Company’s financial statements include allowances for doubtful accounts, assessments of impairment for long-lived assets and investments in affiliates, useful lives for property and equipment, share-based compensation expense, loss contingencies, and the amortization period for a long-term service obligation to a related party affiliate. Actual amounts may differ from these estimates under different assumptions or conditions. The Group has incurred significant net losses and negative cash flows from operations in each of the three most recent years. As of December 31, 2015, the Group had cash and cash equivalents of $7.7 million, had an accumulated deficit of $189.1 million, reported a working capital deficit of $6.0 million, and had negative operating cash flows of $1.5 million for the year then ended. Following several years of gross losses, the Group generated gross profit in 2015; however, the Group continues to generate operating losses and net losses. Despite the trend of improvement towards reduced losses, substantial doubt exists as to the Group’s ability to continue as a going concern, primarily due to (a) uncertainties associated with the amount of and growth in revenues from (i) an advertising agency agreement with Huzhong, the Company’s new third party advertising agent since late August 2014 and (ii) other sources; and (b) uncertainties as to the availability and timing of additional financing with terms acceptable to the Company. A shift towards generation of operating cash inflows is dependent upon successful execution with respect to growth in revenues, diversification of revenue sources, and continued reduction of controllable costs. The Group expects to derive its 2016 revenues from Huzhong. Revenue amounts and growth in revenues depend on achievement of the guaranteed amounts of web traffic per day and contractual terms agreed to with Huzhong. There is no assurance that the Group will be able to negotiate and procure additional financing from related parties, or from third parties, as was recently carried out with a related party loan procured from Mr. Xu which was subsequently re-financed via an affiliate of Shanda. In order to reduce operating cash outflows, the Group reduced its headcount by approximately 40% in various departments in April 2014. The Group has also taken other cost reduction measures, including improving the efficiency of its network to reduce infrastructure costs, reducing capital expenditures, and reducing content acquisition costs. The foregoing factors raise substantial doubt about the Group’s ability to continue as a going concern. In order to continue its operations, the Group must generate sufficient revenues, reduce costs, and/or raise more funds to achieve profits and positive cash flows. |
Consolidation | (2) Consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries, and VIEs. All inter-company transactions and balances have been eliminated upon consolidation. Affiliated compan ies in which the Company has partial ownership and controls more than 20% but less than 50% of the investment are accounted for using the equity method of accounting. The Company’s share of earning s (loss es ) of such equity investment s is included in the accompanying consolidated statements of operations and comprehensive loss; the carrying value of such investments was $168,610 as of December 31, 2015 (2014: nil) . The Company follows the guidance relating to the consolidation of VIEs in ASC 810-10, which requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. To comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provide advertising services and hold Internet Content Provider licenses and/or Licenses for Transmission of Audio-Visual Programs through the Internet, the Group conducts substantially all of its advertising business through its VIE s . The paid-in capital balances of VIEs Ku6 Beijing Information, Ku6 Network and Ku6 Culture were funded by the Company through loans extended to authorized individuals (“nominee shareholders”); Tianjin Information was incorporated by Ku6 Beijing Information . The Company has various agreements with its VIEs, through which the Company holds all the variable interests of the VIEs and has the power to direct the activities of the VIEs. Consequently the Company is the primary beneficiary of these VIEs. Details of certain key agreements with the VIEs are as follows. Loan Agreements. Beijing Technology, Kusheng and Tianjin Technology (the “Subsidiaries”) have granted interest-free loans to the nominee shareholders with the sole purpose of providing funds necessary for the equity capital of Ku6 Beijing Information, Ku6 Network and Ku6 C ul ture. The portions of the loans for equity capital are eliminated with the capital of Ku6 Beijing Information, Ku6 Network, and Ku6 Culture in consolidation. The interest-free loans to the nominee shareholders of Beijing Information, Ku6 Network and Ku6 Culture as of December 31, 2015 were RMB 20 million , RMB 10 million and RMB1 million , respectively. Beijing Technology, Kusheng and Ku6 Culture are able to require the nominee shareholders to settle the loan amount through the entire equity interests of Ku6 Beijing Information, Ku6 Network and Ku6 Culture and nominate someone else to hold the shares on Beijing Technology, Kusheng and Ku6 Culture ’s behalf. Proxy Agreements. The nominee shareholders of the VIEs irrevocably appointed the Subsidiaries ’ officers to vote on their behalf on all matters they are entitled to vote on, including matters relating to the transfer of any or all of their respective equity interests in the VIEs, making all the operational and financial decisions, and the appointment of the directors, general managers and other senior management of the VIEs. Equity Interest Pledge Agreements. The nominee shareholders of the VIEs have pledged their respective equity interests in the VIEs as collateral to secure the nominee shareholders’ obligations under other agreements and for the payment by the VIEs under the exclusive business cooperation agreements and the loan agreements. The pledges have been registered with the applicable local branches of the State Administration for Industry and Commerce. The nominee shareholders of the VIEs cannot sell or pledge their equity interests to others without the approval from the Subsidiaries , and the nominee shareholders of the VIEs cannot receive any dividends without the approval of the Subsidiaries . Exclusive Call Option Agreements. The nominee shareholders of the VIEs granted the Subsidiaries the exclusive and irrevocable right to purchase from the nominee shareholders, to the extent permitted under PRC laws and regulations or at the request of the Company, all of the equity interests in these entities for a purchase price equal to the amount of the registered capital or at the lowest price permitted by PRC laws and regulations. The Subsidiaries may exercise such options at any time. In addition, the VIEs and their nominee shareholders agreed that without the Subsidiaries ’ prior written consent, they will not transfer or otherwise dispose of the equity interests or declare any dividends. Exclusive Business Cooperation Agreements. The Subsidiaries are the exclusive provider of technical, consulting and related services and information to the VIEs. Under these arrangements, the Subsidiaries have the unilateral right to charge service fees to the VIEs to recover substantially all of the VIEs’ profits. As a result of the above contractual agreements, the Company determined that it has the power to control the economic activities most significant to the VIEs and is the primary recipient of the economic rewards or risks, as the case may be. As such, the Company consolidates the VIEs as required by ASC 810-10. As of December 31, 2014 and 2015, the assets of the VIEs were as follows: December 31, 2014 December 31, 2015 Cash and cash equivalents Accounts receivable Amounts due from related parties Property and equipment — Investment in affiliates — Deposits and other non-current assets — Total assets These balances are reflected in the Group ’s consolidated financial statements with intercompany transactions eliminated. Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs, and can have assets freely transferred out of the VIEs. Therefore, the Company considers that there is no asset in any of its consolidated VIEs that can be used only to settle obligations of the VIEs, except for registered capital and PRC additional paid-in capital of the VIEs in the amount of $4.8 million as of December 31, 2015 (2014: $ 4.9 million). As all the VIEs are incorporated as limited liability companies under PRC Company Law, creditors thereof do not have recourse to the general credit of the Group for any of the liabilities of the VIEs. As of December 31, 2014 and 2015, the liabilities of the VIEs were as follows: December 31, 2014 December 31, 2015 Accounts payable Amounts due to related parties within the Group Accrued expenses and other current liabilities Other payables due to related parties within the Group Current portion of service obligation to related party affiliate — Total current liabilities Long-term service obligation to related party affiliate — Total liabilities As of December 31, 2015, the total deficit of the VIE subsidiaries was $28.2 million (2014: $27.4 million). For the years ended December 31, 2013, 2014 and 2015, the summarized operations of the VIEs were as follows: Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Net revenue Net profit (loss) ) ) Currently there is no contractual arrangement that requires the Company to provide additional financial support to the VIEs. However, as the Company is conducting online business substantially through the VIEs, the Company has, in the past, provided and will continue to provide financial support to the VIEs considering the business requirements of the VIEs and the Company’s own business objectives in the future, which could expose the Company to a loss. For the year ended December 31, 2015, the net revenue of VIEs included charges from the VIEs to the wholly owned subsidiaries of the Company in the amount of $1.5 million for services provided by the VIEs as requested by the local authorities (2013 and 2014: $2.3 million and $2.6 million). The VIE revenue charge and derecognition of aged operating liabilities resulted in the net profit of the VIEs for the year ended December 31, 2013. Please refer to “Contingencies” under Note 19 for risks relating to the VIE arrangements. |
Significant risks and uncertainties | (3) Significant risks and uncertainties The Group participates in a dynamic high technology industry and believes that , in addition to the factors relating to the substantial doubt regarding going concern, changes in any of the following areas could have a material adverse effect on the Group ’s future financial position, results of operations or cash flows: i) changes in the overall demand for services and products; ii) changes in business offerings; iii) competitive pressures due to new entrants; iv) advances and new trends in new technologies and industry standards; v) changes in bandwidth suppliers; vi) reliance on Huzhong for the Group’s revenue ; vii) regulatory considerations; viii) copyright regulations; and ix) risks associated with the ability to attract and retain employees necessary to support growth. |
Fair value | (4) Fair value The Group follows ASC Topic 820, “ Fair Value Measurements and Disclosures ” . This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under US GAAP, certain assets and liabilities must be measured at fair value, and the guidance details the disclosures that are required for items measured at fair value. Financial assets and liabilities are to be measured and disclosed using inputs from the following three levels of the fair value hierarchy. The three levels are as follows: Level 1 inputs are unadjusted quoted prices in active markets for identical assets that the management has the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 includes unobservable inputs that reflect management’s judgments about the assumptions that market participants would use in pricing the assets or liabilities. Management develops these inputs based on the best information available, including their own data. |
Business combinations and non-controlling interests | (5) Business combinations and non-controlling interests The Group accounts for business combinations using the purchase method of accounting. This method requires that the acquisition cost be allocated to the assets, including separately identifiable intangible assets, and liabilities the Company acquired based on their estimated fair values. The Group follows ASC 805, “ Business Combinations , ” with respect to business combinations. Pursuant thereto, the cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent consideration and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest(s) in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement. The Group follows guidance in ASC Topic 810 regarding non-controlling interests. Non-controlling interests are classified as a separate component within equity; however, such amounts were zero for all periods presented with respect to the accompanying consolidated balance sheet and consolidated statement of operations and comprehensive loss. Consolidated net income on a total enterprise basis is adjusted within the statement of operations and comprehensive loss for net income attributed to non-controlling interests and consolidated comprehensive income is adjusted for comprehensive income attributed to non-controlling interests; howevr, such amounts were zero for all periods presented. |
Foreign currency translation | (6) Foreign currency translation The functional currency and reporting currency of the parent company is the United States dollar (“U.S. dollar”). The Group’s Subsidiaries and VIEs use Renminbi (“RMB”) as their functional currency. Assets and liabilities of the Subsidiaries and VIEs are translated at the current exchange rates quoted by the Federal Reserve Bank of New York in effect at the balance sheet dates, equity accounts are translated at historical exchange rates, and revenues and expenses are translated at the average exchange rates in effect during the reporting period to the U.S. dollar. Translation adjustments resulting from foreign currency translation to reporting currency are reported as cumulative translation adjustments and recorded in accumulated other comprehensive income (loss) in the consolidated statements of changes in shareholders’ deficit for the years presented. Transactions denominated in currencies other than the Company’s or its Subsidiaries’ or VIEs’ functional currencies are remeasured into the functional currencies at the exchange rates quoted by the People’s Bank of China prevailing at the dates of the transactions. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations and comprehensive loss. Monetary assets and liabilities denominated in foreign currencies are remeasured into the applicable functional currencies using the applicable exchange rates quoted by the People’s Bank of China at the balance sheet dates. All such exchange gains and losses are included in the statements of operations and comprehensive loss. Pursuant to the People’s Republic of China State Administration of Foreign Exchange (“SAFE”), the conversion of U.S. dollars to RMB is governed as to amount and a uniform exchange rate is set by the People’s Bank of China on a daily basis pegged to a basket of major currencies. Correspondingly, RMB to U.S. dollar conversion does not carry the same ease as conversion may with other major currencies. The rates of exchange for the U.S. dollar used for translation purposes were RMB 6.2046 on December 3 1 , 2014 and RMB 6.4778 on December 3 1 , 201 5. The average rates of exchange for the U.S. dollar used for translation purposes were RMB 6.1620 and RMB 6.2831 for 2014 and 2015, respectively. |
