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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on September 9, 2010

Registration No. 333-        

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549



FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



ChinaCache International Holdings Ltd.
(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  7389
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

6/F, Block A, Galaxy Plaza
No. 10 Jiuxianqiao Road Middle, Chaoyang District
Beijing, 100015
People's Republic of China
(86 10) 6437 3399
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)



Law Debenture Corporate Services Inc.
400 Madison Avenue, 4th Floor
New York, New York 10017
(212) 750-6474
(Name, address, including zip code, and telephone number,
including area code, of agent for service)



Copies to:

Z. Julie Gao, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
c/o 42/F, Edinburgh Tower, The Landmark
15 Queen's Road, Central
Hong Kong
(852) 3740-4700

 

James C. Lin, Esq.
Davis Polk & Wardwell LLP
18th Floor, The Hong Kong Club Building
3A Chater Road, Central
Hong Kong
(852) 2533-3300



Approximate date of commencement of proposed sale to the public:
as soon as practicable after the effective date of this registration statement

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o



CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed maximum
aggregate offering
price(2)

  Amount of
registration fee

 

Ordinary Shares, par value $0.0001 per ordinary share(1)(3)

  $100,000,000   $7,130

 

(1)
Includes                        ordinary shares that may be purchased by the underwriters to cover over-allotments, if any. Also includes ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These ordinary shares are not being registered for the purpose of sales outside the United States.

(2)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(3)
American depositary shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each American depositary share represents                        ordinary shares.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated                                    , 2010.

GRAPHIC

ChinaCache International Holdings Ltd.

                American Depositary Shares
Representing
                Ordinary Shares



        ChinaCache International Holdings Ltd., or ChinaCache, is offering                        American depositary shares, or ADSs, and the selling shareholders identified in this prospectus are offering an additional                        ADSs. Each ADS represents                        ordinary share(s), par value US$0.0001 per share of ChinaCache. We will not receive any proceeds from the ADSs sold by the selling shareholders.

        Prior to this offering, there has been no public market for the ADSs or the ordinary shares. It is currently estimated that the initial public offering price per ADS will be between US$            and US$            . ChinaCache intends to list the ADSs on the Nasdaq Global Market under the symbol "CCIH."

        See "Risk Factors" beginning on page 13 to read about factors you should consider before buying the ADSs.

        Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.



 
  Per ADS   Total  

Public offering price

  US$                US$               

Underwriting discount

  US$                US$               

Proceeds, before expenses, to ChinaCache

  US$                US$               

Proceeds, before expenses, to the selling shareholders

  US$                US$               

        The underwriters have an option to purchase up to an additional                        ADSs from us and up to an additional                        ADSs from the selling shareholders at the initial public offering price less the underwriting discount.



        The underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on                                    , 2010.



BofA Merrill Lynch   Deutsche Bank Securities




Oppenheimer & Co.

 

Pacific Crest Securities

Prospectus dated                                    , 2010.


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GRAPHIC


Table of Contents


TABLE OF CONTENTS

Summary

  1

Risk Factors

  13

Special Note Regarding Forward-Looking Statements

  43

Use of Proceeds

  45

Dividend Policy

  46

Capitalization

  47

Dilution

  48

Exchange Rate Information

  50

Enforceability of Civil Liabilities

  51

Our Corporate History and Structure

  52

Selected Consolidated Financial Data

  58

Management's Discussion and Analysis of Financial Condition and Results of Operations

  62

Industry Background

  100

Business

  107

Regulation

  122

Management

  128

Principal and Selling Shareholders

  136

Related Party Transactions

  140

Description of Share Capital

  142

Description of American Depositary Shares

  153

Shares Eligible for Future Sale

  163

Taxation

  165

Underwriting

  171

Expenses Relating to This Offering

  179

Legal Matters

  180

Experts

  181

Additional Information

  182

Index to Consolidated Financial Statements

  F-1

        You should rely only on the information contained in this prospectus or in any related free-writing prospectus that we have filed with the Securities and Exchange Commission, or the SEC. We have not authorized anyone to provide you with different information. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

        We have not taken any action to permit a public offering of the ADSs outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus outside the United States.

        Through and including                        , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

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SUMMARY

        This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in the ADSs, you should carefully read this entire prospectus, including our financial statements and related notes included in this prospectus and the information set forth under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, we commissioned iResearch Consulting Group, or iResearch, a market research firm, to prepare a report for the purpose of providing various industry and other information and illustrating our position in the content and application delivery services market in China. Information from the report prepared by iResearch, or the iResearch Report, appears in "Summary," "Industry Background," "Business" and other sections of this prospectus. We have taken such care as we consider reasonable in the reproduction and extraction of information from the iResearch Report and other third-party sources.


Our Business

        We are the leading provider of Internet content and application delivery services in China, accounting for 53% market share in terms of revenue in 2009, according to iResearch. We provide a portfolio of services and solutions to businesses, government agencies and other enterprises to enhance the reliability and scalability of their online services and applications and improve end-user experience. Our nationwide service platform, which consists of our network, servers and intelligent software, is designed to handle planned and unplanned peaks without significant upfront and ongoing capital outlay and other investments on the part of our customers.

        We began providing content and application delivery services in China in 2000 and were the first company that is not a telecommunications carrier to obtain from the Ministry of Industry and Information Technology of China a nationwide operating permit to provide content and application delivery services. As an early mover, we have expanded our business alongside the growth of the Internet in China and have acquired extensive local knowledge about the Internet infrastructure and telecommunications environment in China. Substantially all of our business operations are conducted in China and substantially all of our revenues are derived from sales in China. Building on our knowledge and experience, we have developed a portfolio of services and solutions designed to address complex and unique issues arising from China's Internet infrastructure and a wide range of turnkey solutions to meet customer and industry specific needs.

        As a carrier-neutral service provider, our network in China is interconnected with networks operated by all telecommunications carriers, major non-carriers and local Internet service providers in China. We deploy servers and nodes across networks throughout China and we use a private transmission backbone that connects our nodes and data centers, thereby optimizing our content and applications delivery performance and reliability. With servers widely deployed at strategic locations, we are able to provide services throughout China. Our wide range of services make us a top choice for customers requiring content and application delivery services to different regions in China. We believe that our robust nationwide service platform, which is the product of major investments in capital, time and human resources, is not easy to replicate and provides us with a competitive advantage.

        We have successfully established a strong brand and a reputation for the quality and cost effectiveness of our services, as evidenced by the numerous recognitions and awards we have received, including the "Chinese High-Growth and High-Tech Companies with the Best Investment Values" award granted by the China International Finance Forum in 2009 and the "China Internet Industry Innovator 50" award by the Internet Society of China in 2005. Our brand and reputation are significant assets in a relatively young industry where most of our potential customers are new to the content and application delivery services market and are strongly influenced by other customers' experience in selecting reliable service providers.

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        We devote our market-oriented research and development efforts to focus on bringing innovative services and solutions to the market quickly. We currently have 5 patents, 20 patent applications and 14 software copyright registrations, all in China and related to different aspects of the content and application delivery technologies. We have established a joint laboratory with Tsinghua University to undertake leading edge research in content and application delivery technologies. We intend to expand our research and development efforts and offer innovative services and solutions to maintain our market leadership and to meet the evolving needs of customers.

        We derive substantially all of our revenues from the sale of content and application delivery services. The number of our active customers has grown over the years, increasing from 129 as of December 31, 2007 to 418 as of June 30, 2010. We define active customers as those from whom we generated revenues within 30 days before the applicable period end. Our net revenues were RMB161.0 million, RMB291.4 million and RMB272.4 million (US$39.9 million) in 2007, 2008 and 2009, respectively. We incurred net losses of RMB87.9 million, RMB151.8 million and RMB39.2 million (US$5.7 million), respectively, in the same periods. Our net revenues for the six months ended June 30, 2010 were RMB170.3 million (US$25.1 million), and we incurred a net loss of RMB24.2 million (US$3.6 million) for the same period.


Our Industry

        According to Frost & Sullivan, a market research firm, the global content and application delivery services market is steadily growing and is expected to continue to grow in the coming years, primarily driven by increasing broadband penetration and the growing amount of content delivered over the Internet. Revenues from the global content and application delivery services market are estimated to be approximately US$1.3 billion in 2009, representing a compound annual growth rate, or CAGR, of 36.3% from 2007. Frost & Sullivan expects that the market will grow to US$2.8 billion in 2012, representing a CAGR of 28.3% from 2009.

        The content and application delivery services market in China began to develop around 2000 and has grown rapidly over the past ten years. According to iResearch, China's content and application delivery services market revenues were estimated to be approximately RMB501.0 million (US$73.4 million) in 2009, representing a CAGR of 58.3% from 2007, and are estimated to grow to RMB3.6 billion (US$520 million) in 2014, representing a CAGR of 48.2% from 2009, a much higher rate than the expected growth of the global market. Multinational companies currently do not have a significant presence in the content and application delivery services market in China, in part due to the regulatory barriers in China's telecommunications sector.

        We believe that the following factors have contributed, and are expected to continue to contribute, to the growth of the content and application delivery services market in China:

    increasing Internet usage and broadband penetration in China;

    growth of rich media content;

    growth of the mobile Internet and mobile data services;

    growth of online game industry;

    growth of online advertising and e-commerce;

    growth of Software-as-a-Service and cloud computing; and

    increasing need for networks with greater interconnectivity and efficiency.

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Our Competitive Strengths and Strategy

        We believe that the following strengths contribute to our success in the content and application delivery services market in China and differentiate us from our competitors:

    leading position and strong brand in China;

    wide geographic coverage in China;

    diversified customer base including market leaders in a variety of industries;

    extensive local knowledge and expertise in developing customized turnkey solutions;

    strong research and development capabilities and proprietary technologies; and

    experienced management team with strong execution capability.

