Ku6 Media Reports Unaudited Financial Results For the First Quarter of Fiscal Year 2015

BEIJING, June 12, 2015 /PRNewswire/ -- Ku6 Media Co., Ltd.("Ku6 Media" or the "Company,"NASDAQ: KUTV), a leading internet video company focused on User Generated Content ("UGC") in China, today announced unaudited financial results for the first quarter of fiscal year 2015, ended March 31, 2015.

First Quarter 2015 Highlights ⁽¹⁾

• The Company generated substantially all of its revenues from online advertising, primarily through an advertising agency agreement with Huzhong Advertising (Shanghai) Ltd. ("Huzhong"), a third party, pursuant to which Huzhong acted as the Company's exclusive advertising agency for standard media resources and as its non-exclusive advertising agency for highly interactive advertising resources.
• Total revenues were US$2.35 million (RMB14.56 million) in the first quarter of 2015, as compared to total revenues of US$3.47 million in the fourth quarter of 2014 and US$2.81 million in the first quarter of 2014.
• Net loss was US$0.83million (RMB5.14 million), as compared to a net loss of US$0.04 million in the fourth quarter of 2014 and US$4.41 million in the first quarter of 2014.
• Basic and diluted loss per ADS was US$0.02 (RMB0.11) in the first quarter of 2015, as compared to US$0.00 in the fourth quarter of 2014 and US$0.09 in the first quarter of 2014.
• Cash and cash equivalents were US$7.38million (RMB45.73 million) as of March 31, 2015.
• Net cash used in operating activities was US$1.92 million (RMB11.90 million) in the first quarter of 2015, as compared to net cash provided by operating activities of US$1.60 million in the fourth quarter of 2014 and net cash provided by operating activities of US$2.50 million in the first quarter of 2014.

"It's my pleasure to announce Ku6's earnings release for the first quarter of 2015", Mr. Feng Gao, Chief Executive Officer of Ku6 Media, commented. "In the first quarter of 2015, Ku6 Media continued to generate revenues from its advertising business and achieved a gross profit for the second consecutive quarter. We intend to improve revenues from advertising and other available businesses in 2015 to meet operating costs, and we keep looking for new revenue sources for future development."

First Quarter 2015 Financial Results

Total revenues were US$2.35 million (RMB14.56 million) in the first quarter of 2015, representing a decrease of 32.2% from US$3.47 million in the fourth quarter of 2014 and a decrease of 16.3% from US$2.81 million in the first quarter of 2014. The decrease in revenues as compared to the fourth quarter of 2014 was primarily due to the inclusion of guaranteed revenues of US$0.91 million from Shanghai Qinhe Internet Technology Software Development Co., Ltd., ("Qinhe"), which is controlled by our previous significant shareholder Mr. Xudong Xu, in the fourth quarter of 2014, and there was no such guaranteed revenue in the first quarter of 2015.

Cost of revenues was US$2.05 million (RMB12.71 million) in the first quarter of 2015, representing a decrease of 14.2% from US$2.39 million in the fourth quarter of 2014 and a decrease of 48.0% from US$3.94 million in the first quarter of 2014. The decrease in cost of revenues as compared to the first quarter of 2014 was primarily due to (a) a decrease in bandwidth costs by US$0.68 million as we optimized bandwidth efficiency in 2014; (b) content costs of US$0.62 million incurred in the first quarter of 2014, there being no such costs in the first quarter of 2015; and (c) a decrease of staff costs by US$0.34 million as a result of headcount reductions earlier in 2014. The decrease in cost of revenues as compared to the fourth quarter of 2014 reflected lower depreciation expense as a result of fully depreciated fixed assets, as well as continued cost reduction measures related to payroll and optimization of bandwidth costs.

Gross profit was US$0.30 million (RMB1.85 million) in the first quarter of 2015, as compared to gross profit of US$1.08 million in the fourth quarter of 2014 and gross loss of US$1.14 million in the first quarter of 2014.