Cash and cash equivalents | (7) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investments placed with bank or other financial institutions with no restriction to withdrawal or use, which have original maturities of three months or less. Included in cash and cash equivalents are cash balances denominated in RMB of approximately RMB45,692,943 and RMB21,691,760 (equivalent to approximately $7,053,757 and $3,496,083) as of December 31, 2015 and 2014, respectively. |
Allowances for doubtful accounts | ( 8 ) Allowances for doubtful accounts The Group determines allowances for doubtful accounts when facts and circumstances indicate that receivables are unlikely to be collected by taking into account an aging analysis of receivable balances, historical bad debt records, repayment patterns, and other factors such as the financial conditions of customers. In 2014, the Group recorded a provision of $0.97 million for all remaining receivables under the old and new advertising agency agreements with Shengyue based on the termination of a business relationship in August 2014 (Note 1). |
Investments in affiliates | ( 9 ) Investments in affiliate s Affiliated companies are entities which the Group does not control. Investments in affiliated companies are accounted for by the equity method of accounting or the cost method of accounting. Under the equity method, when the Group has significant influence over an investee, the Group’s share of the post-acquisition profits or losses of affiliated companies is recognized in the consolidated statements of operations. Unrealized gains on transactions between the Group and its affiliated companies are eliminated to the extent of the Group’s interest in the affiliated companies; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an affiliated company equals or exceeds its interest in the affiliated company, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the affiliated company (no such obligations or payments have been undertaken or made for the periods presented). With respect to the cost method, where the Group does not have significant influence and the underlying investment does not have a readily determinable fair value, the investment is originally recorded at cost. The Group continually reviews its investments in affiliated companies to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Group considers in its determination are the length of time that the fair value of the investment is below the Group’s carrying value and the financial condition, operating performance and near term prospects of the investee. In addition, the Group considers the reason for the decline in fair value, including general market conditions, industry specific or investee specific reasons, changes in valuation subsequent to the balance sheet date, and the Group’s intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than temporary, the carrying value of the investment is written down to fair value. There were no impairments of such investments for the year s ended December 31, 2013, 2014 and 2015 (Note 6) . One of the Group’s affiliate investments accounted for by the equity method of accounting, an investment in Beijing Modo, was not financed through cash funding provided by the Group, but rather was financed through the assumption by the Group of a commitment to provide technical services to the investee over an assumed period of time in exchange for a 30% equity interest (Note 6). |
Property and equipment, net | (1 0 ) Property and equipment, net Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives: Furniture and office equipment 3 years Telecommunications equipment 3 years Leasehold improvements Lesser of original lease term or estimated useful life Expenditures for maintenance and repairs are expensed as incurred. Gain or loss on the disposal of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of operations as a component of general and administrative expenses. |
Acquired intangible assets, net | (1 1 ) Acquired intangible assets, net An intangible asset is required to be recognized separately from goodwill in a purchase business combination based on its estimated fair value if such asset arises from a contractual or legal right or if it is separable as defined by ASC 805. Acquired intangible assets previously recorded consisted of intangible assets with finite lives , as detailed in Note 5, acquired through direct purchases and various business acquisitions and were amortized on a straight-line basis over their estimated useful economic lives. As further described in Note 5, the Group provided a full impairment provision on its intangibles in 2013; net book value was zero as of both December 31, 2014 and 2015. The estimated useful economic lives by major intangible asset category used by the Company were as follows. Trademark 20 years Technology 7 years |
Video production and acquisition costs | (1 2 ) Video production and acquisition costs The Company contracts third parties for the production of and self produces and self-generates video copyrights for content to exhibit on its website ku6.com. Following the guidance under ASC 926-20-25, video production (which mainly includes direct production costs and production overhead) and acquisition costs are capitalized , if the capitalization criteria are met, and are stated at the lower of unamortized cost or estimated fair value. With respect to production and acquisition costs, until the Group can establish estimates of secondary market revenues, capitalized costs for each video produced are limited to the amount of revenues contracted for that video . The costs in excess of revenues contracted for that video are expensed as incurred on an actual basis, and are not restored as assets in subsequent periods. Once the Group can establish estimates of secondary market revenues in accordance with ASC 926-20-35-5(b), it capitalizes subsequent film costs. Capitalized video production costs are amortized in accordance with the guidance in ASC 926-20-35-1 using the individual-film-forecast-computation method, based on the proportion of the revenues earned in a period to the estimated remaining unrecognized ultimate revenues as of the beginning of that period. The Group estimates total revenues to be earned (“ultimate revenues”) throughout the life of a video. Ultimate revenue estimates for the produced or acquired videos are periodically reviewed and adjustments, if any, will result in changes to amortization rates. Estimates used in calculating the fair value of the self produced content are based upon assumptions about future demand and market conditions. The capitalized costs are subject to assessment for impairment in accordance with ASC 926-20-35-12 to 35-18, if an event or change in circumstances indicates that the fair value is less than unamortized cost. During each of the three year s ended December 31, 201 5 , video production and acquisition costs did not meet the criteria for capitalization and as a result all the video production costs were expensed as incurred. |
Goodwill | (1 3 ) Goodwill Goodwill represents the excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed as a result of the Group’s acquisitions. The Group’s goodwill was subject to a full impairment charge in 2013. The Group’s goodwill was asso ci ated with the Group’s single reporting unit. The Group tests goodwill for impairment by performing a two-step goodwill impairment test, which can be preceded by an optional qualitative assessment to determine if the two-step goodwill impairment test needs to be followed. The optional qualitative assessment relies upon qualitative factors to determine if it is “more likely than not” (more than 50% probable) that the fair value of a reporting unit is less than the carrying value of the reporting unit. The Group did not apply the qualitative assessment and proceeded directly to the two-step test. The first step compares the calculated fair value of a reporting unit to its carrying amount, including goodwill. If, and only if, the carrying amount of a reporting unit exceeds its fair value as per step one, the second step is executed to compare the implied fair value of the affected reporting unit’s goodwill to the carrying value of that goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. In the quarter ended December 31, 2013, considering facts and circumstances regarding future revenues and cash flows described in Note 1 underpinning substantial doubt about the Group’s ability to continue as a going concern, which had developed adversely by that time, the Group recorded an impairment charge to write off, in its entirety, the reporting unit’s (the entire Group)’s goodwill by $6.2 million. See Note 7 for additional information. |
Impairment of long-lived assets | (1 4 ) Impairment of long-lived assets The Group reviews its long-lived assets including property, plant and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets. The Group uses estimates and judgments in its impairment tests and if different estimates or judgments are utilized, the timing or the amount of the impairment charges could be different. The Group recognized a full impairment loss of $21.0 million for its acquired intangible assets in 2013, based upon substantial uncertainties surrounding future revenues and cash flows, and the concomitant uncertainty associated with recovering various assets regarding future net cash inflows and an assessment of reduced expectations for the Group’s future projected results of operations. No impairment was provided on fixed assets as the carrying value of fixed assets was less than fair value. There was no impairment loss recorded in 2014 or 2015. |
Financial instruments | (1 5 ) Financial instruments Financial instruments include cash and cash equivalents, accounts receivable, prepayments and other current assets, amounts due from/to related parties, accounts payable, related party loan, and accrued expenses and other current liabilities. As of December 31, 20 14 and 2015, their carrying values approximated their fair values because of their generally short maturities. There were no financial assets or liabilities that were measured at fair value at December 31, 2014 or 2015. |
Revenue recognition and cost of revenues | (1 6 ) Revenue recognition and cost of revenues In accordance with ASC Topic 605, “ Revenue Recognition , ” the Group recognizes revenues when the following criteria are met: persuasive evidence of an arrangement exists, the sales price is fixed or determinable, delivery has occurred and collectability is reasonably assured. Revenues are recorded net of indirect taxes. The Group makes credit assessments of customers to assess the collectability of contract amounts prior to entering into contracts. For those contracts for which the collectability is assessed as not reasonably assured, the Group recognizes revenue only when cash is received and all revenue recognition criteria are met. Online advertising services The Group derives the majority of its revenue from online advertising services, where advertisers (including third parties and related parties) pay to place their advertisements on the Company’s online video platform in different formats. Such formats include but are not limited to banners, buttons, links, and pre-roll or post-roll video advertisements. Advertising contracts are signed to establish the price and advertising services to be provided. Advertisements are charged either based on the agreed measurement numbers, including but not limited to impressions and clicks, or fixed during a determined period of time. In the former case, the delivery of service occurs when those measurement numbers are achieved. In the latter case, the delivery is not linked to advertisement displays but occurs over the lapse of time. The Group’s online advertising services revenue is principally generated under fixed -term contracts with specific advertising agent customers serving as intermediaries between the Group and ultimate advertisers; these fixed-term contracts were responsible for substantially all of the Group’s online advertising services revenue in 2013 and 2014 and all of its online advertising services revenue in 2015. Under two prior arrangements with Shengyue, the Group’s previous exclusive ad agent for standard advertising resources and non-exclusive ad agent for highly interactive advertising resources, which terminated by August 2014 (Note 1), and the Group’s current arrangement with ad agent Huzhong (exclusive for standard advertising resources and non-exclusive for highly interactive advertising resources), which started on August 29, 2014 and will expire on December 31, 2017 (Note 1), the arrangements included (include) guaranteed minimum advertising revenue s and sharing of excess advertising revenues, as well as web traffic or video view targets to be met by the Group. In the case of Shengyue, guaranteed minimum advertising revenues were not subject to downward adjustment under the old agreement which expired in early 2014 (Note 1). Under a new agreement with New Shengyue consummated in April 2014 but terminated in August 2014 (Note 1), guaranteed minimum advertising revenues were proportionally adjusted downward if there was a shortfall relative to web traffic or video view targets. For the Shengyue arrangements (both old and new), excess advertising revenues were calculated after deducting commission fees earned by Shengyue based upon increasing percentages for additional tiers (layers) of revenue s in excess of the guaranteed amounts . There were no commission fees incurred for any historical periods, as the Group earned only the minimum guaranteed revenues in 2013 and 2014. In the case of Huzhong, the guaranteed minimum daily advertising revenues are based upon daily web traffic targets agreed to by the Group and Huzhong, and revenues are proportionally adjusted downward or upward relative to the guaranteed minimums should web traffic fall short of or exceed the agreed upon targets. During 2014, the Group did exceed targets on certain occasions resulting in an insignificant additional amount of revenue; there were no excess amounts in 2015. Unlike the Shengyue arrangements, which were settled in arrears, the Huzhong arrangement provides for payment of 50% of the guaranteed minimum daily amounts for a month prior to the beginning of the month, with final settlement determined between the parties at the end of the month. These prepayments are recorded as advances from customers until recognised as revenue. Guaranteed advertising revenues and any excess advertising revenues net of commission fees are recognized ratably over varying service periods as governed by the specific agreements, as the Group is able to timely obtain information to determine historical advertising revenues as a basis for preparing financial statements . The Group reports the revenue earned from both related (Shengyue) and third party (New Shengyue and Huzhong) ad agencies based on the net amount after considering the indicators to record revenue gross versus net set forth in ASC 605-45, “Principal Agent Considerations .” A principal factor considered is the fact that the advertising agents establish prices with ultimate end customers wishing to place advertisements and the Group is not able to influence such pricing. Promotional marketing services The Group derived a portion of its revenue from former related party Qinhe in exchange for interactive media and entertainment promotional marketing services provided by the Group to Qinhe in the second half of 2014. Revenues from Qinhe for 2015 were nil following the lapse of the agreements with Qinhe (Note 1). The Group provided online game marketing services to Qinhe; in exchange, Qinhe shared a portion of its profits that were generated from the Group’s video viewers who played Qinhe’s games after linking to them through advertisements on the Group’s