        Our goal is to strengthen our position as China's leading content and application delivery service provider by leveraging our nationwide platform and our wide range of services and solutions that are specifically and uniquely designed for China's Internet infrastructure and telecommunications environment. We intend to achieve our goal by pursuing the following strategies:

    further expand and diversify our customer base and retain existing customers;

    expand and enhance our service and solution offerings;

    continue to improve our operating efficiency;

    continue to focus on market-oriented research and development efforts; and

    establish new and expand existing strategic relationships and selectively pursue acquisitions.


Our Challenges

        We expect to face risks and uncertainties, including those relating to the following:

    our ability to achieve and sustain profitability in the future;

    the growth of the content and application delivery services market and the continuing market acceptance of content and application delivery services in China;

    our ability to sell our services at competitive prices;

    our ability to control costs and expenses, especially bandwidth costs;

    our ability to offer content and application delivery services that can successfully compete against in-house solutions and competitors;

    our dependence on telecommunications carriers and other third-party providers for bandwidth, network access, optical fiber cable and other communications capacity;

    our ability to attract new customers or to retain existing customers;

    our ability to develop and introduce innovative services and products that meet or exceed our target customers' expectations, or to adopt new technologies important to our business;

    our ability to manage future growth effectively; and

    the regulatory environment in China relevant to our business.

        See "Risk Factors" and "Special Note Regarding Forward-Looking Statements" for a discussion of these and other risks and uncertainties associated with our business and investing in our ADSs.

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Our Corporate History and Structure

        We commenced operations through Beijing Blue I.T. Technologies Co., Ltd., or Beijing Blue I.T., a company incorporated in China in June 1998. In June 2005, we incorporated ChinaCache International Holdings Ltd., or ChinaCache Holdings, under the laws of the Cayman Islands to become our offshore holding company. In August 2005, we established our wholly-owned PRC subsidiary, ChinaCache Network Technology (Beijing) Limited, or ChinaCache Beijing.

        In January 2008, we acquired JNet Holdings Limited, or JNet Holdings, a British Virgin Islands company. As an integral part of this transaction, we obtained control over Shanghai JNet Telecom Co., Ltd., or Shanghai JNet, an affiliate of JNet Holdings in China, through a series of contractual arrangements.

        In July 2008, we obtained control over Beijing Jingtian Co., Ltd., or Beijing Jingtian, through a series of contractual arrangements.

        PRC laws and regulations currently restrict foreign ownership of telecommunications value-added services, including content and application delivery services. Accordingly, we conduct our operations in China through a series of contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, and their respective shareholders. As a result of these contractual arrangements, which provide us with the right to control management decisions and the right to obtain substantially all of the economic benefits in these entities, we control Beijing Blue I.T., Beijing Jingtian and Shanghai JNet and, accordingly, under accounting principles generally accepted in the United States of America, or U.S. GAAP, we consolidate Beijing Blue I.T., Beijing Jingtian and Shanghai JNet's results of operations in our consolidated financial statements. For a description of these contractual arrangements, see "Our Corporate History and Structure—Contractual Arrangements with Our Consolidated Variable Interest Entities." For risks associated with these contractual arrangements, see "Risk Factors—Risks Related to Our Corporate Structure."

        We currently have branch offices in nine cities in China, namely, Wuhan, Shanghai, Harbin, Shenzhen, Chengdu, Nanjing, Shenyang, Xi'an and Guangzhou. We have two overseas subsidiaries, ChinaCache North America, Inc., established in California in August 2007, and ChinaCache Networks (Hong Kong) Limited, established in Hong Kong in April 2008.

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        The following diagram illustrates our current corporate structure.

GRAPHIC

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Corporate Information

        Our principal executive offices are located at 6/F, Block A, Galaxy Plaza, No. 10 Jiuxianqiao Road Middle, Chaoyang District, Beijing 100015, People's of Republic of China. Our telephone number at this address is +(86) 10 6437 3399. Our registered office in the Cayman Islands is located at Offshore Incorporations (Cayman) Limited, Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands.

        Our website is www.chinacache.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the U.S. is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.


Conventions Used in this Prospectus

        In this prospectus, unless otherwise indicated or the context otherwise requires, references to:

    "ADSs" refers to American depositary shares, each of which represents                        ordinary shares;

    "ChinaCache," "we," "us," "our company," and "our" refer to ChinaCache International Holdings Ltd., its subsidiaries and its consolidated affiliated entities;

    "China" or "PRC" refers to the People's Republic of China, excluding for purposes of this prospectus only, Taiwan, Hong Kong and Macau;

    "preferred shares" refers to, collectively, our Series A convertible preferred shares, Series B convertible preferred shares, Series C convertible preferred shares, Series C-1 convertible preferred shares, Series C-2 convertible preferred shares and Series C-3 convertible preferred shares; and "Series C convertible preferred shares" refers to, collectively, our Series C-1 convertible preferred shares, Series C-2 convertible preferred shares and Series C-3 convertible preferred shares;

    "Renminbi" or "RMB" refers to the legal currency of China; and

    "US$," "dollars" or "U.S. dollars" refers to the legal currency of the United States.

        Except as otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase additional ADSs.

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The Offering

Offering price   We currently expect that the initial public offering price per ADS will be between US$              and US$              .
ADSs offered by us                     ADSs.
ADSs offered by the selling shareholders                     ADSs.
ADSs outstanding immediately after this offering                     ADSs.
Ordinary shares outstanding immediately prior to this offering   290,041,317 shares.
Ordinary shares outstanding immediately after this offering                       shares.
ADSs to ordinary share ratio    
Proposed Nasdaq Global Market symbol   CCIH.
Depositary   Citibank, N.A.
Over-allotment option   The underwriters have a 30-day option to purchase up to an additional            ADSs from us and up to an additional                     ADSs from the selling shareholders at the initial public offering price less the underwriting discount.
Reserved ADSs   At our request, the underwriters have reserved for sale, at the initial public offering price, up to five percent of the ADSs offered by this prospectus for sale to some of our directors, officers, employees, distributors, dealers, business associates and related persons.
Use of proceeds   We intend to use the net proceeds from this offering to expand our research and development efforts, to fund our capital expenditures for network and other equipment and to fund working capital and for other general corporate purposes, including strategic investment in and acquisitions of complementary businesses. See "Use of Proceeds" for more information. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.
Lock-up   We, our directors and executive officers, all of our existing shareholders and certain of our option holders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date this prospectus becomes effective. See "Underwriting" for more information.
Risk factors   See "Risk Factors" and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

        The number of ordinary shares that will be outstanding immediately after this offering:

    assumes no exercise by the underwriters of their over-allotment option to acquire additional ADSs;

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    assumes the conversion of all outstanding preferred shares into 205,565,425 ordinary shares immediately prior to the completion of this offering;

    excludes ordinary shares reserved for future issuances under our stock incentive plans, of which 22,591,260 are issuable upon the exercise of options outstanding as of the date of this prospectus; and

    includes                        ordinary shares to be issued to Sundream Holdings Limited and Smart Asia Holdings Limited, assuming an initial public offering price of US$            per ADS, the midpoint of the estimated range of our initial public offering price.

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Summary Consolidated Financial Data and Operating Data

        Our summary consolidated financial data presented below for the years ended December 31, 2007, 2008 and 2009 and our balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. The summary consolidated statement of operations data (other than earnings (losses) per ADS data) for the six months ended June 30, 2009 and 2010 and the summary consolidated balance sheet data as of June 30, 2010 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial information on the same basis as our audited consolidated financial statements. The unaudited financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. You should read the summary consolidated financial information in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results expected for future periods.

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  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
 
  2007   2008   2009   2009   2009   2010  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
   
   
   
   
   
  (unaudited)
 
 
  (in thousands, except shares, per share and per ADS data)
 

Consolidated Statement of Operations Data:

                                           

Revenues:

                                           

Net revenues

    160,973     291,404     272,370     39,902     132,192     170,342     25,119  

Cost of revenues(1)

    (170,902 )   (273,262 )   (206,181 )   (30,206 )   (101,203 )   (118,476 )   (17,471 )
                               
 

Gross profit

    (9,929 )   18,142     66,189     9,696     30,989     51,866     7,648  

Operating expenses(1):

                                           

Sales and marketing expenses(1)

    (13,387 )   (28,481 )   (36,775 )   (5,387 )   (19,109 )   (27,654 )   (4,078 )

General and administrative expenses(1)

    (42,551 )   (36,491 )   (25,469 )   (3,731 )   (12,655 )   (16,691 )   (2,461 )

Research and development expenses(1)

    (6,827 )   (16,807 )   (16,639 )   (2,438 )   (8,519 )   (10,334 )   (1,524 )

Post-acquisition settlement consideration

                        (30,711 )   (4,528 )
                               
 

Operating loss

    (72,694 )   (63,637 )   (12,694 )   (1,860 )   (9,294 )   (33,524 )   (4,943 )

Interest income

    1,843     261     110     16     47     95     14  

Interest expense

    (1,139 )   (6,562 )   (16,187 )   (2,371 )   (2,889 )   (1,978 )   (292 )

Other expense

    (8 )   (4,567 )   (772 )   (113 )   (1,177 )   (385 )   (57 )

Foreign exchange (loss)/gain, net

    (1,711 )   3,787     (661 )   (97 )   (676 )   (201 )   (30 )

Changes in fair value of warrants on Series A convertible preferred shares

    (4,286 )                        

Impairment of goodwill and intangible assets

        (75,147 )   (6,920 )   (1,014 )   (6,920 )        

Impairment of property and equipment

    (9,912 )   (2,872 )                    
                               