Operating expenses were US$1.13million (RMB6.99 million) in the first quarter of 2015, as compared to US$1.20 million in the fourth quarter of 2014, representing a decrease of 6.3%.Operating expenses reflected a decrease of 68.5% from US$3.59 million in the first quarter of 2014. The decrease in operating expenses as compared to the first quarter of 2014 was mainly attributable to (a) a significant decrease of staff costs by US$1.54 million as a result of headcount reduction plan implemented earlier in 2014; (b) a decrease in marketing and promotion expenses of US$0.24 million; and (c) a decrease in litigation settlement expenses of US$0.14 million.

Operating loss was US$0.83 million (RMB5.14 million) in the first quarter of 2015, as compared to operating loss of US$0.12 million in the fourth quarter of 2014 and US$4.72 million in the first quarter of 2014.

Net loss was US$0.83 million (RMB5.14 million) in the first quarter of 2015, as compared to US$0.04 million in the fourth quarter of 2013 and US$4.41 million in the first quarter of 2014.

Net loss per basic and diluted ADS was US$0.02 (RMB0.11) in the first quarter of 2015, as compared to US$0.00 in the fourth quarter of 2014 and US$0.09 in the first quarter of 2014. Weighted average ADSs used to calculate basic and diluted net loss per ADS were 47.6 million in the first quarter of 2015, 47.6 million in the fourth quarter of 2014 and 47.3 million in the first quarter of 2014.

As of March 31, 2015, the Company had US$7.38 million (RMB45.73 million) in cash and cash equivalents, compared to US$4.38 million as of December 31, 2014. The increase was primarily attributable to a loan of US$4.84 million extended from Mr. Xudong Xu, our previous significant shareholder. The US$4.84 million loan has been assumed by Shanda Computer (Shanghai) Co., Ltd ("Shanda Computer") on May 12, 2015.

Liquidity and Going Concern

Substantial doubt exists as to the Company'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 agency since late August 2014, (ii) revenue sharing with Qinhe, a company controlled by our previous significant shareholder Xudong Xu (the arrangements, described in the Company's Form 20-F for the year ended December 31, 2014, have no certainty of being continued following the Share Re-Acquisition Transaction described below), and (iii) the amount of and growth in revenues from other sources; and; (b) uncertainties as to the availability and timing of additional financing with terms acceptable to the Company.

The unaudited consolidated financial statements included in this news release do not include any adjustments that might result from the outcome of these uncertainties and were prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business.

Recent Business Developments

Share Re-Acquisition Transaction between Shanda and Mr. Xudong Xu

On May 11, 2015, the Company's largest shareholder, Mr. Xudong Xu, signed and consummated a share purchase agreement with Shanda Media Group Limited ("Shanda Media"), a wholly owned subsidiary of Shanda Interactive Entertainment Limited, to sell 1,938,360,784 ordinary shares of the Company (amounting to approximately 40.7% of the Company's issued and outstanding share capital) to Shanda Media (the "Share Re-Acquisition Transaction"). In exchange for the shares re-acquired by Shanda Media from Mr. Xu, Shanda Media released Mr. Xu from a promissory note originally entered into on April 3, 2014 pursuant to which Mr. Xu had agreed to pay Shanda Media US$47,350,831.05 in exchange for the original acquisition of the shares; For further information on the original Share Purchase Transaction in which Mr. Xu had acquired the shares, please refer to the Company's press release dated April 1, 2014.Subsequent to the consummation of the Share Re-Acquisition Transaction, Shanda Media held approximately 70.0% of the Company's shares and became the controlling shareholder of the Company.

Shareholder loan

On February 2, 2015, the Company entered into a loan agreement with Mr. Xudong Xu, pursuant to which Mr. Xu agreed to provide a loan of RMB30.0 million (US$4.84 million) to the Company within 20 business days from the date thereof. The term of the loan is one year, and the loan bears interest at a rate of 6.5% per annum. The Company received RMB30.0 million from Mr. Xu on March 4, 2015 and the Company recorded the shareholder's loan as a related party loan at March 31, 2015.