websites. Profits were calculated as revenues from the games operated by Qinhe, net of licensing fees payable to game developers. The Group also provided interactive entertainment marketing services to Qinhe; in exchange, Qinhe shared a certain percentage of Qinhe’s revenues generated from its video viewers who visited its proprietary social media platform by linking thereto from advertisements on the Group’s website and who spent monies with Qinhe. Further to the interactive entertainment marketing services arrangement (but not the online game marketing arrangement), in September 2014 (Note 1) the Group signed a supplemental agreement providing Qinhe greater operational capabilities to manage and operate the ishow.ku6.com subdomain of domain ku6.com on its own in order to drive further user referrals. Pursuant to this supplemental agreement, Qinhe agreed to pay, and paid, for the fourth quarter of 2014 additional guaranteed revenue amounts, stated on a monthly basis and incremental to the revenue sharing determined on a percentage basis referenced in the foregoing paragraph. Promotional marketing services revenues earned from Qinhe we re recognized as services were delivered for online game and interactive entertainment marketing. Shortly after the end of each month, with frequency sufficient to enable timely preparation of financial statements, the Group timely received a statement from Qinhe detailing the amount of shared revenue for each type of services. Once amounts were reconciled to the Group’s records and agreed to, shared revenues were paid within 30 days. With respect to the additional guaranteed revenue amounts mentioned in the foregoing paragraph, such amounts were recognized on a monthly basis as they were not dependent on underlying video viewer referrals. The Group reports the revenue earned from Qinhe based on the net amount after considering the indicators to record revenue gross versus net set forth in ASC 605-45, “Principal Agent Considerations .” A principal factor considered is the fact that Qinhe establishes all pricing to end customers and the Group is not responsible for providing the content or services, only for driving video viewer referrals to Qinhe. The Group derives a portion of its revenue from related party Beijing Modo, a business venture in which the group acquired in 2015, and held as of December 31, 2015, a 30% equity interest (Note 6), in exchange for the provision of interactive media and entertainment promotional marketing services to Beijing Modo. These services commenced in the second half of 2015. The Group provides user referrals of its video viewers to Beijing Modo; in turn, Beijing Modo shares a portion of its net revenues (gross revenues less operating costs) generated from the Group’s video viewers who subscribe to Beijing Modo’s interactive entertainment services offered on its proprietary social networking platform and spend monies (via the purchase of “virtual items”) with Beijing Modo. The Group timely receives a statement proximate to the end of a month from Beijing Modo detailing the amount of shared revenue, which is recorded for the related period following reconciliation with the Group’s records and agreement of the amount. Shared revenues are paid within 30 days. The Group reports the revenue earned from Beijing Modo based on the net amount after considering the indicators to record revenue gross versus net set forth in ASC 605-45, “Principal Agent Considerations .” A principal factor considered is the fact that Beijing Modo establishes all pricing to end customers and the Group is not responsible for providing the content or services, only for driving video viewer referrals to Beijing Modo. Costs of revenues (applicable to both online advertising revenues and promotional marketing revenues) consist primarily of employee salaries and benefits associated with platform operations, related share-based compensation, depreciation expenses, internet bandwidth costs, and video production costs. |
Product development expenses | ( 17 ) Product development expenses Product development expenses consist primarily of salaries and benefits for product development personnel, including share-based compensation costs , and are expensed as incurred. |
General and administrative expenses | ( 18 ) General and administrative expenses General and administrative expenses consist primarily of salaries and benefits for general management, finance and administrative personnel, bad debt provisions, litigation accruals, depreciation, amortization of intangible assets, professional service fees, share-based compensation , office rental fees , and other expenses. |
Selling and marketing | ( 19 ) S elling and marketing S elling and marketing expenses consist primarily of sales and marketing personnel payroll compensation and related employee costs, advertising and market promotion expenses, and other overhead expenses incurred by the Group’s sales and marketing personnel. |
Advertising costs | (2 0 ) Advertising costs The Group expenses advertising costs as incurred. Total advertising expenses were $ 287,070 , nil and $7,353 for the years ended December 31, 2013, 2014 and 2015, respectively, and were included in selling and marketing expenses. |
Share-based compensation | (2 1 ) Share -based compensation The Group applies ASC 718, which requires all share-based payments to employees and directors, including grants of employee stock options and restricted shares, to be recognized as compensation expense in the financial statements over the vesting periods of the awards based on the fair values of the awards determined at the grant date. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent period(s) if actual forfeitures differ from initial estimates. In accordance with ASC 718, the Group has recognized share-based compensation expenses, net of a forfeiture rate, using the straight-line method for awards with graded vesting features and service conditions only and using the graded-vesting attribution method for awards with graded vesting features and performance conditions. See Note 1 4 for further information on stock-based compensation. |
Leases | (2 2 ) Leases Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Other leases, meaning those meeting the capitalization criteria in ASC 840, “Leases”, are accounted for as capital leases. Payments made under operating leases, net of any incentives received by the Group from the leasing company, are charged to the consolidated statement of operations and comprehensive loss on a straight-line basis over the lease periods, as specified in the lease agreements, with reference to the actual number of users of the leased assets, as appropriate. |
Taxation | (2 3 ) Taxation Current income taxes are provided for on the taxable income of each subsidiary on the separate tax return basis in accordance with the relevant tax laws. Deferred income taxes are provided using the liability method in accordance with ASC 740, “ Income Taxes ” . Under this method, deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and net operating loss carry forwards and credits by applying enacted statutory tax rates applicable to future years. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. ASC 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Group does not have any liabilities for unrecognized tax benefits as of December 31, 2014 or 2015. Were the Group to have such liabilities, interest and penalties would be recognized in tax expense s . |
Statutory reserves | (2 4 ) Statutory reserves The Group ’s subsidiaries incorporated in the PRC and the VIEs are required on an annual basis to make appropriations of retained earnings set at certain percentage of after-tax profit determined in accordance with PRC accounting standards and regulations (“PRC GAAP”). The Group ’s subsidiaries must make appropriations to (i) the general reserve and (ii) the enterprise expansion fund in accordance with the Law of the PRC on Enterprises Operated Exclusively with Foreign Capital. The general reserve fund requires annual appropriations of 10% of after-tax profit (as determined under PRC GAAP at each year-end) until such fund has reached 50% of the company’s registered capital; enterprise expansion fund appropriation is at the PRC subsidiaries’ directors’ discretion. The Company’s VIEs, in accordance with the China Company Laws, must make appropriations to a (i) statutory reserve fund and (ii) discretionary surplus fund. The statutory reserve fund requires annual appropriations of 10% of after-tax profit (as determined under PRC GAAP at each year-end) until such fund has reached 50% of the company’s registered capital; other fund appropriation is at the VIEs’ directors’ discretion. The general reserve fund and statutory reserve fund can only be used for specific purposes, such as setting off the accumulated losses, enterprise expansion or increasing the registered capital. The enterprise expansion fund can be used to expand production and operation s ; it also may be used for increasing registered capital. Appropriations to these funds, if they occur, are classified in the consolidated balance sheets as statutory reserves; however, such reserves are zero. No appropriations were made during the years ended December 31, 20 13, 2014 and 2015. There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Group does not do so. |
Contingencies | (2 5 ) Contingencies In the normal course of business, the Group is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. See Note 1 9 . |
Earnings (loss) per share | (2 6 ) Earnings (loss) per share Basic earning s (loss) per share is computed by dividing earning s (loss) by the weighted average number of ordinary shares outstanding during the year. Diluted earning s (loss) per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the year. Potential ordinary shares consist of shares issuable upon the exercise of stock options (using the “treasury stock method”). Potential ordinary shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti-dilutive. For each of the three years in the period ended December 31, 201 5 , the dilutive effect of potential ordinary shares was not factored into the calculation as a net loss was incurred in each period. |
Comprehensive loss | ( 27 ) Comprehensive loss Comprehensive loss is defined as the change in equity of a company during the period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive loss, as presented on the accompanying consolidated balance sheets, consists of cumulative foreign currency translation adjustments included in other comprehensive income (loss), which are presented net of tax (zero tax effect). |
Government subsidies | ( 28 ) Government subsidies Government subsidies represent discretionary cash subsidies granted by local government s to encourage the development of certain enterprises that are established in local special economic region s . The cash subsidies may be received in the form of (i) a fixed cash amount determined and provided by a municipal government to an operating subsidiary for product and service innovation, or (ii) an amount determined as a percentage of the income tax and business tax actually paid by an operating subsidiary. Cash subsidies have no defined rules and regulations to govern the criteria necessary for companies to enjoy the benefits and are recognized as other income when received. For the years ended December 31, 2013, 2014 and 2015, cash subsidies of $ 1,484,789 , $ 135,265 and nil were recognized as other income, respectively (Note 10) . |
Segment reporting | (29) Segment reporting Based on the criteria established by ASC 280, the authoritative accounting guidance for segment reporting, the Group currently operates and manages its business as a single operating segment, “Advertising Services” (Note 2(16)). |
Recent accounting pronouncements | ( 30 ) Recent accounting pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” or ASU 2014-09. This update contains new accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for the Group’s fiscal year beginning January 1, 2018, which reflects a one year deferral approved by the FASB in July 2015, with early application permitted provided that the effective date is not earlier than the original effective date (which would be the Group’s fiscal year beginning January 1, 2017). The Group is in the process of determining what impact, if any, the adoption of ASU 2014-09 will have on its financial statements and related disclosures. The standard permits the use of either the full retrospective or modified retrospective transition method. The Group has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. In August 2014, the FASB issued ASU 2014-15, “ Presentation of Financial Statements—Going Concern (Subtopic 205-40)” , or ASU 2014-15. This update requires management of an entity to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued. The guidance is effective for fiscal years ending after December 15, 2016, or calendar 2017 for the Group. Early adoption is permitted. The Group has completed is evaluation of the updated guidance and has concluded that, insofar as current facts and circumstances raise substantial doubt about the Group’s ability to continue as a going concern, assuming these facts and circumstances continue to prevail, the Group will be required to provide the additional qualitative disclosures regarding substantial doubt and the facts contributing thereto as called for in the updated guidance. In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” or ASU 2015-02. ASU 2015-02 focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The ASU simplifies consolidation accounting by reducing the number of consolidation models from four to two. In addition, the new standard simplifies and improves current guidance by: (i) placing more emphasis on risk of loss when determining a controlling financial interest; (ii) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE; and (iii) changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. ASU 2015-02 will be effective for periods beginning after December 15, 2015, for public companies, or calendar 2016 for the Group. Early adoption is permitted, including adoption in an interim period. The Group has completed its evaluation and has concluded that the updated guidance will not alter its consolidation conclusions. In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” or ASU 2015-17. This guidance was issued to simplify the presentation of deferred income taxes. The amendments in ASU 2015-17 require deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company has completed its evaluation of the impact of the updated guidance and has concluded that it will not impact the consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, “ Leases ”. Under the new guidance, lessees will be required to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on the balance sheet. The updated guidance also expands the required quantitative and qualitative disclosures surrounding leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted; hence, it applies to the Group beginning with calendar 2019. The Group is in the process of evaluating the impact of the adoption of this update on its consolidated financial statements and related disclosures. |
ORGANIZATION AND PRINCIPAL AC32
ORGANIZATION AND PRINCIPAL ACTIVITIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
ORGANIZATION AND PRINCIPAL ACTIVITIES | |