 

Loss before income tax expense

    (87,907 )   (148,737 )   (37,124 )   (5,439 )   (20,909 )   (35,993 )   (5,308 )

Income tax (expense)/benefit

    (6 )   (3,063 )   (2,043 )   (299 )   (1,224 )   11,792     1,739  
                               
 

Net loss

    (87,913 )   (151,800 )   (39,167 )   (5,738 )   (22,133 )   (24,201 )   (3,569 )
                               

Net loss attributable to ordinary shareholders

    (99,215 )   (162,981 )   (75,244 )   (11,022 )   (40,247 )   (52,026 )   (7,672 )
                               

Loss per ordinary share:

                                           
 

Basic

    (1.12 )   (1.73 )   (0.78 )   (0.11 )   (0.42 )   (0.62 )   (0.09 )
 

Diluted

    (1.12 )   (1.73 )   (0.78 )   (0.11 )   (0.42 )   (0.62 )   (0.09 )

Loss per ADS:

                                           
 

Basic

                                           
 

Diluted

                                           

Weighted average ordinary shares outstanding used in loss per share computation:

                                           
 

Basic

    88,791,173     94,441,786     96,844,453     96,844,453     96,912,599     84,475,892     84,475,892  
 

Diluted

    88,791,173     94,441,786     96,844,453     96,844,453     96,912,599     84,475,892     84,475,892  

Pro forma loss per share (unaudited):

                                           
 

Basic

                (0.13 )   (0.02 )       (0.08 )   (0.01 )
 

Diluted

                (0.13 )   (0.02 )       (0.08 )   (0.01 )

Weighted average number of ordinary shares outstanding used on pro forma loss per share computation (unaudited):

                                           
 

Basic

                302,409,878     302,409,878         290,041,317     290,041,317  
 

Diluted

                302,409,878     302,409,878         290,041,317     290,041,317  

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(1)
Includes share-based compensation expenses as follows:

   
  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
   
  2007   2008   2009   2009   2010  
   
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
   
   
   
   
   
  (unaudited)
 
   
  (in thousands)
 
 

Allocation of share-based compensation expenses:

                                           
   

Cost of revenues

        1,499     2,489     365     1,251     3,651     539  
   

Sales and marketing expenses

        3,223     5,352     784     2,693     7,877     1,162  
   

General and administrative expenses

    3,379     (156 )   4,185     613     2,886     6,505     959  
   

Research and development expenses

        1,424     2,365     346     1,189     3,468     511  
                                 
 

Total share-based compensation expenses included in cost of revenues and total operating expenses

    3,379     5,990     14,391     2,108     8,019     21,501     3,171  
                                 

 
  As of December 31,   As of June 30,  
 
  2008   2009   2010  
 
  RMB
  RMB
  US$
  RMB
  US$
 
 
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

   
12,883
   
64,702
   
9,479
   
79,557
   
11,731
 

Accounts receivable, net

    48,327     54,520     7,987     83,319     12,286  

Total current assets

    116,639     225,120     32,980     235,965     34,794  

Property, plant and equipment, net

    210,531     151,009     22,123     136,969     20,197  

Acquired intangible assets, net

    18,883     3,330     488     1,943     287  

Goodwill

    20,035     16,989     2,489     16,989     2,505  

Total current liabilities

    247,145     231,353     33,894     252,456     37,226  

Total liabilities

    272,307     248,751     36,442     265,939     39,214  

Total mezzanine equity

    361,337     488,126     71,511     515,951     76,082  

Total shareholders' deficit

    (264,151 )   (339,250 )   (49,700 )   (388,949 )   (57,354 )

        The following table presents an unaudited non-GAAP financial measure and selected operating data as of and for the dates and periods indicated.

 
  As of and for the Year Ended December 31,   As of and for the Six Months
Ended June 30,
 
 
  2007   2008   2009   2009   2010  
 
  (in thousands, except customer numbers)
 

Non-GAAP Financial Measure:

                                           

Adjusted EBITDA(1)(2)

    RMB(31,812 )   RMB23,057     RMB70,651   US$ 10,350     RMB33,466     RMB48,299   US$ 7,122  

Operating Data:

                                           

Active customers at period end(3)

    129     204     281           217     418        

(1)
In evaluating our business, we consider and use Adjusted EBITDA as a supplemental measure to review and assess our operating performance. We use EBITDA to assist in reconciliation to Adjusted EBITDA. We define EBITDA as net income (loss) before interest expense, interest income, income tax expense, penalty on tax uncertainties, depreciation and amortization. We define Adjusted EBITDA as EBITDA plus share-based compensation expenses and expenses that we do not consider reflective of our ongoing operations. We also believe that the use of Adjusted EBITDA facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in items such as capital structures (affecting relative interest expense and share-based compensation expense), the book amortization of intangibles (affecting relative amortization expense), the age and book value of facilities and equipment (affecting relative depreciation expense) and other non cash expenses. We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of the financial performance of companies in our industry.

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    The terms EBITDA and Adjusted EBITDA are not defined under U.S. GAAP and are not measures presented in accordance with U.S. GAAP. Our EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, you should not consider EBITDA and Adjusted EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:

    EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

    they do not reflect changes in, or cash requirements for, our working capital needs;

    they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

    they do not reflect income taxes or the cash requirements for any tax payments;

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;

    while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as assumed life of the options and assumed volatility of our ordinary shares; and

    other companies may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

(2)
We calculate Adjusted EBITDA as follows:

   
  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
   
  2007   2008   2009   2009   2010  
   
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
   
   
   
   
   
  (unaudited)
 
   
  (in thousands)
 
 

Net loss

    (87,913 )   (151,800 )   (39,167 )   (5,738 )   (22,133 )   (24,201 )   (3,569 )
 

Plus: depreciation

    35,761     60,230     56,961     8,345     29,063     28,186     4,156  
 

Plus: amortization

    6,036     21,915     11,679     1,711     6,128     1,387     205  
 

Plus: interest expense

    1,139     6,562     16,187     2,371     2,889     1,978     292  
 

Plus: penalty on tax uncertainties

        3,126     1,086     159     727     423     62  
 

Less: interest income

    (1,843 )   (261 )   (110 )   (16 )   (47 )   (95 )   (14 )
 

Plus: income tax expense/(benefit)

    6     3,063     2,043     299     1,224     (11,792 )   (1,739 )
 

EBITDA

   
(46,814

)
 
(57,165

)
 
48,679
   
7,131
   
17,851
   
(4,114

)
 
(607

)
 

Plus: share-based compensation

    3,379     5,990     14,391     2,108     8,019     21,501     3,171  
 

Plus: foreign exchange loss/(gain)

    1,711     (3,787 )   661     97     676     201     30  
 

Plus: post-acquisition settlement consideration

                        30,711     4,528  
 

Plus: impairment of goodwill and acquired intangible assets

        75,147     6,920     1,014     6,920          
 

Plus: impairment of property and equipment

    9,912     2,872                      
 

Adjusted EBITDA

   
(31,812

)
 
23,057
   
70,651
   
10,350
   
33,466
   
48,299
   
7,122
 
(3)
We define active customers as those from whom we generated revenues within 30 days before the period end.

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RISK FACTORS

        An investment in our ADSs involves significant risks. You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We have incurred losses in the past and may incur losses in the future.

        We have a history of net losses. We had net losses of RMB87.9 million, RMB151.8 million, RMB39.2 million (US$5.7 million) and RMB24.2 million (US$3.6 million) in 2007, 2008, 2009 and the six months ended June 30, 2010, respectively. As of June 30, 2010, we had an accumulated shareholders' deficit of RMB388.9 million (US$57.4 million). We cannot anticipate when, if ever, we will become profitable. Although we have been able to narrow our net loss in 2009 and the first six months in 2010 through improved efficiency of our networks and operations and cost reduction measures, we cannot assure that we will continue to achieve such efficiency or sustain such cost reduction. Furthermore, we expect our costs and expenses to increase as we continue to expand our business and operations. If we are unable to generate revenues that significantly exceed our costs and expenses, we may continue to incur losses in the future. Even if we do achieve profitability, we may not be able to sustain or increase our profitability in the future.

We generate substantially all of our revenues from sales of content and application delivery services, and the failure of the market for these services to expand as we expect or the reduction in spending on these services by our current or potential customers would seriously harm our business.

        We have generated substantially all of our revenues from sales of content and application delivery services. We expect such services to continue to be the primary source of our revenues in the foreseeable future. Our success, therefore, depends on our customers' continued and increasing reliance on the Internet for delivery of services and applications and our ability to deliver these services and applications cost-effectively. Factors that may have a general tendency to limit or reduce the number of users relying on the Internet for services and applications or the number of providers making services and applications available online would harm our business. As the content and application delivery services is still emerging, our success also depends on our ability to convince potential customers to entrust their services and applications to an external service provider, that content and application delivery technologies and services are valuable and that it is more cost-effective for them to utilize external services than for them to develop similar services in-house. A decline in the demand for content and application delivery services in general would negatively affect demand for our services. Even if demand for our services continues to grow, this demand may not grow as quickly as we anticipate. The influence of any of these factors may cause our current or potential customers to reduce their spending on our services, which would have a material adverse impact on our business, results of operations and financial condition.

Our costs and expenses may increase, and our profitability may be adversely affected if we cannot pass the increased costs onto our customers.

