Ku6 Media Reports Unaudited Financial Results for the Second Quarter of Fiscal Year 2012

BEIJING, September 14, 2012 /PRNewswire/ -- Ku6 Media Co., Ltd. ("Ku6 Media" or the "Company", NASDAQ: KUTV), a leading internet video company, focusing on User Generated Content ("UGC") in China, today announced unaudited financial results for the second quarter of fiscal year 2012, ended June 30, 2012.

Second Quarter 2012 Highlights[1]

• GAAP net loss narrowed and was US$1.47 million (RMB9.35 million), as compared to a net loss of US$1.79 million in the first quarter of 2012 and US$21.60 million in the second quarter of 2011. Non-GAAP net loss, which the Company defines as net loss excluding share-based compensation expenses, was US$1.53 million (RMB9.73 million) in the second quarter of 2012, as compared to non-GAAP net loss of US$1.28 million in the first quarter of 2012 and US$21.16 million in the second quarter of 2011.
• Basic and diluted loss per ADS was US$0.03 (RMB0.19) in the second quarter of 2012, as compared to US$0.04 in the first quarter of 2012 and US$0.61 in the second quarter of 2011.
• Cash and cash equivalents were US$23.28 million (RMB147.91 million) as of June 30, 2012.
• Net cash used in operating activities was US$1.41 million (RMB8.98 million) in the second quarter of 2012, as compared to US$1.07 million in the first quarter of 2012 and US$9.36 million in the second quarter of 2011.
• A partnership with SNS website Kaixin001 was announced in May 2012 whereby the Company will supply technology support to all video uploading activities on Kaixin001 as the video hosting provider.
• On July 12, 2012, the Company held its 2012 Annual General Meeting of shareholders.

Mr. Jeff Shi, Chief Executive Officer of Ku6 Media, commented, "I am pleased to announce our second quarter's earnings release. During the second quarter, both the quality and quantity of our value generating users have grown to a record high level. We started focusing on the UGC business model in the second quarter of 2011. Ever since, we have greatly reduced our costs and expenses and steadily expanded our user base and content inventory through this new business model. We believe our advanced cost control structure and operational model are the fundaments for our sustainable development and eventual profitability.

However, since we have been trying different new monetization strategies, our total revenue in second quarter has dropped from US$4.68 million of first quarter 2012 to US$3.03 million. Going forward, as we strongly believe UGC business model will be the main stream of online video ecosystem, we intend to further strengthen our leading position in this area by bringing our users smoother, faster and more interactive video experiences through our continuously upgraded products."

Second Quarter 2012 Financial Results

Total revenues were US$3.03 million (RMB19.24 million) in the second quarter of 2012, representing a decrease of 35.3% from US$4.68 million in the first quarter of 2012 and a decrease of 24.4% from US$4.01 million in the second quarter of 2011.

In the second quarter of 2011, the Company started to generate advertising revenues from performance advertising using a system called Application Advertisement ("AA"). The performance advertising revenue was realized through an affiliated advertising agent which is a subsidiary of Shanda Interactive Entertainment Limited, the Company's majority shareholder. The Company generated 94.8% of total revenues in the second quarter of 2012 through this affiliated advertising agent, as compared to 80.9% of total revenues in the first quarter of 2012.

Cost of revenues was US$3.66 million (RMB23.25 million) in the second quarter of 2012, representing an increase of 3.7% from US$3.53 million in the first quarter of 2012 and a decrease of 70.1% from US$12.24 million in the second quarter of 2011. Gross loss was US$0.63 million (RMB4.01 million) in the second quarter of 2012, as compared to a gross profit of US$1.15 million in the first quarter of 2012 and a gross loss of US$8.23 million in the second quarter of 2011. Non-GAAP gross loss, which is herein defined as a gross loss excluding share-based compensation expenses, was US$0.66 million (RMB4.21 million) in the second quarter of 2012, as compared to a non-GAAP gross profit of US$1.24 million in the first quarter of 2012 and a non-GAAP gross loss of US$8.10 million in the second quarter of 2011. The gross loss in the second quarter of 2012 resulted from a decrease in revenues of US$1.65 million (RMB10.49 million) as compared to the first quarter of 2012.