Schedule of ownership structure | As of December 31, 2015, the Group ’s ownership structure is summarized as follows. Names of Major Subsidiaries, Variable Interest Entities and Affiliate(s) Date of incorporation Percentage of ownership or economic interest Subsidiaries Ku6 (Beijing) Technology Co., Ltd. (“Beijing Technology”) March 5, 2007 % Wei Mo San Yi (Tianjin) Science and Technology Co., Ltd. (“Tianjin Technology”) December 23, 2008 % Kusheng (Tianjin) Technology Co., Ltd. (“Kusheng”) August 26, 2011 % Variable Interest Entities Ku6 (Beijing) Information Technology Co., Ltd. (“Ku6 Beijing Information”) April 20, 2006 % Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. (“Tianjin Information”) March 20, 2009 % Tianjin Ku6 Network Communication Technology Co., Ltd. (“Ku6 Network”) December 14, 2011 % Beijing Ku6 Culture Media Co., Ltd. (“Ku6 Culture”) June 22, 2010 % Affiliates Beijing Modo Media Co., Ltd. (“Beijing Modo”) August 4, 2015 % Shanghai Yisheng Network Technology Co., Ltd. (“Yisheng”) November 22, 2007 % Bale Interactive (Beijing) Culture Media Co., Ltd. (“Bale”) April 10, 2012 % |
SUMMARY OF SIGNIFICANT ACCOUN33
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of assets, liabilities and summarized operations of the VIEs | December 31, 2014 December 31, 2015 Cash and cash equivalents Accounts receivable Amounts due from related parties Property and equipment — Investment in affiliates — Deposits and other non-current assets — Total assets December 31, 2014 December 31, 2015 Accounts payable Amounts due to related parties within the Group Accrued expenses and other current liabilities Other payables due to related parties within the Group Current portion of service obligation to related party affiliate — Total current liabilities Long-term service obligation to related party affiliate — Total liabilities Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Net revenue Net profit (loss) ) ) |
Schedule of summary of estimated useful life of property and equipment | Furniture and office equipment 3 years Telecommunications equipment 3 years Leasehold improvements Lesser of original lease term or estimated useful life |
Schedule of summary of estimated useful economic lives of acquired intangible assets | Trademark 20 years Technology 7 years |
PREPAID EXPENSES AND OTHER CU34
PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
PREPAID EXPENSES AND OTHER CURRENT ASSETS | |
Schedule of prepaid expenses and other current assets | December 31, 2014 December 31, 2015 Staff advances and other receivables Prepaid expenses Advances to suppliers |
PROPERTY AND EQUIPMENT, NET (Ta
PROPERTY AND EQUIPMENT, NET (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
PROPERTY AND EQUIPMENT, NET | |
Schedule of property and equipment, net | December 31, 2014 December 31, 2015 Furniture and office equipment Telecommunications equipment Leasehold improvements Less: Accumulated depreciation ) ) |
ACQUIRED INTANGIBLE ASSETS, N36
ACQUIRED INTANGIBLE ASSETS, NET (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
ACQUIRED INTANGIBLE ASSETS, NET | |
Schedule of acquired intangible assets, net | December 31, 2013 Gross carrying amount Accumulated amortization Impairment Net carrying amount Trademark ) ) — Technology ) ) — ) ) — |
INVESTMENTS IN AFFILIATES (Tabl
INVESTMENTS IN AFFILIATES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
INVESTMENTS IN AFFILIATES | |
Schedule of balances and activity related to the Group's variable interest in Beijing Modo and the equity investment | December 31, 2014 Investments Share of losses Foreign currency translation December 31, 2015 Equity interest in Beijing Modo — ) — ) |
GOODWILL (Tables)
GOODWILL (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
GOODWILL | |
Schedule of changes in the carrying amount of goodwill | December 31, 2012 Impairment ) December 31, 2013 — Impairment — December 31, 2014 — Impairment — December 31, 2015 — |
ACCRUED EXPENSES AND OTHER CU39
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | |
Schedule of accrued expenses and other current liabilities | December 31, 2014 December 31, 2015 Accrued professional service fees Accrued welfare benefits Accrued litigation provision Accrued promotion expenses — Accrued payroll Advances from customers Indirect taxes payable Other accrued expenses |
OTHER INCOME, NET (Tables)
OTHER INCOME, NET (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
OTHER INCOME, NET | |
Schedule of other income, net | Year ended Year ended Year ended December 31, 2013 December 31, 2014 December 31, 2015 Reimbursement from depository bank related to ADR program Sub-lease income Gain on derecognition of long-aged operating liabilities Government subsidies — Provision for Seed Music receivable (related party) ) — — Other ) Total |
RELATED PARTY TRANSACTIONS AN41
RELATED PARTY TRANSACTIONS AND BALANCES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
RELATED PARTY TRANSACTIONS AND BALANCES | |
Schedule of Relationship between Related Parties and Ku6 Media Co., Ltd. | Entity Relationship to Ku6 Media Co., Ltd. Shanda Interactive Entertainment Limited (“Shanda”) Largest shareholder Shanda Computer (Shanghai) Co., Ltd. (“Shanda Computer”) Wholly owned affiliate of Shanda Shanghai Shanda Network Development Co., Ltd. (“Shanda Network”) Wholly owned affiliate of Shanda Shanda Media Group Ltd. (“Shanda Media”) Wholly owned affiliate of Shanda Shanda Capital Ltd. (“Shanda Capital”) Wholly owned affiliate of Shanda Shanghai Shengle Information Technology Co., Ltd. (“Shengle”) Wholly owned affiliate of Shanda Shanghai Shengjin Software Development Co., Ltd. (“Shengjin”) Wholly owned affiliate of Shanda Shanghai Sheng Payment Services Co., Ltd. (“Sheng Payment”) Wholly owned affiliate of Shanda Beijing Modo Media Co., Ltd. (“Beijing Modo”) Equity investee (30% interest) Shanghai Yisheng Network Technology Co., Ltd. (“Yisheng”) Equity investee (20% interest) |
Schedule of Former Related Parties | Entity Relationship to Ku6 Media Co., Ltd. Xu Xudong (“Mr. Xu”) Former significant shareholder until May 2015 and former CEO Shanghai Qinhe Internet Technology Software Development Co., Ltd. (“Qinhe”) Wholly owned affiliate of Mr. Xu Shanghai Shengyue Advertising Co., Ltd. (“Shengyue”) Wholly owned affiliate of Shanda until April 2014 sale to a third party Shanghai Shulong Computer Technology Co., Ltd. (“Shanghai Shulong Computer”) Consolidated affiliate of Shanda Games Limited (no longer owned by Shanda Interactive) Hurray! Media Co., Ltd. Wholly owned affiliate of Shanda until May 2014 Shanda Games Limited (“Shanda Games”) Majority owned affiliate of Shanda Interactive until September 2014 |
Schedule of Significant Related Party Transactions | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Online advertising revenue from Shengyue (Note A) — Promotional marketing revenue from Qinhe (Note A) — — Promotional marketing revenue from Beijing Modo (Note A) — — Sub-lease income from Sheng Payment — — Technical service fees in cost of revenues paid to Shanda Network (Note B) Technical service fees in cost of revenues payable but forgiven by Shanda Network (Notes B, C) — — Rental fee payable but forgiven by Shanda Network (Note C) — — Rental fee payable but forgiven by Shengjin (Note C) — — Interest expense payable but forgiven by Shanda Media Group Ltd. (Note C) — — Receivables due from Hurray! Media Co., Ltd. but forgiven as to repayment (Note C) — — Purchase of equipment from companies under control of Shanda — — Purchase of fixed assets from Shanda Network (Note B) — — Equity contribution from Shanda (Note C) — — Loan borrowing from Mr. Xu (Note E) — — Loan repayment from Shanda Capital Limited (Note D) — — Loan repayment from Shanda Games Limited — — Loan repayment to Shanghai Shulong Computer — — Loan to Shanda Capital Limited — — Interest income from Shanda Games Limited — — Interest income from Shanda Capital Limited (Note D) — Interest expense for loan from Mr. Xu subsequently refinanced by Shanda Computer (Note E) — — Interest expense for loans from Shanghai Shulong Computer and Shanghai Shulong — — Assumption of liability for service obligation to Beijing Modo (Note 6) — — Note A. The Group entered into an original advertising agency agreement with Shengyue in 2011, when Shengyue was controlled by Shanda. Under this agreement, Shengyue was appointed as the Group’s primary agency to secure advertisements from various end advertisers. The Group provided advertising capacity/spots to Shengyue on its online video portal. The original agreement covered a period of 1 year and 9 months commencing April 1, 2011 and was extended thereafter through early 2014. In early 2014, following the disposition of Shengyue by Shanda to an independent third party, a new agreement was reached (Note 1). Amounts depicted in the foregoing table only relate to the period of time when Shengyue was a related party (under Shanda’s ownership). During 2014, the Company entered into two agreements and a supplemental agreement with Qinhe, a company controlled by Mr. Xu, stipulating the provision of promotional marketing services (Notes 1 and 2(16)). In early 2015, following the Share Re-Acquisition Transaction conducted by Shanda Media and Mr. Xu, the agreements with Qinhe were terminated. In August 2015, the Group, along with co-investors, set up a new media company, Beijing Modo, in which the Group holds a 30% equity interest (Note 6). The Group is obligated to provide future technology services to Beijing Modo. Additionally, the Group entered into an agreement with Modo under which the Group shares a portion of Beijing Modo’s revenue related to referrals of video viewers from the Group’s website who spend monies with Beijing Modo. Note B. In April 2013, the Group entered into a technical services agreement with Shanda Network, which continued in 2014. Pursuant to this agreement, Shanda Network provided technical support services including computer cabinet management, server maintainance, and other items. The service fees are settled on a monthly basis. In November 2015, the technical services agreement was modified, pursuant to which Shanda Network will continue to providing technical support services to the Group until June 2016. In addition, in late 2015, the Group agreed to purchase computer server equipment from Shanda Network; this payable was settled subsequent to December 31, 2015. Note C. During April and May 2014, Shanda provided loans totaling $5.8 million (RMB 36.1 million) to the Group. The loan were interest-free and were immediately unconditionally forgiven as to repayment. Related thereto, certain existing related party payables, amounting to $0.8 million, and receivables, amounting to $1.2 million, involving certain companies controlled by Shanda were forgiven as to repayment. The net effect of the foregoing was a $5.4 million equity contribution reflected as an increase in the Group’s additional paid-in capital (Note 1). Note D. In 2014, the Group’s remaining loan receivable from Shanda Capital Limited was repaid in full. Note E. On February 2, 2015, the Company entered into a loan agreement with Mr. Xu, pursuant to which Mr. Xu agreed to provide a loan of RMB30.0 million (US$4.84 million) to the Company. The term of the loan was one year, and the loan bore interest at a rate of 6.5% per annum. The Company received RMB30.0 million from Mr. Xu on March 4, 2015. After the Share Re-Acquisition Transaction (Note 1), Mr. Xu transferred all of the rights and obligations relating to the shareholder’s loan to Shanda Computer on May 12, 2015 in exchange for a payment of RMB 30.3 million, representing loan principal and accrued unpaid interest, making Shanda Computer the counterparty to the related party loan. The terms of and rate associated with the loan were not changed. Subsequent to December 31, 2015, the loan’s maturity date was extended (Note 20). |
Schedule of Year-End Related Party Balances | December 31, 2014 December 31, 2015 Accounts receivable due from related parties Beijing Modo — Sheng Payment December 31, 2014 December 31, 2015 Other receivables due from related parties Shanda Computer — — December 31, 2014 December 31, 2015 Accounts payable due to related parties Shanda Network December 31, 2014 December 31, 2015 Related party loan Shanda Computer — — December 31, 2014 December 31, 2015 Accrued expenses due to related parties Shanda Computer — — |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
INCOME TAXES | |
Schedule of provision (benefit) for income taxes | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Current income tax expense (benefit) — — — Deferred income tax expense (benefit) ) — — ) — — |
Schedule of principal components of deferred taxes | December 31, 2014 December 31, 2015 Current deferred tax assets: Cost and expense accruals Revenue recognition Less: valuation allowance ) ) Current deferred tax assets, net — — Non-current deferred tax assets: Depreciation and amortization Net operating loss carry forwards Less: valuation allowance ) ) Non-current deferred tax assets, net — — |
Schedule of reconciliation between statutory tax rate and effective tax rate | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Statutory tax rate % % % Differential statutory tax rates )% )% )% Non-deductible expenses )% )% )% Change in deferred tax liabilities % — — Change in valuation allowance )% )% )% Effective tax rate % % % |
Schedule of movements of valuation allowances | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 At beginning of year ) ) ) Current year additions ) ) ) Current year reversals — Effect of exchange rate changes ) ) ) ) |
EQUITY COMPENSATION PLANS (Tabl
EQUITY COMPENSATION PLANS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
2004 Share Incentive Plan | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Schedule of Movements in Stock Options | Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value $ $ Outstanding at January 1, 2013 — Granted — — — — Exercised — — — — Cancelled or Expired ) — — Outstanding at December 31, 2013 — Granted — — — — Exercised — — — — Expired ) — — Outstanding at December 31, 2014 — Granted — — — — Exercised — — — — Expired ) — — Outstanding at December 31, 2015 — — — — |
2010 Equity Compensation Plan | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Schedule of Movements in Stock Options | Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value $ $ Outstanding at January 1, 2013 — Granted — — Exercised ) — Cancelled or expired ) — — Outstanding at December 31, 2013 Granted — — — — Exercised ) — Forfeited ) — — Outstanding at December 31, 2014 — Granted — — Exercised ) — Forfeited ) — — Outstanding at December 31, 2015 — Vested and expected to vest at December 31, 2015 — Vested and exercisable at December 31, 2015 — |
Schedule of Estimated Fair Values of Stock Options | Options Granted in 2013 Options Granted in 2014 Options Granted in 2015 Fair value of ordinary shares ($) 0.0106~0.0131 — Exercise price ($) 0.0103~0.0113 — Expected volatility (%) % — % Expected dividend yield (%) % — % Expected term (years) — Risk-free interest rate (per annum) (%) 1.3445%~1.3843% — % |
Schedule of movement in restricted shares | Outstanding Awards Weighted Average Exercise Price $ Outstanding at December 31, 2014 — — Granted Exercised — — Forfeited ) Outstanding at December 31, 2015 Vested and expected to vest at December 31, 2015 |
NET LOSS PER SHARE (Tables)
NET LOSS PER SHARE (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
NET LOSS PER SHARE | |
Schedule of Computation of Basic and Diluted Net Loss Per Share | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Numerator: Net loss ) ) ) Denominator: Weighted-average ordinary shares outstanding for basic calculation Dilutive effect of potential ordinary shares — — — Weighted average ordinary shares outstanding for diluted calculation Weighted-average ADS used in per basic ADS calculations Dilutive effect of potential ADS — — — Weighted-average ADS used in per diluted ADS calculations Loss per share — basic and diluted Net loss per share — basic and diluted ) ) ) Loss per ADS — basic and diluted Net loss per ADS — basic and diluted ) ) ) |
CONCENTRATIONS (Tables)
CONCENTRATIONS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
CONCENTRATIONS | |
Schedule of accounts receivable | December 31, 2014 December 31, 2015 Accounts receivable Allowance for doubtful accounts ) ) Accounts receivable, net of allowance for doubtful accounts |