        Since 2007, we have invested heavily in purchasing capital equipment to increase our network capacity. For example, for the three years ended December 31, 2009, we incurred a total of RMB228.8 million (US$33.7 million) in capital expenditures, which relates to our additions of property and equipment, such as the build-out and expansion of our network. In 2010 and beyond, we expect to increase our costs and expenses, including investments in additional bandwidth, servers and other

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equipment. Our capital expenditures are based upon our assumptions regarding the potential future demand. If we overestimate future demand for our services, we may not be able to achieve acceptable rates of return on our capital expenditures and our results of operations may suffer dramatically. In addition, if our third-party bandwidth and other providers raise the prices of their services and products, we will incur increased costs in order to provide our services. If we cannot pass the increased costs and expenses onto our customers, or if our costs to deliver our services do not decline commensurate with any future declines in the prices we charge our customers, we may fail to achieve profitability.

If we are unable to attract new customers or to retain existing customers, our revenues may decline.

        To increase our revenue, we plan to sell additional services to existing customers, encourage existing customers to increase their purchase volume and attract new customers. If our existing and prospective customers do not perceive our services to be of sufficiently high-value and quality, we may not be able to sell additional services to our current customers, retain our current customers or attract new customers. We typically sell our services pursuant to service agreements that are generally one-year in duration. Although most of our service agreements contain renewal provisions, our customers have no obligation to renew their contracts for our services after the expiration of their initial commitment period, and these service agreements may not be renewed at the same or higher level of service, if at all. Moreover, some of our service agreements provide that customers have the right to cancel their service agreements prior to the expiration of the terms of their agreements under certain circumstances. This, in addition to the changing competitive landscape in our market, means that we cannot accurately predict future customer renewal rates. Our customers' renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction or dissatisfaction with our services, the prices of our services, the prices of services offered by our competitors and reductions in our customers' spending levels. In 2007, 2008 and 2009, 24.7%, 33.9% and 27.0%, respectively, of our total number of customers decided not to renew their contracts with us. If we cannot attract a sufficient number of new customers or increase the purchase volume of our existing customers to cover the loss of existing customers, our revenues may decline and our business will suffer.

We may lose customers if they elect to develop solutions internally for the delivery of their content and applications.

        Our customers and potential customers may decide to develop their own content and applications delivery service solutions rather than outsource these solutions to service providers like us. This is particularly true as our customers expand their operations and begin expending greater resources on delivering their Internet services and applications using their own solutions. For instance, we lost our then largest customer in September 2008, a customer that contributed 24.4% and 16.0% of our total net revenues in 2007 and 2008, respectively, primarily due to its decision to develop in-house solutions. Our largest customer in 2009, Tencent, who contributed approximately 14.8% of our total net revenue in 2009, is no longer one of our top five customers and accounted for less than 5% of our total net revenues in the six months ended June 30, 2010, partially due to its decision to develop in-house solutions. If we fail to offer services that are competitive to in-house developed solutions, we may continue to lose customers or fail to attract customers that develop solutions in-house, and our business and financial results would suffer.

The decline in the price of our services could negatively impact our gross margins.

        The prices we can charge for our content and application delivery services have declined, and are expected to decline over time, as a result of, among other things, the increasing availability of bandwidth at reduced costs and existing and new competition in the markets. Also, we may be forced to reduce the price of our services due to reduced bargaining power with our customers. If the price

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that we are able to charge customers falls to a greater extent than we anticipate and we are not able to offset this decline with reduction in our cost of revenues, our results of operations would be adversely affected.

Rapidly evolving technologies or new business models could cause demand for our services to decline or become obsolete.

        Third parties may develop technological or business model innovations that address Internet services and applications delivery requirements in a manner that is, or is perceived to be, equivalent or superior to our services. For instance, companies are looking to offer Internet-related solutions, such as peer-to-peer file sharing networks or cloud computing services, to address certain service and application delivery needs. Our existing and future competitors may introduce new products or services that compete with or surpass the quality, price or performance of our services. We may not anticipate such developments and may be unable to adequately compete with these potential solutions. In addition, our customers' business models may change in ways that we do not anticipate and these changes could reduce or eliminate our customers' needs for our services. If this occurred, we could lose customers or potential customers, and our business and financial results would suffer. As a result of these or similar potential developments, it is possible that competitive dynamics in our market may require us to reduce our prices, which could harm our revenue, gross margin and results of operations.

If we are unable to develop new services and enhancements to existing services or fail to predict and respond to emerging technological trends and customers' changing needs, our results of operations may suffer.

        The market for the content and application delivery services is characterized by rapidly changing technology, evolving customer needs and requirements, and frequent new product and service introductions. Our results of operations depend on our ability to develop and introduce new services into existing and emerging markets. The process of developing new technologies is complex and uncertain. We must commit significant resources to developing new services or enhancements to our existing services before knowing whether our investments will result in services the market will accept. For example, individuals are increasingly using mobile devices to access Internet content. Our ability to provide new and innovative solutions to address challenges posed by mobile device users and other technologies or market developments is important to our future growth. Furthermore, we may not execute successfully our technology initiatives because of errors in planning or timing, technical hurdles that we fail to overcome in a timely manner, misunderstandings about market demand or a lack of appropriate resources. Failures in execution or market acceptance of new services we introduce could result in competitors providing those solutions before we do, which could lead to loss of market share, revenues and earnings.

The Internet and Internet-based services in China may fail to grow as quickly as expected.

        Our future success depends on the growth of the Internet in China. In particular, our business strategy and growth assumptions depend on the continued development and utilization of Internet-based services such as online games, rich media content, online advertising, e-commerce and mobile Internet. Online games, rich media content, e-commerce and mobile Internet are relatively new developments in China and may not be well received in the future and may be impacted by regulatory changes in China. Our business prospects and future growth could suffer if the Internet or the markets for these Internet-based services in China fail to grow as quickly as anticipated. Furthermore, even if the Internet and Internet-based services in China grow as expected, we may fail to successfully implement our growth strategies, which could have a material adverse impact over our business prospects, results of operations and financial condition.

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Many of our existing and potential customers are pursuing emerging or unproven business models which, if unsuccessful, could lead to a substantial decline in demand for our services.

        Because the proliferation of broadband Internet connections and the subsequent monetization of Internet services and applications are relatively recent phenomena in China, many of our existing and potential customers' business models that center on the delivery of Internet services and applications to users remain unproven. For example, user-generated content websites, media companies and online game operators have been among our customers and are pursuing emerging strategies for monetizing their Internet services and applications or traffic on their websites. These companies will not continue to purchase our content and application delivery services if their Internet services or applications fail to generate a sufficient return on their investment or if their own business models fail to succeed. Moreover, some of our existing and potential customers are pursuing business in areas which have undefined regulatory parameters in China, and such companies face a risk of having their activities restricted or shut down for regulatory reasons. A reduction in spending on our services by our existing and potential customers would harm our results of operations and financial condition, and our growth and prospects may be materially and adversely affected.

We depend on a limited number of customers for a substantial portion of our revenues, and the loss of, or a significant shortfall in demand from, these customers could significantly harm our results of operations.

        During any given fiscal period, a relatively small number of customers typically accounts for a significant percentage of our revenue. For example, our single largest customer contributed 24.4%, 16.0%, 14.8% and 12.8% of our total net revenues for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2010, respectively. Furthermore, our five largest customers contributed 42.0%, 38.2%, 34.8% and 32.1% of our total net revenues for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2010, respectively. In the past, our top five customers have continually changed, and we also have experienced significant fluctuations in our individual customers' usage of our services. In addition, our operating costs are relatively fixed in the near term. As a consequence, we may not be able to adjust our expenses in the short-term to address the unanticipated loss of a large customer during any particular period. As such, we may experience significant, unanticipated fluctuations in our results of operations which may cause us to not meet our expectations or those of stock market analysts, which could cause our stock price to decline.

Our business substantially depends on telecommunications carriers and other third-party providers for communications and storage capacity. Any change that adversely affects our communications and storage capacity could result in interruptions in our services.

        Our business and operations are dependent upon telecommunications carriers and other third-party providers for communications and storage capacity, including bandwidth, optical fiber cable, servers and other equipment. We obtain bandwidth primarily from telecommunications carriers. We lease optical fiber cable to serve as part of our private transmission backbone from third-party providers. We purchase servers and other equipment from suppliers and deploy our servers in numerous third-party co-location facilities. In addition, we need access to end-user access networks operated by telecommunications carriers and Internet service providers, or ISPs, in order to complete the delivery of Internet services and applications to end-users.

        We believe that we currently have good business relationships with telecommunications carriers and our major third-party providers, and we have access to adequate communications and storage capacity to provide our services. However, there can be no assurance that we can always secure communications and storage capacity on commercially acceptable terms, and that we are adequately prepared for unexpected increases in bandwidth demands or unplanned network interruptions. If we

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are unable to obtain transmission capacity on terms commercially acceptable to us or at all, our business and financial results could suffer.

        In the past, system disruptions in the networks of certain regional telecommunications carriers and ISPs, have affected our ability to provide our services. Some telecommunications carriers or ISPs may also take measures, such as the deployment of filters, that could degrade, disrupt or increase the cost of our or our customers' access to networks operated by them. Telecommunications carriers and ISPs could also decide to limit or prohibit the use of their networks to support or facilitate our services, or by charging additional fees to us, our customers or end-users in connection with our services. Third-party suppliers may not be able to meet our demand of servers or other equipment in a timely manner. In addition, as we deploy our servers in numerous third-party co-location facilities, any system outages or other disruptions in these third-party facilities could constrain our ability to deliver our services. Any of these interruptions, interferences or restrictions could result in a loss of existing customers, increased costs and impairment of our ability to attract new customers, thereby harming our revenues and growth.

The global financial and economic crisis has adversely affected, and may continue to adversely affect, our business, results of operations and financial condition.