Operating expenses were US$1.64 million (RMB10.44 million) in the second quarter of 2012, representing a decrease of 41.8% from US$2.82 million in the first quarter of 2012 and a decrease of 87.6% from US$13.19 million in the second quarter of 2011. Non-GAAP operating expenses, which is herein defined as operating expenses excluding share-based compensation expenses, were US$1.67 million (RMB10.63 million) in the second quarter of 2012, as compared to non-GAAP operating expenses of US$2.41 million in the first quarter of 2012 and US$12.87 million in the second quarter of 2011. The decrease as compared to the first quarter of 2012 was mainly attributable to changed facts and circumstances during the second quarter that led to (1) a US$0.57 million (RMB3.59 million) benefit recorded for the reversal of accrued liabilities related to favorable settlements of copyright infringement and (2) a US$0.53 million (RMB3.36 million) benefit recorded for the reversal of share-based compensation expenses previously recorded, due to (a) changes in the likelihood of achieving performance targets related to profitability for performance-based stock option awards and (b) personnel turnover in the quarter in excess of previously estimated forfeitures. These were offset by US$0.70 million (RMB4.47 million) of changes in bad debt expense versus the first quarter.

Operating loss was US$2.28 million (RMB14.45 million) in the second quarter of 2012, representing an increase of 35.7% from US$1.68 million in the first quarter of 2012 and a decrease of 89.4% from US$21.42 million in the second quarter of 2011. Non-GAAP operating loss, which reflects the exclusion of share-based compensation expenses, was US$2.34 million (RMB14.83 million) in the second quarter of 2012, as compared to the non-GAAP operating loss of US$1.17 million in the first quarter of 2012 and US$20.97 million in the second quarter of 2011.

Net loss was US$1.47 million (RMB9.35 million) in the second quarter of 2012, representing a decrease of 17.9% from US$1.79 million in the first quarter of 2012 and a decrease of 93.2% from US$21.60 million in the second quarter of 2011. Non-GAAP net loss, which reflects the exclusion of share-based compensation expenses, was US$1.53 million (RMB9.73 million) in the second quarter of 2012, as compared to US$1.28 million in the first quarter of 2012 and US$21.16 million in the second quarter of 2011. The decreased net loss was primarily attributable to (1) government subsidy benefits of US$0.90 million (RMB5.74 million); (2) the US$0.57 million (RMB3.59 million) benefit from the reversal of accrued liabilities for legal matters, and (3) the decrease in share-based compensation expenses, partially offset by (1) a decrease relative to the first quarter in revenues of US$1.65 million (RMB10.49 million) and (2) changes in bad debt expense of US$0.70 million (RMB4.47 million) which had an adverse impact.

Net loss attributable to Ku6 Media was US$1.47 million (RMB9.35 million) in the second quarter of 2012, as compared to US$1.79 million in the first quarter of 2012 and US$21.58 million in the second quarter of 2011. Non-GAAP net loss attributable to Ku6 Media, reflecting the exclusion of share based compensation expenses, was US$1.53 million (RMB9.73 million) in the second quarter of 2012, as compared to the non-GAAP net loss attributable to Ku6 Media of US$1.28 million in the first quarter of 2012 and US$21.14 million in the second quarter of 2011.

Net loss attributable to Ku6 Media per basic and diluted ADS was US$0.03 (RMB0.19) in the second quarter of 2012, as compared to US$0.04 in the first quarter of 2012 and US$0.61 in the second quarter of 2011. Weighted average ADSs used to calculate basic and diluted net loss per ADS were 50.2 million in the second quarter of 2012, 50.2 million in the first quarter of 2012 and 35.2 million in the second quarter of 2011.

Adjusted EBITDA loss, which is herein defined as net loss attributable to Ku6 Media before interest income, interest expenses, income taxes, depreciation and amortization (excluding amortization and write-down of licensed video copyrights), further adjusted for share-based compensation expenses, equity in loss of affiliates and other non-operating items, was US$1.48 million (RMB9.43 million) in the second quarter of 2012, as compared to adjusted EBITDA loss of US$0.34 million in the first quarter of 2012 and US$19.53 million in the second quarter of 2011. The increase was primarily due to a non-GAAP gross loss, partially offset by a decrease in operating expenses.

As of June 30, 2012, the Company had US$23.28 million (RMB147.91 million) in cash and cash equivalents, compared to US$21.79 million as of March 31, 2012. The increase was primarily due to the net effect of cash receipts and payments for amounts due to and from parties under the control of the Company's majority shareholder, Shanda, in the second quarter of 2012.

Recent Business Developments

Partnership with Kaixin001

On May 24, 2012, the Company announced an agreement with famous Chinese SNS website Kaixin001. Pursuant to the agreement, Ku6 Media, as the video hosting provider, is assisting Kaixin001 to add a brand new video sharing function by supplying technology support to all video uploading activities on Kaixin001. In the mean time, Ku6 Media enables its users to share their videos on Kaixin001 by only one click and also benefits from advertisement income generated by videos on Kaixin001.