Schedule of movement of allowance for doubtful accounts | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 Balance at beginning of the year Provisions — — Reversed ) ) — Accounts written off ) ) — Translation difference ) ) Balance at the end of the year |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
COMMITMENTS AND CONTINGENCIES | |
Schedule of future minimum lease payments under non-cancellable operating lease agreements | Within 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years — Total |
Rollforward of accrued litigation provision related to alleged copyright infringement | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 At beginning of year Current year additions (reversals) ) ) Payments during the year ) ) ) Balance at end of year |
ADDITIONAL INFORMATION - COND47
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS | |
Schedule of Balance Sheets | December 31, 2014 December 31, 2015 (in U.S. dollars, except number of shares) Assets Current assets: Cash and cash equivalents Prepaid expenses and other current assets Amount due from related parties — Total current assets Investments in subsidiaries Total assets Liabilities and shareholders’ deficit Accrued expenses and other current liabilities Amounts due to subsidiaries and variable interest entities Total current liabilities Shareholders’ deficit: Ordinary shares ($0.00005 par value; 12,000,000,000 shares authorized; 4,763,360,860 and 4,771,610,860 shares issued and outstanding as of December 31, 2014 and 2015, respectively) Additional paid-in capital Accumulated deficit ) ) Accumulated other comprehensive loss ) ) Total shareholders’ deficit ) ) Total liabilities and shareholders’ deficit |
Schedule of Statements of Operations | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 (in U.S. dollars, except number of shares) Operating expenses: Product development — Selling and marketing General and administrative Total operating expenses Loss from operations ) ) ) Interest income Interest expense — — — Other (expense) / income ) Foreign exchange ( loss) / gain ) ) Equity in losses of subsidiaries ) ) ) Net loss ) ) ) |
Schedule of Statements of Cash Flows | Year ended December 31, 2013 Year ended December 31, 2014 Year ended December 31, 2015 (in U.S. dollars, except number of shares) Operating activities: Net loss ) ) ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Share-based compensation Provision for Seed Music receivable (related party) — — Exchange gains ) — — Equity in losses of subsidiaries Changes in operating assets and liabilities: Prepaid expenses and other current assets Amount due from related parties ) Accrued expenses and other current liabilities ) Amounts due to subsidiaries and variable interest entities — — Net cash provided by (used in) operating activities ) ) Investing activities: Loan to subsidiaries ) — — Repayment of loans from related parties under common control of Shanda — Net cash provided by (used in) investing activities ) — Financing activities: Proceeds from exercise of options Repurchase of ordinary shares ) — — Net cash provided by (used in) financing activities ) Effect of exchange rate changes on cash and cash equivalents — — — Net increase (decrease) in cash and cash equivalents ) ) Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year |
ORGANIZATION AND PRINCIPAL AC48
ORGANIZATION AND PRINCIPAL ACTIVITIES(Details) | 12 Months Ended | ||
Dec. 31, 2015 | Aug. 31, 2015 | Apr. 10, 2012 | |
Ku6 Beijing Information | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in VIEs | 100.00% | ||
Tianjin Information | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in VIEs | 100.00% | ||
Ku6 Network | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in VIEs | 100.00% | ||
Ku6 Culture | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in VIEs | 100.00% | ||
Beijing Technology | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in subsidiaries | 100.00% | ||
Tianjin Technology | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in subsidiaries | 100.00% | ||
Kusheng | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in subsidiaries | 100.00% | ||
Beijing Modo | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in affiliates- Equity method | 30.00% | 30.00% | |
Yisheng | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in affiliates- Equity method | 20.00% | 20.00% | |
Bale | |||
Organization and Principal Activities [Line Items] | |||
Percentage of ownership or economic interest in affiliates- Equity method | 20.00% | ||
Percentage of ownership or economic interest in affiliates- Cost method | 7.00% |
ORGANIZATION AND PRINCIPAL AC49
ORGANIZATION AND PRINCIPAL ACTIVITIES (Details 2) ¥ in Thousands | May. 12, 2015CNY (¥) | Mar. 04, 2015CNY (¥) | Feb. 02, 2015CNY (¥) | Feb. 02, 2015USD ($) | May. 30, 2014CNY (¥) | May. 30, 2014USD ($) | May. 19, 2014CNY (¥) | May. 19, 2014USD ($) | Apr. 10, 2014CNY (¥) | Apr. 10, 2014USD ($) | Apr. 03, 2014CNY (¥) | Apr. 03, 2014USD ($) | Mar. 31, 2014USD ($)shares | May. 31, 2014CNY (¥) | May. 31, 2014USD ($) | Sep. 30, 2014CNY (¥) | Sep. 30, 2014USD ($) | Jun. 30, 2014CNY (¥) | Jun. 30, 2014USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | May. 11, 2015shares | Aug. 28, 2014USD ($) |
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Equity contribution from Shanda | $ 5,405,317 | |||||||||||||||||||||||
Cash received as equity contribution in the form of a forgiven loan | 5,847,070 | |||||||||||||||||||||||
Cash received from related party loan | $ 4,631,190 | |||||||||||||||||||||||
Advertising Agency Agreement with Third Party Huzhong | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Percentage of minimum guaranteed amounts, to be prepaid by Huzhong prior to the beginning of the month | 50.00% | |||||||||||||||||||||||
Shengyue | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Revenue from related party | $ 2,703,492 | $ 12,404,031 | ||||||||||||||||||||||
Shengyue | New advertising agency agreement with New Shengyue | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Financial penalties associate with termination agreement payable | $ 0 | |||||||||||||||||||||||
Provision for all remaining receivables under the advertising agency agreement | ¥ 350 | $ 50,000 | ||||||||||||||||||||||
Shengyue | Old advertising agency agreement with Shengyue | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Provision for all remaining receivables under the advertising agency agreement | ¥ 5,710 | $ 920,000 | ||||||||||||||||||||||
Shengyue | Net Revenues | Revenue Concentration Risk | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Percentage of net revenue derived from related parties | 0.00% | 31.50% | 94.40% | |||||||||||||||||||||
Shanda | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Percentage of shareholders' interest in the company | 29.50% | 71.00% | 29.00% | 70.50% | ||||||||||||||||||||
Loan from related party | ¥ 21,400 | $ 3,400,000 | ¥ 20,000 | $ 3,200,000 | ¥ 36,100 | $ 5,800,000 | ||||||||||||||||||
Related party receivables forgiven | 1,200,000 | |||||||||||||||||||||||
Equity contribution from Shanda | ¥ 21,400 | $ 3,400,000 | 2,000,000 | $ 5,400,000 | ||||||||||||||||||||
Cash received as equity contribution in the form of a forgiven loan | ¥ 16,100 | $ 2,600,000 | ¥ 20,000 | $ 3,200,000 | $ 5,847,070 | |||||||||||||||||||
Term of the loan | 12 months | 12 months | ||||||||||||||||||||||
Related party payables forgiven | ¥ 5,300 | $ 800,000 | ||||||||||||||||||||||
Shanda Media Group Ltd. | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Percentage of outstanding ordinary shares transferred out by controlling shareholders | 41.00% | |||||||||||||||||||||||
Ordinary shares sold by controlling shareholders | shares | 1,938,360,784 | |||||||||||||||||||||||
Maturity of promissory note | 3 years | |||||||||||||||||||||||
Aggregate consideration of ordinary shares | $ 47,000,000 | $ 47,000,000 | ||||||||||||||||||||||
Mr. Xu | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Percentage of shareholders' interest in the company | 41.00% | |||||||||||||||||||||||
Ordinary shares sold by controlling shareholders | shares | 1,938,360,784 | |||||||||||||||||||||||
Loan from related party | ¥ 30,000 | $ 4,840,000 | ||||||||||||||||||||||
Term of the loan | 1 year | 1 year | ||||||||||||||||||||||
Interest rate, per annum | 6.50% | 6.50% | ||||||||||||||||||||||
Cash received from related party loan | ¥ 30,000 | $ 4,631,190 | ||||||||||||||||||||||
Qinhe | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Revenue from related party | $ 0 | $ 1,613,606 | ||||||||||||||||||||||
Qinhe | Net Revenues | Revenue Concentration Risk | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Percentage of net revenue derived from related parties | 0.00% | 18.80% | ||||||||||||||||||||||
Shanda Computer | Mr. Xu | ||||||||||||||||||||||||
Organization and Principal Activities [Line Items] | ||||||||||||||||||||||||
Payment in exchange for loan transfer | ¥ | ¥ 30,300 |
SUMMARY OF SIGNIFICANT ACCOUN50
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | 1 Months Ended | 12 Months Ended | |||
Apr. 30, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||
Cash and cash equivalents | $ 7,697,926 | $ 4,380,328 | $ 1,671,230 | $ 13,070,987 | |
Accumulated deficit | 189,147,067 | 187,095,885 | |||
Working capital deficit | 6,000,000 | ||||
Negative operating cash flows | $ 1,522,663 | $ 5,209,268 | $ 11,524,248 | ||
Percentage of headcount reduced | 40.00% |
SUMMARY OF SIGNIFICANT ACCOUN51
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) ¥ in Millions | 12 Months Ended | |||||
Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | Dec. 31, 2015CNY (¥) | Dec. 31, 2015USD ($) | Dec. 31, 2012USD ($) | |
Variable Interest Entity [Line Items] | ||||||
Carrying value of equity method investments | $ 0 | $ 168,610 | ||||
Cash and cash equivalents | 4,380,328 | $ 1,671,230 | 7,697,926 | $ 13,070,987 | ||
Accounts receivable | 113,816 | 91,326 | ||||
Amounts due from related parties | 972 | 12,117 | ||||
Property and equipment | 293,567 | 514,573 | ||||
Investment in affiliates | 168,610 | |||||
Deposits and other non-current assets | 347,963 | |||||
Accounts payable | 3,075,591 | 2,824,167 | ||||
Amounts due to related parties within the Group | 709,911 | 912,534 | ||||
Accrued expenses and other current liabilities | 5,980,164 | 5,689,608 | ||||
Current portion of service obligation to related party affiliate | 24,700 | |||||
Total current liabilities | 9,765,666 | 14,335,564 | ||||
Long-term service obligation to related party affiliate | 160,548 | |||||
Total deficit | 187,095,885 | 189,147,067 | ||||
Net revenue | $ 10,909,039 | 8,583,642 | 13,141,905 | |||
Net profit (loss) | (2,051,182) | (10,727,642) | (34,427,734) | |||
Ku6 Beijing Information | ||||||
Variable Interest Entity [Line Items] | ||||||
Interest-free loans to the nominee shareholders of VIEs | ¥ | ¥ 20 | |||||
Ku6 Network | ||||||
Variable Interest Entity [Line Items] | ||||||
Interest-free loans to the nominee shareholders of VIEs | ¥ | 10 | |||||
Ku6 Culture | ||||||
Variable Interest Entity [Line Items] | ||||||
Interest-free loans to the nominee shareholders of VIEs | ¥ | ¥ 1 | |||||
Consolidated VIEs | ||||||
Variable Interest Entity [Line Items] | ||||||
Cash and cash equivalents | 2,329,590 | 153,648 | ||||
Accounts receivable | 105,762 | 68,347 | ||||
Amounts due from related parties | 501 | 415 | ||||
Property and equipment | 171 | |||||
Investment in affiliates | 168,610 | |||||
Deposits and other non-current assets | 321,709 | |||||
Total assets | 2,757,733 | 391,020 | ||||
Registered capital and PRC additional paid-in-capital of VIEs | 4,900,000 | 4,800,000 | ||||
Accounts payable | 250,084 | 246,235 | ||||
Amounts due to related parties within the Group | 20,235,986 | 19,382,456 | ||||
Accrued expenses and other current liabilities | 1,283,410 | 244,666 | ||||
Other payables due to related parties within the Group | 8,413,361 | 8,502,294 | ||||
Current portion of service obligation to related party affiliate | 24,700 | |||||
Total current liabilities | 30,182,841 | 28,400,351 | ||||
Long-term service obligation to related party affiliate | 160,548 | |||||
Total liabilities | 30,182,841 | 28,560,899 | ||||
Total deficit | 27,400,000 | $ 28,200,000 | ||||
Net revenue | 11,680,860 | 8,850,824 | 14,483,007 | |||
Net profit (loss) | (2,217,143) | (910,807) | 4,746,859 | |||
Charges from VIEs included in net revenue | $ 1,500,000 | $ 2,600,000 | $ 2,300,000 |
SUMMARY OF SIGNIFICANT ACCOUN52
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) | 12 Months Ended | |||||||
Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | Dec. 31, 2015CNY (¥) | Dec. 31, 2015USD ($) | Aug. 31, 2015 | Dec. 31, 2014CNY (¥) | Dec. 31, 2014USD ($) | |
Schedule of Significant Accounting Policies [Line Items] | ||||||||
Non-controlling interests | $ 0 | $ 0 | $ 0 | |||||
Net income attributed to non-controlling interests | $ 0 | $ 0 | 0 | |||||
Comprehensive income attributed to non-controlling interests | $ 0 | $ 0 | 0 | |||||
Rate of exchange RMB for U.S. dollar | 6.4778 | 6.4778 | 6.2046 | 6.2046 | ||||
Average rate of exchange RMB for U.S. dollar | 6.2831 | 6.1620 | ||||||
Provisions | $ 0 | $ 1,038,047 | ||||||
Impairment of investments in affiliated companies | $ 0 | 0 | $ 0 | |||||
Beijing Modo | ||||||||
Schedule of Significant Accounting Policies [Line Items] | ||||||||
Equity interest of equity method investment | 30.00% | 30.00% | 30.00% | |||||
Shengyue | ||||||||
Schedule of Significant Accounting Policies [Line Items] | ||||||||
Provisions | $ 970,000 | |||||||
RMB | ||||||||
Schedule of Significant Accounting Policies [Line Items] | ||||||||
Cash balances denominated in RMB | ¥ 45,692,943 | $ 7,053,757 | ¥ 21,691,760 | $ 3,496,083 |
SUMMARY OF SIGNIFICANT ACCOUN53
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) | 12 Months Ended |
Dec. 31, 2015 | |
Furniture and office equipment | |
Property, Plant and Equipment [Line Items] | |
Estimated useful lives of property and equipment | 3 years |
Telecommunications equipment | |
Property, Plant and Equipment [Line Items] | |
Estimated useful lives of property and equipment | 3 years |
Leasehold improvements | |
Property, Plant and Equipment [Line Items] | |
Estimated useful lives of property and equipment | Lesser of original lease term or estimated useful life |
SUMMARY OF SIGNIFICANT ACCOUN54
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2013 | Dec. 31, 2014 | |
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Book value of acquired intangible assets | $ 0 | $ 0 | $ 0 |
Impairment of goodwill | $ 6,232,770 | ||
Trademark | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Estimated useful economic lives of acquired intangible assets | 20 years | ||
Technology | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Estimated useful economic lives of acquired intangible assets | 7 years |
SUMMARY OF SIGNIFICANT ACCOUN55
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 6) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Impairment of intangible assets | $ 0 | $ 0 | $ 20,993,137 |
Impairment of fixed assets | 0 | 0 | $ 0 |
Financial assets measured at fair value | 0 | 0 | |
Financial liabilities measured at fair value | $ 0 | $ 0 |
SUMMARY OF SIGNIFICANT ACCOUN56
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 7) | 8 Months Ended | 12 Months Ended | |||
Aug. 28, 2014agreement | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($)agreement | Dec. 31, 2013USD ($) | Aug. 31, 2015 | |
Schedule of Significant Accounting Policies [Line Items] | |||||
Excess amount resulting in an insignificant additional amount of revenue | $ 0 | ||||
Beijing Modo | |||||
Schedule of Significant Accounting Policies [Line Items] | |||||
Equity interest of equity method investment | 30.00% | 30.00% | |||
Shengyue | |||||
Schedule of Significant Accounting Policies [Line Items] | |||||
Number of agreements | agreement | 2 | ||||
Commission fees | $ 0 | $ 0 | |||