        The global financial markets have experienced significant disruptions since 2008, and most of the world's major economies have been or are still in recession. To the extent that there has been improvement in some areas, it is unclear whether the recovery is sustainable. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of the world's leading economies, including China's. Since we currently derive substantially all of our revenues from customers in China, any prolonged slowdown in the Chinese economy may have an adverse effect on our business, results of operations and financial condition. To the extent customers are unable to profitably monetize the content we deliver on their behalf due to an economic slowdown or otherwise, they may reduce or eliminate the traffic we deliver on their behalf. Such reductions in traffic would lead to a reduction in our revenues. Additionally, in a down-cycle economic environment, we may experience the negative effects of increased competitive pricing pressure, customer loss, slow down in commerce over the Internet and corresponding decrease in traffic delivered over our network and failures by customers to pay amounts owed to us on a timely basis or at all. Suppliers on which we rely for servers, bandwidth, co-location and other services could also be negatively impacted by economic conditions which, in turn, could have a negative impact on our operations or expenses. There can be no assurance, therefore, that current economic conditions or worsening economic conditions or a prolonged or recurring recession will not have a significant adverse impact on our business, results of operations and financial condition.

We expect to continue to experience intense competition.

        We compete in a market that is intensely competitive, rapidly changing and characterized by vendors offering a wide range of content and application delivery services. We have experienced and expect to continue to experience intense competition. In China, we primarily compete with domestic content and application delivery service providers. Our primary domestic competitors include ChinaNetCenter, Dnion Technology and 21Vianet. Although multinational companies currently do not have a significant presence in the content and application delivery services market in China in part due to regulatory restrictions in China's telecommunications sector, we may face competition from multinational companies if regulatory restrictions in China are lifted in the future. Also, as a result of the growth of the content delivery services market, a number of companies are currently attempting to enter our market, either directly or indirectly, some of which may become significant competitors in the future. Some of our current or potential competitors may have greater financial, marketing and other resources than we do and may have stronger governmental support. Some of our competitors may offer

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lower prices on competing services in order to gain market share. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Furthermore, some of our current or potential competitors may bundle their offerings with other services, software or hardware in a manner that may discourage content providers from purchasing the services that we offer. Increased competition could result in price reductions and revenue decline, loss of customers and loss of market share, which could harm our business, financial condition and results of operations.

Any unplanned interruption in the functioning of our network or services could lead to significant costs and disruptions.

        Our business is dependent on providing our customers with fast, efficient and reliable delivery of Internet content and applications. Many of our customers depend on our services to operate their businesses. Consequently, any disruption of our services could have a material impact on our customers' businesses. Our network or services could be disrupted by numerous events, including natural disasters, power losses and failure of our software or network. From time to time, we need to correct errors and defects in our software or in other aspects of our networks. There may be errors and defects originating with third-party networks or software on which we rely that harm our ability to deliver our services. We may also experience disruptions caused by software viruses or other attacks by unauthorized users. Despite our significant capital investments, we may have insufficient communications and server capacity to address these or other disruptions, which could result in interruptions in our services. Any widespread interruption of the functioning of our networks and related services for any reason would reduce our revenues and could harm our business and financial results. If such a widespread interruption occurred or if we failed to deliver Internet services and applications to users as expected during a high-profile media event or well-publicized circumstance, our reputation could be severely damaged. Moreover, any disruptions could undermine confidence in our services and cause us to lose customers or make it more difficult to attract new ones, either of which could harm our business and results of operations.

We may have difficulty scaling and adapting our existing network to accommodate increased traffic and technology advances or changing business requirements.

        Our services are highly complex and are designed to be deployed in and across numerous large and complex networks. Our network must perform well and be reliable in order for us to be successful. The greater the user traffic and the greater the complexity of our products and services, the more resources we will need to invest in additional network capacity and support. We have spent and expect to continue to spend substantial amounts on the purchase and lease of equipment and data centers and the upgrade of our technology and network to handle increased traffic over our network and to roll out new products and services. This expansion is expensive and complex and could result in inefficiencies, operational failures or defects in our network and related software. If we do not expand successfully, or if we experience inefficiencies and operational failures, the quality of our products and services and user experience could decline. These occurrences could damage our reputation and lead us to lose current and potential customers. We must continuously upgrade our network in order to keep pace with our customers' evolving demands. Cost increases or the failure to accommodate increased traffic or these evolving business demands without disruption could harm our results of operations and financial condition.

If we fail to manage future growth effectively, our business and results of operations could be adversely affected.

        We have expanded our operations in recent years and we anticipate further expansion in the future. This expansion has placed, and will continue to place, substantial demands on our managerial,

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operational, technological and other resources. Our planned expansion will also require us to maintain the consistency of our service offerings to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of our service offerings. Our future results of operations depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:

    training new sales personnel to become productive and generate revenue;

    controlling expenses and investments in anticipation of expanded operations;

    implementing and enhancing our network; and

    addressing new markets.

        A failure to manage our growth effectively could materially and adversely affect our business, results of operations or financial condition.

Any difficulties in identifying and consummating future acquisitions or any difficulties encountered in integrating current and future acquisitions may have a material and adverse effect on our business, results of operations or financial condition.

        Selective acquisitions and strategic investments form part of our strategy to further expand our business. However, we may not be successful in identifying and consummating future acquisitions and strategic investments, which could impair our growth potential. Acquisitions also present other challenges, including the difficulty of integrating the operations and personnel of the acquired companies, the potential disruption of our ongoing business, the potential distraction of management, expenses related to the acquisition, potential unknown liabilities or penalties associated with acquired businesses. Any inability to integrate operations or personnel in an efficient and timely manner could harm our results of operations. If we are not successful in completing acquisitions that we may pursue in the future, we may be required to reevaluate our business strategy, and we may incur substantial expenses and devote significant management time and resources without a productive result. In addition, future acquisitions and strategic investments will require the use of our available cash or dilutive issuances of securities. We may also experience significant turnover from the acquired operations or from our current operations as we integrate businesses. Such difficulties in identifying and consummating future acquisitions and strategic investments or any difficulties encountered in integrating current and future acquisitions may have a material and adverse effect on our business, results of operations or financial condition.

We may need to record additional impairment charges to earnings, incur additional post-acquisition settlement consideration or issue additional shares to the sellers in connection with our JNet Holdings acquisition, which may have a material and adverse effect on our results of operations.

        As part of our strategy, we have acquired, and may in the future acquire, companies that are complementary to our business. We record goodwill if the purchase price we pay in such acquisition exceeds the amount assigned to the fair value of the assets or business acquired. We are required to test our goodwill and acquired intangible assets for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. We have, in the past, recorded impairment of goodwill and acquired intangible assets in connection with our acquisitions. In 2008 and 2009, we recognized an impairment of goodwill and related acquired intangible assets of approximately RMB75.1 million and RMB6.9 million, respectively, in connection with our acquisition of JNet Holdings and obtaining control over Shanghai JNet. The impairment was primarily attributable to the resulting and continuing effects of the economic downturn coupled with declines in customer demand, intense pricing pressure and increasing competition. If the carrying value of our acquisition goodwill and related acquired intangible assets in connection with our past or future acquisitions are determined

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to be impaired, we would be required to reflect additional charges to earnings in our financial statements during the period in which such goodwill and acquired intangible assets are determined to be impaired. In addition, we incurred additional expenses in the amount of RMB30.7 million (US$4.5 million) during the six months ended June 30, 2010, which was associated with a supplementary agreement we entered into in January 2010 with Sundream Holdings Limited and Smart Asia Holdings Limited, the sellers of JNet Holdings. A major portion of this expense was estimated based on the projected pre-tax income for 2010 to 2012, which will be remeasured at each financial reporting period until final measurement can be completed or once actual pre-tax income can be determined for these years. As a result, the actual results may differ from these original estimates resulting in actual future payments significantly exceeding this estimate. Furthermore, as part of the supplementary agreement, we agreed to issue additional ordinary shares to the sellers to the extent our initial public offering price is less than US$1.02952 per ordinary share. We estimate that we will need to issue            ordinary shares to the sellers of JNet Holdings, assuming an initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial offering price. If we are required to issue such additional ordinary shares, additional charges in the amount of US$             million will be recorded concurrent with such issuance, which will negatively affect our results of operations. Such issuance of additional shares will also dilute your interest in our company. See "Dilution."

Our results of operations may fluctuate in the future. This may result in significant volatility in, and otherwise adversely affect, the market for our ADSs.

        Our results of operations may fluctuate as a result of various factors, many of which are outside of our control. Fluctuations in our results of operations could result in significant volatility in, and otherwise adversely affect, the market price of our ordinary shares. Fluctuations in our results of operations may be due to a number of factors, including:

    our ability to increase sales to existing customers and attract new customers;

    the loss of major customers, or a significant variation in their use of our services;

    costs associated with future intellectual property lawsuits;

    service outages or security breaches;

    the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our business, operations and network;

    the occurrence of significant events in a particular period that results in an increase in the use of our services, such as a major media event or a customer's online release of a new or updated video game;

    changes in our pricing policies or those of our competitors;

    share-based compensation expenses associated with attracting and retaining key personnel;

    limitations of the capacity of our platform and related systems;

    the timing of costs related to the development or acquisition of technologies, services or businesses;

    general economic, industry, market and regulatory conditions and those conditions specific to Internet usage and online businesses; and

    reduced usage of our services by our customers.

        Our revenues and results of operations may vary significantly in the future and that period-to-period comparisons of our results of operations may not be meaningful. You should not rely on the results of one period as an indication of future performance.

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We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.