2012 Annual General Meeting of shareholders

On July 12, 2012, the Company held its 2012 Annual General Meeting of shareholders. At this meeting, the shareholders approved: (i) amendments to Ku6 Media's existing Articles of Association, (ii) the Company's repurchase (and immediate retirement) of an aggregate of 269,409,276 ordinary shares of par value US$0.00005 each held by Mr. Shanyou Li, Mr. Zhizhong Hao, Ms. Xingye Zeng and Kumella Holdings Limited, at a price of US$ 0.0291 per share, representing a premium to the Company's current per share price (in total, approximately US$ 7.84 million), and the Company's repurchase (and immediate retirement) of an aggregate of 79,717 ADSs (each representing 100 ordinary shares) held by Mr. Shanyou Li, at a price of US$2.91 per ADS (in total, approximately US$ 0.23 million), the Company's independent financial advisor issued a fairness opinion on the proposed transaction, (iii) election of Mr. Bruno Wu, Mr. Tianqiao Chen, Mr. Danian Chen, Ms. Grace Wu, Mr. Haifa Zhu, Mr. Tuoc Luong, Mr. Wenwen Niu and Ms. Tongyu Zhou to the Company's Board of Directors to hold office until the next annual general meeting of shareholders of the Company and until his/her successor is duly elected and qualified, or until his/her earlier removal, or earlier vacation of office, and (iv) the appointment of PricewaterhouseCoopers Zhong Tian CPAs Limited Company as the independent auditor of the Company to hold office until the close of the next annual general meeting of shareholders and the authorization of the Board of Directors of the Company to fix the auditor's remuneration.

Conference Call Information

Ku6 Media's management team will host a corresponding conference call on Friday, September 14, 2012 at 8:00am EDT (8:00pm Beijing time on the same day), to present an overview of the company's financial performance and business operations.

Dial-in numbers:

A replay will be available from 11 am September 14, 2012 EDT for 7 days.

A live and archived webcast of the conference call will also be available at
http://www.media-server.com/m/p/notxcq2n

About Ku6 Media Co., Ltd.

Ku6 Media Co., Ltd. (NASDAQ: KUTV) is a leading internet video company in China, focusing on User Generated Content ("UGC"). Through its premier online brand and online video website, www.ku6.com, Ku6 Media provides online video uploading and sharing service, video reports, information and entertainment in China. For more information about Ku6 Media, please visit http://ir.ku6.com.

Forward-looking Statements

This news release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "believes," "could," "expects," "may," "might," "should," "will," or "would," and by similar statements. Forward-looking statements are not historical facts, but instead represent only the Company's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of its control. It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Some of the risks and important factors that could affect the Company's future results and financial condition include: continued competitive pressures in China's internet video portal market; changes in technology and consumer demand in this market; the risk that Ku6 Media may not be able to control its expenses in the future; regulatory changes in China with respect to the operations of internet video portal websites; the success of Ku6 Media's ability to sell advertising and other services on its websites; and other risks outlined in the Company's filings with the Securities and Exchange Commission,including the Company's annual report on Form 20-F. Ku6 Media does not undertake any obligation to update this forward-looking information, except as required under law.

About Non-GAAP Financial Measures

To supplement Ku6 Media's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Ku6 Media uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business: non-GAAP gross profit or loss, non-GAAP operating expenses, non-GAAP product development expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP operating loss, non-GAAP net loss, non-GAAP net loss attributable to Ku6 Media and adjusted EBITDA loss. We define non-GAAP gross profit or loss, non-GAAP operating expenses, non-GAAP product development expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss attributable to Ku6 Media as the respective nearest comparable GAAP financial measure excluding share-based compensation expenses. We define adjusted EBITDA loss as net loss attributable to Ku6 Media before interest income, interest expenses, income taxes, depreciation and amortization (excluding amortization and write-down of licensed video copyrights), further adjusted for share-based compensation expenses, equity in loss of affiliates and other non-operating items. We present non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our consolidated results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies. A limitation of using non-GAAP financial measures is that non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in Ku6 Media's business for the foreseeable future.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP financial measures" at the end of this release.

1. Non-GAAP Gross Profit (Loss)

2. Non-GAAP Operating Expenses

3. Non-GAAP Product Development Expenses

4. Non-GAAP Sales and Marketing Expenses

5. Non-GAAP General and Administrative Expenses

6. Non-GAAP Operating Loss

7. Non-GAAP Net Loss

8. Non-GAAP Net Loss Attributable to Ku6 Media Co., Ltd.

9. Adjusted EBITDA Loss