Revenue from related party | $ 2,703,492 | $ 12,404,031 | |||
Huzhong | |||||
Schedule of Significant Accounting Policies [Line Items] | |||||
Percentage of minimum guaranteed amounts, to be prepaid by Huzhong prior to the beginning of the month | 50.00% | ||||
Qinhe | |||||
Schedule of Significant Accounting Policies [Line Items] | |||||
Number of agreements | agreement | 2 | ||||
Revenue from related party | $ 0 | $ 1,613,606 | |||
Maximum period shared revenues are to be paid by Qinhe | 30 days | ||||
Beijing Modo | |||||
Schedule of Significant Accounting Policies [Line Items] | |||||
Revenue from related party | $ 115,715 | ||||
Maximum period shared revenues are to be paid by Qinhe | 30 days |
SUMMARY OF SIGNIFICANT ACCOUN57
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 8) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Schedule of Significant Accounting Policies [Line Items] | |||
Advertising expenses | $ 7,353 | $ 0 | $ 287,070 |
Portion of after-tax profit to be allocated to general reserve under PRC Law | 10.00% | ||
Statutory reserves | $ 0 | ||
Appropriations to general reserve or statutory reserve | 0 | 0 | 0 |
Tax effect of cumulative foreign currency translation adjustments included in other comprehensive income (loss) | 0 | 0 | 0 |
Cash subsidies granted by local government | $ 0 | $ 135,265 | $ 1,484,789 |
Subsidiaries | |||
Schedule of Significant Accounting Policies [Line Items] | |||
Portion of after-tax profit to be allocated to general reserve under PRC Law | 10.00% | ||
Percentage rate of registered capital, general reserve reached, appropriation not required | 50.00% | ||
Consolidated VIEs | |||
Schedule of Significant Accounting Policies [Line Items] | |||
Portion of after-tax profit to be allocated to statutory reserve under PRC Law | 10.00% | ||
Percentage rate of registered capital, statutory reserve reached, appropriation not required | 50.00% |
PREPAID EXPENSES AND OTHER CU58
PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
PREPAID EXPENSES AND OTHER CURRENT ASSETS | ||
Staff advances and other receivables | $ 265,739 | $ 186,950 |
Prepaid expenses | 185,500 | 192,379 |
Advances to suppliers | 76,461 | 111,026 |
Prepaid expenses and other current assets | $ 527,700 | $ 490,355 |
PROPERTY AND EQUIPMENT, NET (De
PROPERTY AND EQUIPMENT, NET (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 7,088,889 | $ 6,931,170 | |
Less: Accumulated depreciation | (6,574,316) | (6,637,603) | |
Property and equipment, net | 514,573 | 293,567 | |
Depreciation expense | 543,861 | 1,048,398 | $ 1,829,963 |
Total property and equipment disposal gains | 114,379 | 403 | 237,874 |
Remaining net book value of property and equipment disposed | 0 | 0 | $ 0 |
Furniture and office equipment | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 596,598 | 844,028 | |
Telecommunications equipment | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 5,164,115 | 4,715,398 | |
Leasehold improvements | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 1,328,176 | $ 1,371,744 |
ACQUIRED INTANGIBLE ASSETS, N60
ACQUIRED INTANGIBLE ASSETS, NET (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Gross carrying amount | $ 27,099,170 | ||
Accumulated amortization | (6,106,033) | ||
Impairment | (20,993,137) | ||
Net carrying amount | $ 0 | $ 0 | 0 |
Amortization expenses | $ 0 | $ 0 | 1,558,987 |
Trademark | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Gross carrying amount | 24,901,940 | ||
Accumulated amortization | (4,876,630) | ||
Impairment | (20,025,310) | ||
Technology | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Gross carrying amount | 2,197,230 | ||
Accumulated amortization | (1,229,403) | ||
Impairment | $ (967,827) |
INVESTMENTS IN AFFILIATES (Deta
INVESTMENTS IN AFFILIATES (Details) - USD ($) | 12 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Apr. 10, 2012 | |
Schedule of Equity Method Investments [Line Items] | ||||
Carrying value of equity method investments | $ 168,610 | $ 0 | ||
Share of loss | $ (16,879) | |||
Yisheng | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Equity interest of equity method investment | 20.00% | 20.00% | ||
Carrying value of equity method investments | $ 0 | 0 | ||
Share of loss | $ 0 | $ 0 | $ 0 |
INVESTMENTS IN AFFILIATES (De62
INVESTMENTS IN AFFILIATES (Details 2) ¥ in Thousands | 1 Months Ended | 12 Months Ended | ||
Aug. 31, 2015CNY (¥) | Aug. 31, 2015USD ($) | Dec. 31, 2015USD ($)item | Aug. 31, 2015USD ($) | |
Schedule of Equity Method Investments [Line Items] | ||||
Total cash contributed | $ 46,312 | |||
Amount of investment, not transacted using cash, but rather financed with the balance of the service obligation | 138,936 | |||
Investment in affiliates, beginning balance | 0 | |||
Investments | 185,248 | |||
Share of loss | (16,879) | |||
Foreign currency translation | 241 | |||
Investment in affiliates, ending balance | $ 168,610 | |||
Beijing Modo | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Amount considered as paid-in capital, paid by Beijing Jingying | ¥ | ¥ 1,000 | |||
Equity interest of equity method investment | 30.00% | 30.00% | 30.00% | |
Amount considered as capital surplus | ¥ 3,000 | $ 460,000 | ||
Estimated service period | 10 years | |||
Equity interest percentage owned by other parties | 70.00% | |||
Total number of board seats | item | 3 | |||
Initial value | 1,200 | $ 190,000 | ||
Legal right percentage | 30.00% | |||
Amount of investment, not transacted using cash, but rather financed with the balance of the service obligation | 900 | 140,000 | ||
Investments | $ 185,248 | |||
Share of loss | (16,879) | |||
Foreign currency translation | 241 | |||
Investment in affiliates, ending balance | $ 168,610 | |||
Beijing Jingying | Beijing Modo | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Amount considered as paid-in capital, paid by Beijing Jingying | 150 | 20,000 | ||
Beijing Jingying | Beijing Modo | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Total cash contributed | 4,000 | 620,000 | ||
Amount considered as paid-in capital, paid by Beijing Jingying | 300 | 50,000 | ||
Equity interest of equity method investment | 15.00% | |||
Beijing Jingying | Beijing Catshow | Beijing Modo | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Amount considered as paid-in capital, paid by Beijing Jingying | ¥ 550 | $ 80,000 | ||
Beijing Catshow | Beijing Modo | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Equity interest of equity method investment | 55.00% | 55.00% | 55.00% |
INVESTMENTS IN AFFILIATES (De63
INVESTMENTS IN AFFILIATES (Details 3) | Jul. 25, 2014CNY (¥) | Jul. 25, 2014USD ($) | Jun. 16, 2014CNY (¥) | Dec. 31, 2014USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2013USD ($) | Dec. 31, 2012USD ($) | Apr. 10, 2012USD ($) |
Investment Holdings [Line Items] | ||||||||
Carrying value of equity method investments | $ 0 | $ 168,610 | ||||||
Gain from disposal of equity interest in affiliate | 1,451,979 | |||||||
Yisheng | ||||||||
Investment Holdings [Line Items] | ||||||||
Equity interest of equity method investment | 20.00% | 20.00% | ||||||
Carrying value of equity method investments | 0 | $ 0 | ||||||
Bale | ||||||||
Investment Holdings [Line Items] | ||||||||
Equity interest of equity method investment | 20.00% | |||||||
Original cost basis | $ 0 | |||||||
Carrying value of equity method investments | $ 0 | $ 0 | ||||||
Percentage of equity interest disposed | 10.00% | |||||||
Sale price of equity interest in affiliates | ¥ | ¥ 9,000,000 | |||||||
Gain from disposal of equity interest in affiliate | ¥ 9,000,000 | $ 1,451,979 | ||||||
Equity interest of cost method investment | 7.00% | |||||||
Carry value of cost method investment | $ 0 | $ 0 |
GOODWILL (Details)
GOODWILL (Details) | 12 Months Ended | ||
Dec. 31, 2015USD ($)segmentitem | Dec. 31, 2013USD ($) | Dec. 31, 2014USD ($) | |
Goodwill | |||
Goodwill, beginning balance | $ 6,232,770 | ||
Impairment | $ (6,232,770) | ||
Number of reporting units | item | 1 | ||
Number of Operating Segments | segment | 1 | ||
Fair value of goodwill | $ 0 | $ 0 | |
Minimum | |||
Goodwill | |||
Discount rate used for fair value of goodwill | 20.00% |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
FAIR VALUE MEASUREMENTS | |||
Financial assets measured at fair value on a recurring basis | $ 0 | $ 0 | |
Financial liabilities measured at fair value on a recurring basis | 0 | 0 | |
Impairment loss for intangible assets | 0 | 0 | $ 20,993,137 |
Impairment loss for goodwill | $ 6,232,770 | ||
Fair value of long-lived Level 3 classified assets | $ 0 | $ 0 |
ACCRUED EXPENSES AND OTHER CU66
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | ||
Accrued professional service fees | $ 1,506,743 | $ 1,604,240 |
Accrued welfare benefits | 1,229,205 | 1,289,157 |
Accrued litigation provision | 1,002,284 | 1,653,032 |
Accrued promotion expenses | 639,104 | |
Accrued payroll | 523,887 | 452,583 |
Advances from customers | 135,533 | 191,022 |
Indirect taxes payable | 57,268 | 297,293 |
Other accrued expenses | 595,584 | 492,837 |
Accrued expenses and other current liabilities | $ 5,689,608 | $ 5,980,164 |
OTHER INCOME, NET (Details)
OTHER INCOME, NET (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
OTHER INCOME, NET | |||
Reimbursement from depository bank related to ADR program | $ 117,349 | $ 92,144 | $ 240,470 |
Sub-lease income | 75,313 | 276,895 | 317,915 |
Gain on derecognition of long-aged operating liabilities | 13,891 | 206,533 | 2,938,250 |
Government subsidies | 0 | 135,265 | 1,484,789 |
Provision for Seed Music receivable (related party) | (980,000) | ||
Other | (3,971) | 35,121 | 99,615 |
Total | $ 202,582 | $ 745,958 | $ 4,101,039 |
OTHER INCOME, NET (Details 2)
OTHER INCOME, NET (Details 2) - USD ($) | 12 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Other income, net | ||||
Gain from derecognition of long-aged operating liabilities | $ 13,891 | $ 206,533 | $ 2,938,250 | |
Seed Music | ||||
Other income, net | ||||
Loan receivables from related party | 0 | $ 980,000 | ||
Accounts payable- sales rebate payables | ||||
Other income, net | ||||
Gain from derecognition of long-aged operating liabilities | $ 206,533 | 1,077,242 | ||
Accounts payable- third party commissions | ||||
Other income, net | ||||
Gain from derecognition of long-aged operating liabilities | 818,914 | |||
Other accrued expenses payable | ||||
Other income, net | ||||
Gain from derecognition of long-aged operating liabilities | $ 1,042,094 |
RELATED PARTY TRANSACTIONS AN69
RELATED PARTY TRANSACTIONS AND BALANCES (Details) ¥ in Millions | Mar. 04, 2015CNY (¥) | May. 30, 2014CNY (¥) | May. 30, 2014USD ($) | Apr. 10, 2014CNY (¥) | Apr. 10, 2014USD ($) | Apr. 03, 2014USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | Aug. 31, 2015 | Apr. 10, 2012 |
Related Party Transaction [Line Items] | |||||||||||
Equity contribution from Shanda | $ 5,847,070 | ||||||||||
Borrowings from related party | $ 4,631,190 | ||||||||||
Loan repayments from related parties under common control of Shanda | 498,583 | $ 3,300,000 | |||||||||
Loan repayment to related parties | 3,303,760 | ||||||||||
Interest income from related parties | 3,388 | 28,856 | |||||||||
Interest expenses for loans from related parties | 260,830 | 16,365 | |||||||||
Shengyue | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Revenue from related party | 2,703,492 | 12,404,031 | |||||||||
Qinhe | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Revenue from related party | 0 | 1,613,606 | |||||||||
Beijing Modo | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Revenue from related party | 115,715 | ||||||||||
Assumption of liability for service obligation to a related party | 185,248 | ||||||||||
Sheng Payment | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Revenue from related party | 5,231 | ||||||||||
Shanda Network | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Technical service fees in cost of revenues paid to related parties | 510,854 | 673,899 | 335,504 | ||||||||
Technical service fees in cost of revenues payable but forgiven by related parties | 235,876 | ||||||||||
Rental fee payable but forgiven by related parties | 170,086 | ||||||||||
Purchase of equipment/fixed assets from related parties | 763,038 | ||||||||||
Shengjin | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Rental fee payable but forgiven by related parties | 23,926 | ||||||||||
Shanda Media Group Ltd. | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Interest expense payable but forgiven by related parties | 375,000 | ||||||||||
Hurray! Media Co., Ltd. | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Receivables due from related parties but forgiven as to repayment | 1,246,641 | ||||||||||
Companies under control of Shanda | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Purchase of equipment/fixed assets from related parties | 188,334 | ||||||||||
Shanda | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Receivables due from related parties but forgiven as to repayment | $ 1,200,000 | ||||||||||
Equity contribution from Shanda | ¥ 16.1 | $ 2,600,000 | ¥ 20 | $ 3,200,000 | 5,847,070 | ||||||
Mr. Xu | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Borrowings from related party | ¥ 30 | 4,631,190 | |||||||||
Shanda Capital Limited | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Loan repayments from related parties under common control of Shanda | 470,000 | ||||||||||
Loan to related parties | 13,865 | ||||||||||
Interest income from related parties | $ 3,388 | 14,620 | |||||||||
Shanda Games Limited | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Loan repayments from related parties under common control of Shanda | 3,300,000 | ||||||||||
Interest income from related parties | 14,236 | ||||||||||
Shanda Computer | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Interest expenses for loans from related parties | $ 260,830 | ||||||||||
Shanghai Shulong Computer and Shanghai Shulong | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Interest expenses for loans from related parties | 16,365 | ||||||||||
Shanghai Shulong Computer | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Loan repayment to related parties | $ 3,303,760 | ||||||||||
Beijing Modo | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Equity interest of equity method investment | 30.00% | 30.00% | |||||||||
Yisheng | |||||||||||
Related Party Transaction [Line Items] | |||||||||||
Equity interest of equity method investment | 20.00% | 20.00% |
RELATED PARTY TRANSACTIONS AN70
RELATED PARTY TRANSACTIONS AND BALANCES (Details 2) ¥ in Millions | May. 12, 2015CNY (¥) | Mar. 04, 2015CNY (¥) | Feb. 02, 2015CNY (¥) | Feb. 02, 2015USD ($) | May. 19, 2014CNY (¥) | May. 19, 2014USD ($) | Apr. 03, 2014CNY (¥) | Apr. 03, 2014USD ($) | Apr. 01, 2011 | May. 31, 2014CNY (¥) | May. 31, 2014USD ($) | Aug. 28, 2014agreement | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($)agreement | Aug. 31, 2015 |
Related Party Transaction [Line Items] | |||||||||||||||
Net effect of borrowings from and receivables due from Shanda affiliates waived as to repayment and recharacterized as equity contribution | $ 5,405,317 | ||||||||||||||
Borrowings from related party | $ 4,631,190 | ||||||||||||||
Beijing Modo | |||||||||||||||
Related Party Transaction [Line Items] | |||||||||||||||
Equity interest of equity method investment | 30.00% | 30.00% | |||||||||||||
Shengyue | |||||||||||||||
Related Party Transaction [Line Items] | |||||||||||||||
Number of agreements | agreement | 2 | ||||||||||||||
Shengyue | Old advertising agency agreement with Shengyue | |||||||||||||||
Related Party Transaction [Line Items] | |||||||||||||||
Term of cooperative agreement with related party | 1 year 9 months | ||||||||||||||
Qinhe | |||||||||||||||
Related Party Transaction [Line Items] | |||||||||||||||
Number of agreements | agreement | 2 | ||||||||||||||
Shanda | |||||||||||||||
Related Party Transaction [Line Items] | |||||||||||||||