        Our technologies and business methods, including those relating to our content and application delivery services, may be subject to third-party claims or rights that limit or prevent their use. Companies, organizations or individuals, including our competitors, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services or develop new services, which could make it more difficult for us to operate our business. Intellectual property registrations or applications by others relating to the type of services that we provide may give rise to potential infringement claims against us. In addition, to the extent that we gain greater visibility and market exposure as a public company, we are likely to face a higher risk of being subject to intellectual property infringement claims from third parties. The global content and application delivery services industry is characterized by the existence of a large number of patents, trademarks, and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We expect that infringement claims may further increase as the number of products, services, and competitors in our market increases. Further, continued success in this market may provide an impetus to those who might use intellectual property litigation as a tool against us.

        It is critical that we use and develop our technology and services without infringing the intellectual property rights of third parties, including but not limited to, patents, copyrights, trade secrets and trademarks. Intellectual property litigation is expensive and time-consuming and could divert management's attention from our business. A successful infringement claim against us, whether with or without merit, could, among others things, require us to pay substantial damages, develop non-infringing technology, or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and cease making, licensing or using products that have infringed a third party's intellectual property rights. Protracted litigation could also result in existing or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation, or could require us to indemnify our customers against infringement claims in certain instances. Any intellectual property litigation could have a material adverse effect on our business, results of operations or financial condition.

        As of the date of this prospectus, we have 5 patents, 20 patent applications and 14 software copyrights registrations in China relating to the technologies used in our business. However, we have no issued patents in the U.S. Certain U.S.-based companies have been granted patents or have licensed patents in the U.S. relating to content and application delivery business. In the past, we have conducted substantially all of our business operations in China. In August 2007, we established a U.S. subsidiary, ChinaCache North America, Inc., primarily to support our marketing efforts in North America. We primarily rely upon our local business partners in the U.S. to address our content and application delivery needs in those markets. However, the possibility of intellectual property rights infringement claims against us may still increase as we expand outside China.

        If we fail to defend ourselves against any intellectual property infringement claim, we may lose significant intellectual property rights and may be unable to continue providing our existing services, which could have a material adverse effect on our results of operations and business prospects.

We may not be able to prevent others from unauthorized use of our intellectual property.

        We rely on a combination of patent, copyright, trademark, software registration and trade secret laws, as well as nondisclosure agreements and other methods to protect our intellectual property rights. As of the date of this prospectus, we have 5 patents, 20 patent applications and 14 software copyright registrations. To protect our trade secrets and other proprietary information, employees, consultants, advisors and collaborators are required to enter into confidentiality agreements. However, a patent filing may not result in an issued patent and an issued patent may not sufficiently protect our

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intellectual property rights and our current patent portfolio may not be broad enough to protect our technologies. In addition, implementation of intellectual property-related laws in China has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Policing unauthorized use of proprietary technology is difficult and expensive. The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so, which could harm our business and competitive position. Although we are not currently involved in any litigation with respect to intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.

If our ability to deliver services and applications in popular proprietary formats was restricted or became cost-prohibitive, demand for our services could decline, we could lose customers and our financial results could suffer.

        Our business partially depends on our ability to deliver Internet services and applications in all major formats. If our legal right or technical ability to store and deliver Internet services and applications in one or more popular proprietary formats, such as Adobe Flash or Windows Media, was limited, our ability to serve our customers in these formats would be impaired and the demand for our content and application delivery services by customers using these formats would decline. Owners of proprietary formats may be able to block, restrict or impose fees or other costs on our use of such formats, which could lead to additional expenses for us and for our customers, or which could prevent our delivery of this type of Internet services and applications altogether. Such interference could result in a loss of existing customers, increased costs and impairment of our ability to attract new customers, which would harm our revenues, results of operations and growth.

If we are unable to retain our key employees and hire qualified sales and technical personnel, our ability to compete could be harmed.

        Our future success depends upon the continued services of our executive officers and other key technology, sales, marketing and support personnel who have critical industry experience and relationships that they rely on in implementing our business plan. For example, we are dependent on the continuing services of our co-founder, chairman and chief executive officer, Song Wang and our chief operating officer, Richard Siqing Xu. We do not have "key person" insurance policies covering any of our officers or other key employees, and we therefore have no way of mitigating our financial loss were we to lose their services. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our services, and negatively impact our ability to sell our services. There is increasing competition for qualified individuals with the specialized knowledge relevant to providing content and application network services and this competition affects both our ability to retain key employees and hire new ones. If we cannot identify and hire additional qualified employees, or if we fail to provide appropriate training, career opportunities or otherwise motivate and retain our quality employees, we may not be able to successfully execute our growth strategies and our business could suffer.

We may not be able to recoup our investment in international expansions.

        As part of our growth strategy, we may expand our international network. We have limited experience in providing our services internationally and such expansion could require us to make significant expenditures, including the purchase of additional network equipment and the hiring of local

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employees, in advance of generating any revenues. As a consequence, we may fail to achieve profitability or recoup our investment in international locations.

If we fail to maintain a strong brand identity, our business may not grow and our financial results may be adversely impacted.

        Maintaining and enhancing the value of our "ChinaCache" and "Blue I.T." brands is important to attracting customers. Our success in maintaining brand awareness and recognition in the content and application delivery services market in China will depend on our ability to consistently provide high quality, value-adding services and solutions. As our business grows, we plan to continue to focus our efforts to establish a wider recognition of our "ChinaCache" and "Blue I.T." brands to attract potential customers, which may require additional marketing resources. We cannot assure you that we will effectively allocate our resources for these activities or succeed in maintaining and broadening our brand recognition and appeal. If we fail to maintain a strong brand identity, our business and financial results may be adversely impacted.

If we are required to seek additional funding, such funding may not be available on acceptable terms or at all.

        We may need to obtain additional funding due to a number of factors beyond our control, including a shortfall in revenues, increased expenses, increased investment in capital equipment or the acquisition of significant businesses or technologies. We believe that our cash, plus cash from operations and the proceeds from this offering will be sufficient to fund our operations and proposed capital expenditures for at least the next 12 months. However, we may need funding before such time. If we do need to obtain funding, it may not be available on commercially reasonable terms or at all. If we are unable to obtain sufficient funding, our business would be harmed. Even if we were able to find outside funding sources, we might be required to issue securities in a transaction that could be highly dilutive to our investors or we may be required to issue securities with greater rights than the securities we have outstanding today. We might also be required to take other actions that could lessen the value of our ADSs, including borrowing money on terms that are not favorable to us. If we are unable to generate or raise capital that is sufficient to fund our operations, we may be required to curtail operations, reduce our capabilities or cease operations in certain jurisdictions or completely.

If our preferential tax treatments become unavailable or if the calculation of our tax liability is successfully challenged by the PRC tax authorities, our results of operations would be materially and adversely affected.

        The Enterprise Income Tax Law, effective as of January 1, 2008, significantly curtails tax incentives granted to foreign-invested enterprises under the previous tax law. The Enterprise Income Tax Law, however, permits certain "high and new enterprises strongly supported by the state" which hold independent ownership of core intellectual property and simultaneously meet a list of other financial or non-financial criteria to enjoy a reduced 15% enterprise income tax rate subject to certain new qualification criteria. In December 2008, Beijing Blue I.T. was recognized as a "high and new technology enterprise" and is thus eligible for the reduced 15% enterprise income tax rate from 2008 through 2010. Its continued qualification as a "high and new technology enterprise" will be subject to annual evaluation in practice and a three-year review by the relevant government authorities in China. If Beijing Blue I.T. fails to maintain its "high and new technology enterprise" qualification or renew its qualification when its current term expires, its applicable enterprise income tax rate may increase to 25%, which could have a material adverse effect on our financial condition and results of operations. Any increase in the enterprise income tax rate applicable to us or discontinuation or reduction of any of the preferential tax treatments currently enjoyed by Beijing Blue I.T. could adversely affect our business, results of operations and financial condition.

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        In the ordinary course of our business, we are subject to complex income tax and other taxing regulations and significant judgment is required in the determination of a provision for income taxes. For instance, Shanghai JNet, our consolidated variable interest entity, prepared its income tax returns for 2008 and 2009 on a "deemed income" basis. Shanghai JNet's tax returns for 2008 and 2009 have been approved by the local tax authorities and we are not currently under any tax audit; however, if the Chinese tax authorities should later determine that Shanghai JNet's tax returns for these years should have been prepared on a different basis that would result in a higher tax liability, Shanghai JNet may be ordered to pay more tax and related interests and penalties. We have recorded an accrual of RMB38.6 million on the consolidated balance sheet as of December 31, 2009 to reflect the management's estimate of our potential tax liability, penalty and interests. Although we believe our tax provisions are reasonable, if the PRC tax authorities successfully challenge our positions and we are required to pay tax, interests and penalties in excess of our tax provisions, our results of operations and financial condition would be materially and adversely affected.

Our computer networks may be vulnerable to security risks that could disrupt our services and adversely affect our results of operations.

        Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems caused by unauthorized access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations. Our computer data may also be vulnerable to attacks, unauthorized access and disruptions. Although we intend to continue to implement security measures, computer attacks or disruptions may jeopardize the security of information stored in and transmitted through computer systems of our customers. Losses or liabilities that are incurred as a result of any of the foregoing could have a material adverse effect on our business. Actual or perceived concerns that our systems may be vulnerable to such attacks or disruptions may deter customers from using our solutions or services. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches.

If we fail to establish or maintain an effective system of internal controls over our financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may, therefore, be adversely impacted.

        Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. For example, upon the completion of this offering, we will become a public company in the United States subject to Section 404 of the Sarbanes-Oxley Act, or Section 404, which will require that we include a management assessment of, and a report by our independent registered public accounting firm on, the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning for the year ending December 31, 2011. During the assessment process that we will undertake for compliance with Section 404, we may identify material weaknesses or significant deficiencies in our internal control over financial reporting that we may not be able to remediate in time to meet the deadline imposed by Section 404, and our management may conclude that our internal control over financial reporting is not effective. In addition, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may determine that our internal control over financial reporting is not effective and may issue an adverse opinion on the effectiveness of our internal control over financial reporting. Our failure to establish and maintain an effective internal control over financial reporting could increase the risk of material misstatements in our financial statements and cause failure to meet our financial and other reporting obligations, which would likely cause investors to lose confidence in our reported financial information and lead to a significant decline in the trading price of our ADSs.