After the closing of the Share Re-Acquisition Transaction as described in the previous paragraph, Mr. Xudong 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, making Shanda Computer the counterparty to the related party loan. The term of and rate associated with the loan were not changed.

Advertising Agency Agreement with Huzhong

On August 29, 2014, the Company entered into an advertising agency agreement with Huzhong, pursuant to which Huzhong has agreed to act as the Company's exclusive advertising agency for standard media resources and as its non-exclusive advertising agency for highly interactive advertising resources. According to the agreement, the Company has agreed to guarantee a certain amount of web traffic per day for its webpage on which Huzhong posts advertisements. In return, Huzhong guarantees to the Company a minimum amount of advertising revenues per day. The minimum guarantee amount under this agreement is higher than that under the agency agreement with Shengyue (the Company's previous advertising agent for a number of years) terminated on August 28, 2014. If the Company fails to meet the web traffic target, the minimum amount guaranteed by Huzhong will be adjusted downward proportionally. Huzhong will prepay 50% of the minimum guaranteed amounts with the Company prior to the beginning of each month, and the balance will be settled monthly. The advertising agency agreement started on August 29, 2014 and will expire on December 31, 2017.

The revenue from Huzhong decreased from US$2.52 million in the fourth quarter to US$2.24 million in the first quarter of 2015, as there were more public holidays in the first quarter of a year which has negative impact on advertising revenues.

Revenue Sharing Cooperation with Qinhe

During the second quarter of 2014, the Company entered into two revenue sharing agreements with related party Qinhe, a company controlled by Mr. Xu. The agreements stipulate that the Company will assist Qinhe by providing online game and interactive entertainment marketing services. In exchange, the Company will receive a portion of profit that is generated by Qinhe from Ku6's video viewers who join Qinhe's games or video-shows after linking to them through advertisements on the Company's websites. Profits are calculated as revenues from the content provided by Qinhe, net of certain operating costs.

A supplemental agreement was signed in the third quarter of 2014, pursuant to which Qinhe agreed to pay additional guaranteed revenue amounts, stated in monthly terms, from July 2014 to December 2014. The guaranteed amounts and related terms, which were intended to compensate Ku6 for its resource costs in operating the relevant infrastructure, did not result in any changes to the sharing terms in the original agreements. Pursuant to the supplemental contract, the Company did receive guaranteed amounts relating to 2014 operations in full from Qinhe in year of 2014. 

As the supplemental agreement related to interactive entertainment marketing services expired on December 31, 2014, the Company no longer received any guaranteed revenues from Qinhe since the beginning of 2015. Subsequent to the Share Re-acquisition Transaction between Shanda and Mr. Xudong Xu, the revenue sharing with Qinhehas continued under the original revenue sharing agreement, which is still ongoing. However, there are still some uncertainties that the original revenue sharing agreement cannot be continued following the change of share ownership and Mr. Xu's control of Qinhe.

Change of Board Members

The Company announced the resignation of Mr. Haifa Zhu as director of the board and all board committee positions which he held. Mr. Mingfeng Chen was appointed as director of the board and member of the compensation and leadership development committee and the corporate development and finance committee, effective as of June 12, 2015.

Mr. Mingfeng Chen has served on our board of directors since June 2015. He also has served as a partner of Shanda Capital since 2014. Prior to that, Mr. Chen served as the vice president of Cloudary Corporation from 2010 to 2014 and as an associate director in the legal department of Shanda Interactive from 2003 to 2010.Prior to joining Shanda Interactive, Mr. Chen worked in the legal department of Lifan Industry (Group) for approximately two years. Mr. Chen holds a bachelor's degree in law from Southwest University of Political Science & Law.

About Ku6 Media Co., Ltd.

Ku6 Media Co., Ltd. (NASDAQ: KUTV) is a leading internet video company in China focused 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 ability of the Company to consistently derive revenues from its renewed agreement with Huzhong; 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.

SOURCE Ku6 Media Co., Ltd.

Related Links

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