Loan from related party | ¥ 21.4 | $ 3,400,000 | ¥ 20 | $ 3,200,000 | ¥ 36.1 | $ 5,800,000 | |||||||||
Related party payables forgiven | 5.3 | 800,000 | |||||||||||||
Related party receivables forgiven | 1,200,000 | ||||||||||||||
Net effect of borrowings from and receivables due from Shanda affiliates waived as to repayment and recharacterized as equity contribution | ¥ 21.4 | $ 3,400,000 | $ 2,000,000 | $ 5,400,000 | |||||||||||
Term of the loan | 12 months | 12 months | |||||||||||||
Mr. Xu | |||||||||||||||
Related Party Transaction [Line Items] | |||||||||||||||
Loan from related party | ¥ 30 | $ 4,840,000 | |||||||||||||
Term of the loan | 1 year | 1 year | |||||||||||||
Interest rate, per annum | 6.50% | 6.50% | |||||||||||||
Borrowings from related party | ¥ 30 | $ 4,631,190 | |||||||||||||
Shanda Computer | Mr. Xu | |||||||||||||||
Related Party Transaction [Line Items] | |||||||||||||||
Payment in exchange for loan transfer | ¥ | ¥ 30.3 |
RELATED PARTY TRANSACTIONS AN71
RELATED PARTY TRANSACTIONS AND BALANCES (Details 3) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Related Party Transaction [Line Items] | ||
Accounts receivable due from related parties | $ 12,117 | $ 972 |
Other receivables due from related parties | 2,924 | |
Beijing Modo | ||
Related Party Transaction [Line Items] | ||
Accounts receivable due from related parties | 11,186 | |
Sheng Payment | ||
Related Party Transaction [Line Items] | ||
Accounts receivable due from related parties | $ 931 | 972 |
Shanda Computer | ||
Related Party Transaction [Line Items] | ||
Other receivables due from related parties | $ 2,924 |
RELATED PARTY TRANSACTIONS AN72
RELATED PARTY TRANSACTIONS AND BALANCES (Details 4) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Related Party Transaction [Line Items] | ||
Accounts payable due to related parties | $ 912,534 | $ 709,911 |
Related party loan | 4,631,190 | |
Shanda Network | ||
Related Party Transaction [Line Items] | ||
Accounts payable due to related parties | 912,534 | $ 709,911 |
Shanda Computer | ||
Related Party Transaction [Line Items] | ||
Related party loan | $ 4,631,190 |
RELATED PARTY TRANSACTIONS AN73
RELATED PARTY TRANSACTIONS AND BALANCES (Details 5) ¥ in Millions | May. 12, 2015CNY (¥) | Feb. 02, 2015CNY (¥) | Feb. 02, 2015USD ($) | Dec. 31, 2015USD ($) |
Related Party Transaction [Line Items] | ||||
Accrued expenses due to related parties | $ 253,365 | |||
Shanda Computer | ||||
Related Party Transaction [Line Items] | ||||
Accrued expenses due to related parties | $ 253,365 | |||
Mr. Xu | ||||
Related Party Transaction [Line Items] | ||||
Loan from related party | ¥ 30 | $ 4,840,000 | ||
Term of the loan | 1 year | 1 year | ||
Interest rate, per annum | 6.50% | 6.50% | ||
Mr. Xu | Shanda Computer | ||||
Related Party Transaction [Line Items] | ||||
Payment in exchange for loan transfer | ¥ | ¥ 30.3 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Income Taxes | |||
Corporate income tax rate | 25.00% | 25.00% | 25.00% |
Deferred income tax expense (benefit) | $ (4,826,059) | ||
Total | $ (4,826,059) | ||
Subsidiaries and/ or VIEs in PRC | |||
Income Taxes | |||
Corporate income tax rate | 25.00% |
INCOME TAXES (Details 2)
INCOME TAXES (Details 2) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Current deferred tax assets: | ||
Cost and expense accruals | $ 2,214,987 | $ 1,352,773 |
Revenue recognition | 714,122 | 401,436 |
Less: valuation allowance | (2,929,109) | (1,754,209) |
Non-current deferred tax assets: | ||
Depreciation and amortization | 28,713 | 92,195 |
Net operating loss carry forwards | 13,648,618 | 22,017,057 |
Less: valuation allowance | $ (13,677,331) | $ (22,109,252) |
INCOME TAXES (Details 3)
INCOME TAXES (Details 3) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
INCOME TAXES | |||
Statutory tax rate | 25.00% | 25.00% | 25.00% |
Differential statutory tax rates | (2.10%) | (1.40%) | (5.00%) |
Non-deductible expenses | (7.20%) | (1.10%) | (14.80%) |
Change in deferred tax liabilities | 12.30% | ||
Change in valuation allowance | (15.70%) | (22.50%) | (5.20%) |
Effective tax rate | 0.00% | 0.00% | 12.30% |
INCOME TAXES (Details 4)
INCOME TAXES (Details 4) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Valuation and qualifying accounts disclosure | |||
At beginning of year | $ (23,863,461) | ||
At end of year | (16,606,440) | $ (23,863,461) | |
Valuation Allowance of Deferred Tax Assets | |||
Valuation and qualifying accounts disclosure | |||
At beginning of year | (23,863,461) | (26,251,543) | $ (24,303,518) |
Current year additions | (309,697) | (71,991) | (1,239,840) |
Current year reversals | 6,866,306 | 1,879,698 | |
Effect of exchange rate changes | 700,412 | 580,375 | (708,185) |
At end of year | $ (16,606,440) | $ (23,863,461) | $ (26,251,543) |
INCOME TAXES (Details 5)
INCOME TAXES (Details 5) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
INCOME TAXES | ||
Tax loss carry forwards | $ 54,600,000 | $ 88,100,000 |
Limited period for tax loss carry forwards | 5 years | |
Valuation allowance | $ 16,606,440 | 23,863,461 |
Liabilities for unrecognized tax benefits | $ 0 | $ 0 |
Withholding income tax rate on dividends arising from profits of foreign invested enterprises under PRC EIT Law | 10.00% | |
Undistributed earnings of the Group's subsidiaries located in the PRC | $ 0 | |
Provision made for withholding taxes | $ 0 |
REPURCHASE OF SHARES (Details)
REPURCHASE OF SHARES (Details) - ADS - USD ($) | 12 Months Ended | |
Dec. 31, 2013 | Dec. 30, 2011 | |
Repurchase of shares | ||
Authorized amount to repurchase | $ 3,200,000 | |
Unrelated third parties | ||
Repurchase of shares | ||
Stock repurchased | 57,982 | |
Aggregate consideration of repurchased shares | $ 58,147 | |
Weighted average price per share | $ 1 |
EQUITY COMPENSATION PLANS (Deta
EQUITY COMPENSATION PLANS (Details) - 2004 Share Incentive Plan - shares | 12 Months Ended | ||||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 03, 2010 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Options outstanding | 0 | 1,620,000 | 15,720,000 | 34,669,372 | |
Number of ordinary shares terminated and unavailable for future grant | 185,550,800 | ||||
Stock options | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Expiration term from the date of grant | 10 years | ||||
Stock options | Minimum | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Award vesting period | 3 years | ||||
Stock options | Maximum | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Award vesting period | 4 years |
EQUITY COMPENSATION PLANS (De81
EQUITY COMPENSATION PLANS (Details 2) - $ / shares | 12 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Ordinary shares | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share price | $ 0.0086 | $ 0.0100 | $ 0.0282 | |
2004 Share Incentive Plan | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Options Outstanding, Beginning Balance | 1,620,000 | 15,720,000 | 34,669,372 | |
Options Outstanding, Exercised | 0 | 0 | 0 | |
Options Outstanding, Cancelled or Expired | (18,949,372) | |||
Options Outstanding, Expired | (1,620,000) | (14,100,000) | ||
Options Outstanding, Ending Balance | 0 | 1,620,000 | 15,720,000 | 34,669,372 |
Weighted Average Exercise Price, Outstanding, Beginning balance | $ 0.103 | $ 0.116 | $ 0.094 | |
Weighted Average Exercise Price, Cancelled or Expired | 0.076 | |||
Weighted Average Exercise Price, Expired | $ 0.103 | 0.117 | ||
Weighted Average Exercise Price, Outstanding, Ending balance | $ 0.103 | $ 0.116 | $ 0.094 | |
Weighted Average Remaining Contractual Life, Outstanding | 0 years | 1 month 10 days | 10 months 21 days |
EQUITY COMPENSATION PLANS (De82
EQUITY COMPENSATION PLANS (Details 3) - 2010 Equity Compensation Plan | Jul. 17, 2015$ / sharesshares | Dec. 11, 2013USD ($) | Jun. 03, 2013$ / sharesshares | May. 07, 2013$ / sharesshares | Dec. 31, 2015USD ($)installment$ / sharesshares | Dec. 31, 2014USD ($)shares | Dec. 31, 2013USD ($)$ / sharesshares | Sep. 30, 2013 | Dec. 31, 2010shares |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Granted stock options | 137,400,000 | 323,900,000 | |||||||
Options, exercise price | $ / shares | $ 0.0108 | $ 0.0105 | |||||||
Stock options | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Granted stock options | 0 | ||||||||
Stock options | Ordinary shares | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Number of ordinary shares authorized for issuance of options | 698,381,300 | ||||||||
Stock options | Employees | Ordinary shares | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Granted stock options | 137,400,000 | 50,600,000 | |||||||
Options, exercise price | $ / shares | $ 0.0108 | ||||||||
Contractual term | 6 years | ||||||||
Stock options | Employees and senior management | Ordinary shares | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Granted stock options | 254,100,000 | ||||||||
Options, exercise price | $ / shares | $ 0.0103 | ||||||||
Contractual term | 6 years | ||||||||
Stock options | Senior management | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Percentage of shares of options attributable to vest | 60.00% | ||||||||
Total incremental compensation cost | $ | $ 370,000 | ||||||||
Incremental compensation cost, recorded in current period | $ | $ 180,000 | ||||||||
Incremental compensation cost, amortized over remaining vesting period of options | $ | 190,000 | ||||||||
Stock options | Senior management | Prior to 2013 | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Award vesting period | 4 years | ||||||||
Number of vesting installment | installment | 16 | ||||||||
Number of installment vest and become exercisable at the first anniversary | installment | 2 | ||||||||
Period over which the installments shall vest and become exercisable at the first first anniversary | 6 months | ||||||||
Percentage of installment of the total options having the opportunity to be earned for each quarter contingent on the achievement of positive quarterly operating income for the quarter | 6.25% | ||||||||
Maximum number of installments to be earned | installment | 14 | ||||||||
Period over which earned options shall vest and become exercisable | 12 months | ||||||||
Stock options | Senior management | 2013 | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Award vesting period | 4 years | ||||||||
Vesting percentage on each of the anniversaries | 25.00% | ||||||||
Stock options | Senior management | Ordinary shares | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Granted stock options | 69,800,000 | 140,000,000 | |||||||
Options, exercise price | $ / shares | $ 0.0113 | ||||||||
Contractual term | 6 years | ||||||||
Stock options | Senior management and employees of Shanda | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Share-based compensation expense | $ | $ 20,243 | $ 15,475 | 52,888 | ||||||
Stock options | Senior management and employees of Shanda | Ordinary shares | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Granted stock options | 63,500,000 | ||||||||
Stock options | Directors and employees | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Award vesting period | 4 years | ||||||||
Vesting percentage on each of the anniversaries | 25.00% | ||||||||
Stock options | Employees, senior management and directors | |||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||
Share-based compensation expense | $ | $ 258,454 | $ 600,995 | $ 1,023,871 |
EQUITY COMPENSATION PLANS (De83
EQUITY COMPENSATION PLANS (Details 4) - USD ($) | 12 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Ordinary shares | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share price | $ 0.0086 | $ 0.0100 | $ 0.0282 | |
2010 Equity Compensation Plan | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Options Outstanding, Beginning Balance | 220,706,500 | 511,294,000 | 305,256,000 | |
Options Outstanding, Granted | 137,400,000 | 323,900,000 | ||
Options Outstanding, Exercised | (8,250,000) | (32,712,500) | (4,000,000) | |
Options Outstanding, Cancelled or expired | (113,862,000) | |||
Options Outstanding, Forfeited | (95,836,500) | (257,875,000) | ||
Options Outstanding, Ending Balance | 254,020,000 | 220,706,500 | 511,294,000 | 305,256,000 |
Options Outstanding, Vested and expected to vest | 252,808,000 | |||
Options Outstanding, Vested and exercisable | 97,565,625 | |||
Weighted Average Exercise Price, Outstanding, Beginning balance | $ 0.0280 | $ 0.0189 | $ 0.0324 | |
Weighted Average Exercise Price, Granted | 0.0108 | 0.0105 | ||
Weighted Average Exercise Price, Exercised | 0.0103 | 0.0103 | 0.0116 | |
Weighted Average Exercise Price, Cancelled or expired | 0.0317 | |||
Weighted Average Exercise Price, Forfeited | 0.0280 | 0.0121 | ||
Weighted Average Exercise Price, Outstanding, Ending balance | 0.0192 | $ 0.0280 | $ 0.0189 | $ 0.0324 |
Weighted Average Exercise Price, Vested and expected to vest | 0.0173 | |||
Weighted Average Exercise Price, Vested and exercisable | $ 0.0349 | |||
Weighted Average Remaining Contractual Life, Outstanding | 2 years 8 months 12 days | 2 years 11 months 19 days | 4 years 8 months 12 days | 4 years 6 months 26 days |
Weighted Average Remaining Contractual Life, Vested and expected to vest | 2 years 10 months 2 days | |||
Weighted Average Remaining Contractual Life, Vested and exercisable | 1 year 8 months 12 days | |||
Aggregate Intrinsic Value, Outstanding | $ 6,514,815 | |||
Aggregate intrinsic value, exercised | $ 13,300 | $ 138,955 | $ 55,213 | |
Weighted average grant-date fair value of options granted in period | $ 0.0057 | $ 0 | $ 0.0071 | |
Number of options vested in period | 34,232,500 | 51,602,500 | ||
2010 Equity Compensation Plan | Stock options | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Options Outstanding, Granted | 0 | |||
Share price | $ 0.0057 | |||
2010 Equity Compensation Plan | Stock options | Employees, senior management and directors | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Unrecognized compensation cost | $ 790,000 | |||
Weighted average period, unrecognized compensation cost to be recognized | 1 year 6 months 18 days |
EQUITY COMPENSATION PLANS (De84
EQUITY COMPENSATION PLANS (Details 5) - 2010 Equity Compensation Plan - Stock options - $ / shares | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2013 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Fair value of ordinary shares ($) | $ 0.0057 | |
Exercise price ($) | $ 0.0108 | |
Expected volatility (%) | 98.00% | 94.00% |
Expected dividend yield (%) | 0.00% | 0.00% |
Expected term (years) | 4 years 3 months | 3 years 6 months |
Risk-free interest rate (per annum) (%) | 1.4375% | |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Fair value of ordinary shares ($) | $ 0.0106 | |
Exercise price ($) | $ 0.0103 | |
Risk-free interest rate (per annum) (%) | 1.3445% | |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Fair value of ordinary shares ($) | $ 0.0131 | |
Exercise price ($) | $ 0.0113 | |
Risk-free interest rate (per annum) (%) | 1.3843% |
EQUITY COMPENSATION PLANS (De85
EQUITY COMPENSATION PLANS (Details 6) - 2010 Equity Compensation Plan - Restricted Shares - USD ($) | Jun. 17, 2015 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Granted (in shares) | 62,600,000 | 0 | 0 | |
Forfeited (in shares) | (620,000) | |||
Outstanding Awards, Ending Balance | 61,980,000 | |||
Granted (USD per share) | $ 0.0086 | |||
Forfeited (USD per share) | 0.0086 | |||
Outstanding, Ending Balance (USD per share) | $ 0.0086 | |||
Vested and expected to vest (in shares) | 43,386,000 | |||
Vested and expected to vest (USD per share) | $ 0.0086 | |||
Employees | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Award vesting period | 4 years | |||
Allocated Share-based Compensation Expense | $ 23,489 | |||
Fair value at the grant dates | 538,360 | |||
Granted (in shares) | 62,600,000 | |||
Unrecognized compensation cost | $ 330,000 | |||
Weighted average period, unrecognized compensation cost to be recognized | 3 years 6 months 18 days |
SEGMENT INFORMATION (Details)