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        In connection with the audit of our consolidated financial statements included in this prospectus, we and our independent registered public accounting firm identified one "material weakness" and certain other deficiencies in our internal controls over financial reporting. As defined in the standards established by the Public Company Accounting Oversight Board of the United States, a "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified related to our lack of adequate resources with the requisite U.S. GAAP and SEC financial accounting and reporting expertise to support the accurate and timely assembly and presentation of our consolidated financial statements and related disclosures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting" for additional information with respect to certain deficiencies identified in our internal control over financial reporting. We are in the process of remediating such material weakness and other deficiencies. However, the remedial measures that we have taken or intend to take may not fully address such material weakness and other deficiencies in our internal control over financial reporting may be identified in the future.

        If we fail to timely remedy the material weakness and other control deficiencies, and achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have an effective internal control over financial reporting. Moreover, an effective internal control over financial reporting is necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain an effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements and credibility of our management, which in turn could negatively impact the market price of our ordinary shares. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with the provisions of Section 404 of the Sarbanes-Oxley Act.

We have granted, and may continue to grant, stock options under our stock incentive plans, resulting in increased share-based compensation expenses and, therefore, reduced net income.

        We adopted three stock incentive plans in 2007, 2008 and 2010, respectively, and have granted options to purchase 22,591,260 of our ordinary shares in accordance with these plans as of the date of this prospectus. See "Management—Stock Incentive Plans." For the years ended December 31, 2008 and 2009 and the six months ended June 30, 2010, we recorded RMB7.2 million, RMB12.4 million and RMB18.3 million (US$2.7 million) in share-based compensation expenses for employees and non-employees, respectively. In accordance with ASC 718, "Share-Based Payment," we account for our options as liability awards and as such, the share-based compensation liability is initially recognized at fair value on the date of grant and is subsequently re-measured at the end of each reporting period with an adjustment for fair value recorded to the current period expense to properly reflect the cumulative expense based on the current fair value of the vested options over the vesting period.

        Immediately following the listing of our ADSs on the NASDAQ Global Market, we will account for our share-based compensation as equity awards going forward and accordingly, at the listing date, we will need to remeasure our share-based compensation liabilities using the initial public offering price of our ordinary shares. As a result of the final remeasurement of our share-based compensation liabilities at the listing date, we may record a share-based compensation charge in an approximate amount of RMB             million (US$             million), assuming an initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial offering price, and assuming other inputs to the share option valuation model unchanged to that used as of June 30, 2010. Such share-based compensation expenses may materially and adversely affect our results of operations for the quarter ending September 30, 2010 and the following reporting periods, depending on the term of the share option grants. In addition, if we grant more stock options to attract and retain key personnel,

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the expenses associated with share-based compensation may adversely affect our net income. However, if we do not grant stock options or reduce the number of stock options that we grant, we may not be able to attract and retain key personnel.

We may incur losses due to business interruptions resulting from occurrence of natural catastrophes, acts of terrorism or fires, and we have limited insurance coverage.

        The occurrence of natural catastrophes such as earthquakes, floods, typhoons or any acts of terrorism may result in significant property damages as well as loss of revenues due to interruptions in our business operations. In addition, the provision of our services depends on the continuing operation of our information technology and communications systems, which are also vulnerable to damage or interruption from natural catastrophes and acts of terrorism. Some of our data centers are located in areas with a high risk of typhoons or earthquakes. Our disaster recovery planning cannot account for every conceivable possibility. Any damage to or failure of our systems could result in interruptions in our services, which could reduce our revenues and profits, and our brand could be damaged if people believe our systems are unreliable.

        The insurance industry in China is not fully developed. Insurance companies in China offer limited business insurance products. While business disruption insurance may be available to a limited extent in China, we have determined that the risks of disruption and the difficulties and costs associated with acquiring such insurance render it commercially impractical for us to have such insurance. As a result, we do not have any business liability, disruption or litigation insurance coverage for our operations in China. Any business disruption or litigation might result in our incurring substantial costs and the diversion of resources.

We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations.

        Our business could be materially and adversely affected by natural disasters or the outbreak of avian influenza, severe acute respiratory syndrome, or SARS, or another epidemic. On May 12, 2008 and April 14, 2010, severe earthquakes hit part of Sichuan province in southeastern China and part of Qinghai province in western China, respectively, resulting in significant casualties and property damage. While we did not suffer any loss or experience any significant increase in cost resulting from this earthquake, if a similar disaster were to occur in the future affecting Beijing or another city where we have major operations in China, our operations could be materially and adversely affected due to loss of personnel and damages to property. In addition, a similar disaster affecting a larger, more developed area could also cause an increase in our costs resulting from the efforts to resurvey the affected area.

        In April 2009, a new strain of influenza A virus subtype H1N1, commonly referred to as "swine flu," was first discovered in North America and quickly spread to other parts of the world, including China. In early June 2009, the World Health Organization declared the outbreak to be a pandemic, while noting that most of the illnesses were of moderate severity. The PRC Ministry of Health has reported several hundred deaths caused by the influenza A (H1N1). Any outbreak of avian influenza, SARS, the influenza A (H1N1), or other adverse public health developments in China may have a material and adverse effect on our business operations. These occurrences could require the temporary closure of our offices or prevent our staff from traveling to our customers' offices to provide on site services. Such closures could severely disrupt our business operations and adversely affect our results of operations.

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Risks Related to Our Corporate Structure

If the PRC government finds that the arrangements that establish the structure for operating our business do not comply with PRC government restrictions on foreign investment in the telecommunications business, we could be subject to severe penalties.

        The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related business. Specifically, foreign investors are not allowed to own more than a 50% equity interest in any PRC company engaging in value-added telecommunications business.

        Because we are a Cayman Islands company, we are classified as a foreign enterprise under PRC laws and regulations, and our wholly-owned PRC subsidiary, ChinaCache Beijing, is a foreign-invested enterprise. To comply with PRC laws and regulations, we conduct our content and application delivery businesses in China through three sets of contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, and their respective shareholders. These contractual arrangements provide ChinaCache Beijing with effective control over Beijing Blue I.T., Beijing Jingtian and Shanghai JNet. For a description of these contractual arrangements, see "Our Corporate History and Structure—Contractual Arrangements with Our Consolidated Variable Interest Entities."

        The Ministry of Industry and Information Technology issued a circular in July 2006 requiring a foreign investor to set up a foreign-invested enterprise and obtain a value-added telecommunications business operating license, or VAT license, in order to conduct any value-added telecommunications business in China. Pursuant to this circular, a domestic VAT license holder is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local VAT license holder or its shareholder. The circular further requires each VAT license holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to maintain network and information security in accordance with the standards set forth under relevant PRC regulations. Due to a lack of interpretations from the regulator, it is unclear what impact this circular will have on us or other similarly situated companies.

        In the opinion of Han Kun Law Offices, our PRC legal counsel, (i) the ownership structure of our PRC subsidiary, our PRC consolidated variable interest entities and their branches and subsidiaries; both currently and after giving effect to this offering, comply with all existing PRC laws and regulations; (ii) each of the contracts under the contractual arrangements among our PRC subsidiary, PRC consolidated variable interest entities and their shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of our PRC subsidiary, our PRC consolidated variable interest entities and their branches and subsidiaries are in all material respects in compliance with existing PRC laws and regulations and the terms of their licenses and permits. However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and the above circular. Accordingly, there can be no assurance that the PRC regulatory authorities that regulate providers of content and application delivery services and other participants in the telecommunications industry, in particular, the Ministry of Industry and Information Technology, will ultimately take a view that is consistent with the opinion of our PRC legal counsel.

        The relevant PRC regulatory authorities have broad discretion in determining whether a particular contractual structure is in violation of PRC laws and regulations. If our corporate and contractual

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structure is deemed by the Ministry of Industry and Information Technology to be illegal, either in whole or in part, we may have to modify such structure to comply with regulatory requirements. However, we cannot assure you that we can achieve this without material disruption to our business. Further, if our corporate and contractual structure is found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:

    revoking our business and operating licenses;

    levying fines on us;

    confiscating any of our income that they deem to be obtained through illegal operations;

    shutting down a portion or all of our networks and servers;

    discontinuing or restricting our operations in China;

    imposing conditions or requirements with which we may not be able to comply;

    requiring us to restructure our corporate and contractual structure;

    restricting or prohibiting our use of the proceeds from this offering to finance our PRC affiliated entities' business and operations; and

    taking other regulatory or enforcement actions that could be harmful to our business.

        Occurrence of any of these events could materially and adversely affect our business, financial condition and results of operations.

ChinaCache Beijing's contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet may result in adverse tax consequences to us.

        We could face material and adverse tax consequences if the PRC tax authorities determine that ChinaCache Beijing's contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet were not made on an arm's length basis and adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could adversely affect us by (i) increasing the respective tax liabilities of Beijing Blue I.T., Beijing Jingtian and Shanghai JNet without reducing ChinaCache Beijing's tax liability, which could further result in late payment fees and other penalties to Beijing Blue I.T., Beijing Jingtian and Shanghai JNet for underpaid taxes; or (ii) limiting the ability of ChinaCache Beijing, Beijing Blue I.T., Beijing Jingtian or Shanghai JNet to obtain or maintain preferential tax treatments and other financial incentives.