SEGMENT INFORMATION (Details) | 12 Months Ended |
Dec. 31, 2015segment | |
SEGMENT INFORMATION | |
Number of operating segments | 1 |
NET LOSS PER SHARE (Details)
NET LOSS PER SHARE (Details) | 12 Months Ended | ||
Dec. 31, 2015USD ($)$ / sharesshares | Dec. 31, 2014USD ($)$ / sharesshares | Dec. 31, 2013USD ($)$ / sharesshares | |
Schedule of Calculation of Numerator and Denominator in Loss Per Share [Line Items] | |||
Number of ordinary shares represented by one share of ADS | 100 | 100 | 100 |
Numerator: | |||
Net loss | $ | $ (2,051,182) | $ (10,727,642) | $ (34,427,734) |
Ordinary shares | |||
Denominator: | |||
Weighted-average shares outstanding for basic calculation | 4,767,742,804 | 4,746,324,022 | 4,728,185,434 |
Weighted-average shares outstanding for diluted calculation | 4,767,742,804 | 4,746,324,022 | 4,728,185,434 |
Loss per share-basic and diluted | |||
Net loss per share - basic and diluted | $ / shares | $ 0 | $ 0 | $ (0.01) |
ADS | |||
Denominator: | |||
Weighted-average shares outstanding for basic calculation | 47,677,428 | 47,463,240 | 47,281,854 |
Weighted-average shares outstanding for diluted calculation | 47,677,428 | 47,463,240 | 47,281,854 |
Loss per share-basic and diluted | |||
Net loss per share - basic and diluted | $ / shares | $ (0.04) | $ (0.23) | $ (0.73) |
CONCENTRATIONS (Details)
CONCENTRATIONS (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Concentration Risk [Line Items] | |||
Revenues | $ 10,909,039 | $ 8,583,642 | $ 13,141,905 |
Shengyue | Net Revenues | Revenue Concentration Risk | |||
Concentration Risk [Line Items] | |||
Percentage of concentration risk | 0.00% | 31.50% | 94.40% |
Huzhong | Net Revenues | Revenue Concentration Risk | |||
Concentration Risk [Line Items] | |||
Percentage of concentration risk | 87.10% | 32.40% | |
Online advertising services | |||
Concentration Risk [Line Items] | |||
Revenues | $ 9,900,000 | $ 7,000,000 | $ 13,100,000 |
Promotional marketing services | |||
Concentration Risk [Line Items] | |||
Revenues | $ 120,000 | $ 1,610,000 | $ 0 |
CONCENTRATIONS (Details 2)
CONCENTRATIONS (Details 2) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Accounts Receivable, Net, Current [Abstract] | ||||
Accounts receivable | $ 492,211 | $ 532,355 | ||
Allowance for doubtful accounts | (400,885) | (418,539) | $ (480,076) | $ (2,172,972) |
Accounts receivable, net of allowance for doubtful accounts | $ 91,326 | $ 113,816 |
CONCENTRATIONS (Details 3)
CONCENTRATIONS (Details 3) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Movement of allowance for doubtful accounts [Abstract] | |||
Balance at beginning of the year | $ 418,539 | $ 480,076 | $ 2,172,972 |
Provisions | 0 | 1,038,047 | |
Reversed | 0 | (49,912) | (310,699) |
Accounts written off | (1,038,047) | (1,435,204) | |
Translation difference | (17,654) | (11,625) | 53,007 |
Balance at end of the year | $ 400,885 | $ 418,539 | $ 480,076 |
MAINLAND CHINA CONTRIBUTION P91
MAINLAND CHINA CONTRIBUTION PLAN (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
MAINLAND CHINA CONTRIBUTION PLAN | |||
Employee benefits of mainland China contribution plan | $ 629,238 | $ 1,059,305 | $ 1,816,719 |
COMMITMENTS AND CONTINGENCIES92
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
COMMITMENTS AND CONTINGENCIES | |||
Leasing expenses | $ 6,030,705 | $ 8,367,927 | $ 9,175,500 |
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |||
Within 1 year | 3,644,516 | ||
Between 1 and 2 years | 310,036 | ||
Between 2 and 3 years | 2,316 | ||
Total | $ 3,956,868 |
COMMITMENTS AND CONTINGENCIES93
COMMITMENTS AND CONTINGENCIES (Details 2) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Loss Contingencies [Line Items] | |||
Accrued litigation provision | $ 1,002,284 | $ 1,653,032 | |
De-recognition of previously accrued litigation provision | $ 584,008 | ||
Rollforward of the accrued litigation provision | |||
Restriction on foreign ownership in internet content and other value-added telecommunication service, maximum percentage | 50.00% | ||
Percentage of shares used as threshold in defining "actual control" | 50.00% | ||
Percentage of voting rights used as threshold in defining "actual control" | 50.00% | ||
Percentage of seats on the board or other equivalent decision making bodies used as threshold in defining "actual control" | 50.00% | ||
Alleged copyright infringement | |||
Rollforward of the accrued litigation provision | |||
At beginning of year | $ 1,653,032 | 2,079,671 | $ 2,077,753 |
Current year additions (reversals) | (584,008) | (333,485) | 141,912 |
Payments during the year | (66,740) | (93,154) | (139,994) |
Balance at end of year | 1,002,284 | 1,653,032 | 2,079,671 |
Unasserted claims | |||
Rollforward of the accrued litigation provision | |||
At beginning of year | 0 | 0 | |
Balance at end of year | $ 0 | $ 0 | $ 0 |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) $ / shares in Units, ¥ in Thousands | Mar. 22, 2016CNY (¥) | Mar. 22, 2016USD ($) | Feb. 02, 2016director | Feb. 01, 2016$ / shares | Jan. 25, 2016CNY (¥) | Jan. 25, 2016USD ($) | Jan. 08, 2016CNY (¥) | Jan. 08, 2016USD ($) | Jan. 31, 2016CNY (¥) | Jan. 31, 2016USD ($) | Dec. 31, 2015USD ($)$ / shares | Dec. 31, 2014USD ($)$ / shares | Apr. 05, 2016$ / shares | Dec. 31, 2013$ / shares |
Subsequent Event [Line Items] | ||||||||||||||
Minimum bid price per NASDAQ requirement | $ 1 | |||||||||||||
Minimum market value per NASDAQ requirement | $ | $ 50,000,000 | |||||||||||||
Amount paid by transferee | $ | $ 1,451,979 | |||||||||||||
Ordinary shares | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Share price | $ 0.0086 | $ 0.0100 | $ 0.0282 | |||||||||||
Subsequent Events | Beijing Modo | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Percentage of equity interest transferred | 30.00% | 30.00% | ||||||||||||
Total price | ¥ 3,000 | $ 460,000 | ||||||||||||
Amount paid by transferee | ¥ 1,000 | $ 150,000 | ¥ 2,000 | $ 310,000 | ||||||||||
Subsequent Events | Shanda Computer | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Amount of loan payable repaid to related party | ¥ 1,950 | $ 310,000 | ||||||||||||
Subsequent Events | Shanda Technology | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Loan from related party | $ | $ 300,000 | |||||||||||||
Term of the loan | 1 year | 1 year | ||||||||||||
Interest rate, per annum | 6.50% | 6.50% | ||||||||||||
Subsequent Events | Shanda | Going-private transaction- non-binding proposed letter | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Number of independent directors to evaluate the proposal | director | 3 | |||||||||||||
Subsequent Events | Shanda | Going-private transaction- non-binding proposed letter | Ordinary shares | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Share price | $ 0.0108 | |||||||||||||
Subsequent Events | Shanda | Going-private transaction- non-binding proposed letter | ADS | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Share price | $ 1.08 | |||||||||||||
Offering price, premium as a percentage over the closing price of the Company's ADSs on January 29, 2016 | 54.00% | |||||||||||||
Offering price, premium as a percentage over the average closing price of ADSs during the last 30 trading days | 42.00% | |||||||||||||
Benchmark one, number of trading days | 30 days | |||||||||||||
Offering price, premium as a percentage over the average closing price of ADSs during the last 60 trading days | 52.00% | |||||||||||||
Benchmark two, number of trading days | 60 days | |||||||||||||
Subsequent Events | Shanda Holdings | Going-private transaction- definitive Agreement and Plan of Merger | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Percentage of shareholders' interest in the company | 69.90% | |||||||||||||
Subsequent Events | Shanda Holdings | Going-private transaction- definitive Agreement and Plan of Merger | Ordinary shares | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Share price | $ 0.0108 | |||||||||||||
Subsequent Events | Shanda Holdings | Going-private transaction- definitive Agreement and Plan of Merger | ADS | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Share price | $ 1.08 |
RESTRICTED NET ASSETS (Details)
RESTRICTED NET ASSETS (Details) $ in Millions | 12 Months Ended |
Dec. 31, 2015USD ($) | |
RESTRICTED NET ASSETS | |
Portion of after-tax profit to be allocated to general reserve under PRC Law | 10.00% |
Restricted portion of net assets, amount | $ 31.5 |
ADDITIONAL INFORMATION - COND96
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Current assets: | ||||
Cash and cash equivalents | $ 7,697,926 | $ 4,380,328 | $ 1,671,230 | $ 13,070,987 |
Prepaid expenses and other current assets | 527,700 | 490,355 | ||
Total current assets | 8,329,069 | 4,988,395 | ||
Investments in subsidiaries | 168,610 | 0 | ||
Total assets | 9,012,252 | 5,629,925 | ||
Liabilities and shareholders' deficit | ||||
Accrued expenses and other current liabilities | 5,689,608 | 5,980,164 | ||
Total current liabilities | 14,335,564 | 9,765,666 | ||
Shareholders' deficit: | ||||
Ordinary shares ($0.00005 par value; 12,000,000,000 shares authorized; 4,763,360,860 and 4,771,610,860 shares issued and outstanding as of December 31, 2014 and 2015, respectively) | 238,533 | 238,120 | ||
Additional paid-in capital | 184,904,855 | 184,538,349 | ||
Accumulated deficit | (189,147,067) | (187,095,885) | ||
Accumulated other comprehensive loss | (1,480,181) | (1,816,325) | ||
Total shareholders' deficit | (5,483,860) | (4,135,741) | 53,162 | 33,566,546 |
Total liabilities and deficit | 9,012,252 | 5,629,925 | ||
Ku6 Media Co., Ltd. | ||||
Current assets: | ||||
Cash and cash equivalents | 91,256 | 341,320 | $ 56,999 | $ 5,219,295 |
Prepaid expenses and other current assets | 188,170 | 195,049 | ||
Amount due from related parties | 627 | |||
Total current assets | 279,426 | 536,996 | ||
Investments in subsidiaries | 16,965,440 | 19,690,895 | ||
Total assets | 17,244,866 | 20,227,891 | ||
Liabilities and shareholders' deficit | ||||
Accrued expenses and other current liabilities | 623,701 | 541,961 | ||
Amounts due to subsidiaries and variable interest entities | 22,105,025 | 23,821,671 | ||
Total current liabilities | 22,728,726 | 24,363,632 | ||
Shareholders' deficit: | ||||
Ordinary shares ($0.00005 par value; 12,000,000,000 shares authorized; 4,763,360,860 and 4,771,610,860 shares issued and outstanding as of December 31, 2014 and 2015, respectively) | 238,533 | 238,120 | ||
Additional paid-in capital | 184,904,855 | 184,538,349 | ||
Accumulated deficit | (189,147,067) | (187,095,885) | ||
Accumulated other comprehensive loss | (1,480,181) | (1,816,325) | ||
Total shareholders' deficit | (5,483,860) | (4,135,741) | ||
Total liabilities and deficit | $ 17,244,866 | $ 20,227,891 |
ADDITIONAL INFORMATION - COND97
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS (Details 2) - $ / shares | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
Condensed Balance Sheet Statements, Captions [Line Items] | |||
Ordinary shares, par value | $ 0.00005 | $ 0.00005 | $ 0.00005 |
Ordinary shares, authorized | 12,000,000,000 | 12,000,000,000 | |
Ordinary shares, issued | 4,771,610,860 | 4,763,360,860 | |
Ordinary shares, outstanding | 4,771,610,860 | 4,763,360,860 | |
Ku6 Media Co., Ltd. | |||
Condensed Balance Sheet Statements, Captions [Line Items] | |||
Ordinary shares, par value | $ 0.00005 | $ 0.00005 | |
Ordinary shares, authorized | 12,000,000,000 | 12,000,000,000 | |
Ordinary shares, issued | 4,771,610,860 | 4,763,360,860 | |
Ordinary shares, outstanding | 4,771,610,860 | 4,763,360,860 |
ADDITIONAL INFORMATION - COND98
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS (Details 3) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Operating expenses: | |||
Product development | $ 1,385,138 | $ 3,496,393 | |
Selling and marketing | $ 1,804,611 | 941,760 | 1,796,980 |
General and administrative | 3,223,731 | 7,087,924 | 8,089,086 |
Total operating expenses | 5,028,342 | 9,414,822 | 40,608,366 |
Loss from operations | (2,163,814) | (12,972,119) | (43,451,138) |
Interest income | 187,759 | 46,540 | 112,671 |
Interest expense | (260,830) | (16,365) | |
Other (expense) / income | 202,582 | 745,958 | 4,101,039 |
Foreign exchange ( loss) / gain | (344,667) | (226,641) | 133,064 |
Net loss | (2,051,182) | (10,727,642) | (34,427,734) |
Ku6 Media Co., Ltd. | |||
Operating expenses: | |||
Product development | 208,656 | 269,876 | |
Selling and marketing | 16,191 | 3,802 | 54,503 |
General and administrative | 807,285 | 928,506 | 1,403,657 |
Total operating expenses | 823,476 | 1,140,964 | 1,728,036 |
Loss from operations | (823,476) | (1,140,964) | (1,728,036) |
Interest income | 40 | 3,463 | 30,483 |
Other (expense) / income | 117,349 | 92,144 | (739,530) |
Foreign exchange ( loss) / gain | (142) | (76) | 355,337 |
Equity in losses of subsidiaries | (1,344,953) | (9,682,209) | (32,345,988) |
Net loss | $ (2,051,182) | $ (10,727,642) | $ (34,427,734) |
ADDITIONAL INFORMATION - COND99
ADDITIONAL INFORMATION - CONDENSED FINANCIAL STATEMENTS (Details 4) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Operating activities: | |||
Net loss | $ (2,051,182) | $ (10,727,642) | $ (34,427,734) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||
Share-based compensation | 281,944 | 600,995 | 1,023,871 |
Provisions for Seed Music receivable (related party) | 980,000 | ||
Changes in operating assets and liabilities: | |||
Prepaid expenses and other current assets | (37,345) | (104,388) | 137,414 |
Amount due from related parties | (8,221) | 6,563,757 | (2,093,669) |
Accrued expenses and other current liabilities | (290,556) | (1,207,465) | (1,123,760) |
Net cash used in operating activities | (1,522,663) | (5,209,268) | (11,524,248) |
Investing activities: | |||
Repayment of loans from related parties under common control of Shanda | 498,583 | 3,300,000 | |
Net cash provided by investing activities | 45,466 | 1,742,533 | 3,440,522 |
Financing activities: | |||
Proceeds from exercise of options | 84,975 | 338,563 | 46,400 |
Repurchase of ordinary shares | (58,147) | ||
Net cash provided by (used in) financing activities | 4,762,477 | 6,185,633 | (3,315,507) |
Effect of exchange rate changes on cash and cash equivalents | 32,318 | (9,800) | (524) |
Net increase (decrease) in cash and cash equivalents | 3,317,598 | 2,709,098 | (11,399,757) |
Cash and cash equivalents, beginning of year | 4,380,328 | 1,671,230 | 13,070,987 |
Cash and cash equivalents, end of year | 7,697,926 | 4,380,328 | 1,671,230 |
Ku6 Media Co., Ltd. | |||
Operating activities: | |||
Net loss | (2,051,182) | (10,727,642) | (34,427,734) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||
Share-based compensation | 281,944 | 600,995 | 1,023,871 |
Provisions for Seed Music receivable (related party) | 980,000 | ||
Exchange gains | (355,337) | ||
Equity in losses of subsidiaries | 1,344,953 | 9,682,209 | 32,345,988 |
Changes in operating assets and liabilities: | |||
Prepaid expenses and other current assets | 6,879 | 55,042 | 62,083 |
Amount due from related parties | 627 | (4,015) | 74,964 |
Accrued expenses and other current liabilities | 81,740 | (159,414) | 36,479 |
Amounts due to subsidiaries and variable interest entities | 4,160,000 | ||
Net cash used in operating activities | (335,039) | (552,825) | 3,900,314 |
Investing activities: | |||
Loan to subsidiaries | (12,350,863) | ||
Repayment of loans from related parties under common control of Shanda | 498,583 | 3,300,000 | |
Net cash provided by investing activities | 498,583 | (9,050,863) | |
Financing activities: | |||
Proceeds from exercise of options | 84,975 | 338,563 | 46,400 |
Repurchase of ordinary shares | (58,147) | ||
Net cash provided by (used in) financing activities | 84,975 | 338,563 | (11,747) |
Net increase (decrease) in cash and cash equivalents | (250,064) | 284,321 | (5,162,296) |
Cash and cash equivalents, beginning of year | 341,320 | 56,999 | 5,219,295 |
Cash and cash equivalents, end of year | $ 91,256 | $ 341,320 | $ 56,999 |