We rely on contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet and their respective shareholders for our China operations, which may not be as effective as direct ownership in providing operational control.

        We rely on contractual arrangements with our consolidated variable interest entities, Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, and their respective shareholders to operate our business in China. For a description of these contractual arrangements, see "Our Corporate History and Structure—Contractual Arrangements with Our Consolidated Variable Interest Entities." These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated variable interest entities. Under the current contractual arrangements, as a legal matter, if our consolidated variable interest entities or their shareholders fail to perform their respective obligations under these contractual arrangements, we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal

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system and we may incur substantial costs and expend significant resources in pursuing such enforcement actions.

        All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, which may make it difficult to exert effective control over our consolidated variable interest entities, and our ability to conduct our business may be negatively affected. See "—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could limit legal protections available to you and us."

The shareholders of our consolidated variable interest entities may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

        The shareholders of our consolidated variable interest entities, Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, are also the founders, directors, executive officers, employees or ultimate shareholders of our company. Conflicts of interests between their roles may arise. We cannot assure you that when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or that conflicts of interests will be resolved in our favor. In addition, these individuals may breach or cause our consolidated variable interest entities to breach the existing contractual arrangements. Currently, we do not have arrangements to address potential conflicts of interest between these individuals and our company. We rely on these individuals to abide by the laws of the Cayman Islands and China. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our three consolidated variable interest entities, we would have to rely on legal proceedings, which could result in disruption of our business and substantial uncertainty as to the outcome of any such legal proceedings.

We may lose the ability to use and enjoy assets held by our consolidated variable interest entities that are important to the operation of our business if any of our consolidated variable interest entities goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

        As part of our contractual arrangements with our consolidated variable interest entities, Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, and their shareholders, our consolidated variable interest entities hold certain assets that are important to our business operation. If any of our consolidated variable interest entities goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business operations, which could materially and adversely affect our business, financial condition and results of operations. If any of the consolidated variable interest entities undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and result of operations.

Risks Related to Doing Business in China

Our business may be adversely affected by government policies and regulations in China.

        Laws and regulations that apply to communications and commerce conducted over the Internet are becoming more prevalent in China, and may impose additional burdens on companies conducting business online or providing Internet-related services such as us and many of our customers. Increased regulation could negatively affect our business directly, as well as the businesses of our customers, which could reduce their demand for our services.

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        The PRC government has adopted regulations governing Internet access and the distribution of news and other information over the Internet. Under these regulations, Internet content providers and Internet publishers are prohibited from posting or displaying over the Internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide Internet content and other licenses and the closure of the concerned websites. In the past, failure to comply with such requirements has resulted in the closure of certain websites. In addition, the Ministry of Industry and Information Technology has published regulations that subject website operators to potential liability for content displayed on their websites and the actions of users and others using their systems, including liability for violations of PRC laws and regulations prohibiting the dissemination of content deemed to be socially destabilizing. The Ministry of Public Security has the authority to order any local Internet service provider to block any Internet website at its sole discretion. From time to time, the Ministry of Public Security has stopped the dissemination over the Internet of information which it believes to be socially destabilizing. The State Secrecy Bureau is also authorized to block any website it deems to be leaking state secrets or failing to comply with the relevant regulations relating to the protection of state secrets in the dissemination of online information. Our business may be adversely affected if any of our customers' websites are restricted, blocked or closed or if we face liability for content distributed over our network. For instance, in August 2010, we received a warning from a local public security bureau in Beijing for omission to examine the third-party content distributed over our network. If we need to take costly measures to reduce our exposure to these risks, or are required to defend ourselves against such claims, our financial results could be negatively affected.

        In April 2007, the General Administration of Press and Publication of China and several other governmental authorities issued a circular requiring the implementation of an "anti-fatigue system" and a real-name registration system by all PRC online game operators in an effort to curb addictive game play behaviors of minors under the age of eighteen. In addition, it is also possible that the PRC government authorities may decide to adopt more stringent policies to monitor the online game industry as a result of adverse public reaction or otherwise. The implementation of these regulations may discourage or otherwise prevent or restrict minors from playing online games, which could limit the growth of online game operators, one of our key customer groups, thus adversely affecting our business and results of operations.

        The State Administration of Radio, Film and Television and the Ministry of Industry and Information Technology issued the Administrative Measures Regarding Internet Audio-Video Program Services, or the Internet Audio-Video Program Measures, which became effective on January 31, 2008. Among other things, the Internet Audio-Video Program Measures stipulate that only entities wholly owned or controlled by state-owned enterprises may apply for "the Internet Audio-Video Program Operating License" to engage in the production, editing, integration or consolidation, and transfer to the public through the Internet, of audio-video programs, and the provision of audio-video program uploading and transmission services. In addition, the Internet Audio-Video Program Measures require that, when providing signal transmission for Internet Audio-Video programs, network operators are obligated to examine the licenses or permits of the Internet Audio-Video Programs service providers and must provide Internet access services within the scope of such licenses or registration documents. The Internet Audio-Video Program Measures further provide that no entity may provide signal transmission, Internet data center services, fee collection, or other financial or technical services to Internet Audio-Video Programs service providers that do not have applicable licenses or permits. Although we do not provide audio-video programs on our own, our content and application delivery services include provision of technical assistance to customers, social networking operators in particular, in the uploading and transmission of user-generated content, including audio-video programs. There are significant uncertainties relating to its interpretation and implementation. Accordingly, if we are required to verify our customers' Internet Audio-Video Program Operating License, such requirements may impose additional obligations on us, which may increase our expenses and adversely affecting our

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business and results of operations. Any of these factors could cause significant disruption to our operations and may materially and adversely affect our business, financial condition and results of operations.

If we fail to acquire, obtain or maintain applicable telecommunications licenses, or are deemed by relevant governmental authorities to be operating outside the terms of our existing license, our business would be materially and adversely affected.

        Pursuant to the Telecommunications Regulations promulgated by the PRC State Council in September 2000, telecommunications businesses are divided into two categories, namely, (i) "basic telecommunications business," which refers to a business of providing public network infrastructure, public data transmission and basic voice communications services, and (ii) "value-added telecommunications business," which refers to a business that provides telecommunications and information services through the public network infrastructure. Pursuant to the VAT license issued to Beijing Blue I.T. by the Ministry of Industry and Information Technology in October 2007, Beijing Blue I.T. is permitted to carry out its content and application delivery business and its Internet data center business under the first category of "value-added telecommunications business." Based on this VAT license and our consultation with certain officials of the Ministry of Industry and Information Technology, we believe that in practice, our content and application delivery business falls under the category of "value-added telecommunications business," and we are permitted to operate our content and application delivery services under Beijing Blue I.T.'s VAT license.

        However, since China's content and application delivery services market is at an early stage of development, the scope of content and application delivery businesses has been expanding constantly and the concept of content and application delivery services is evolving. We have been continuously developing our content and application delivery business to better serve our customers, and as a result, we introduce new technologies and services from time to time to support and improve our current business. As of the date of this prospectus, there is no legal definition as to what constitutes a "content and application delivery business," nor are there laws or regulations in China specifically governing the content and application delivery business. We cannot assure you that PRC governmental authorities will continue to deem our content and application delivery business and any of our newly developed technologies, network and services used in our business as a type of value-added telecommunications business covered under the VAT license of Beijing Blue I.T. As we expand our networks across China, it is also possible that the Ministry of Industry and Information Technology, in the future, may deem our operations to have exceeded the terms of our existing license. Further, we cannot assure you that Beijing Blue I.T. will be able to successfully renew its VAT license upon its expiration, or that its VAT license will continue to cover all aspects of our content and application delivery business and operations upon its renewal. In addition, new laws, regulations or government interpretations may also be promulgated from time to time to regulate the content and application delivery business or any of our related technology or services, which may require us to obtain additional, or expand existing, operating licenses or permits. Any of these factors could result in Beijing Blue I.T. being disqualified from carrying out its current business, causing significant disruption to our business operations and may materially and adversely affecting our business, financial condition and results of operations.

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our services and adversely affect our competitive position.

        Substantially all of our operations are conducted in China and substantially all of our sales are made in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, the level of development, the growth rate, the control of foreign exchange and allocation

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of resources. While the PRC economy has grown significantly over the past several decades, the growth has been uneven across different periods, regions and among various economic sectors of China. We cannot assure you that the Chinese economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such a slowdown will not have a negative effect on our business.

        The PRC government exercises significant control over China's economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. From late 2003 to mid-2008, the PRC government implemented a number of measures, such as increasing the People's Bank of China's statutory deposit reserve ratio and imposing commercial bank lending guidelines that had the effect of slowing the growth of credit, which in turn may have slowed the growth of the Chinese economy. In response to the global and Chinese economic downturn in 2008, the PRC government promulgated several measures aimed at expanding credit and stimulating economic growth including decreasing the People's Bank of China's statutory deposit reserve ratio and lowering benchmark interest rates several times. Since January 2010, however, the People's Bank of China has increased the statutory deposit reserve ratio in response to rapid growth of credit in 2009. It is unclear whether PRC economic policies will be effective in maintaining stable economic growth in the future. Any slowdown in the economic growth of China could lead to reduced demand for our solutions, which could materially and adversely affect our business, as well as our financial condition and results of operations.

Uncertainties with respect to the PRC legal system could limit legal protections available to you and us.

        We conduct our business primarily through our subsidiary and consolidated variable interest entities in China. Our operations in China are governed by PRC laws and regulations. ChinaCache Beijing is a foreign-invested enterprise and is subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but is not binding.

        In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past several decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may also impede our ability to enforce the contracts we have entered into. As a result, these uncertainties could materially and adversely affect our business and results of operations.

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We rely principally on dividends paid by our operating subsidiary to fund cash and financing requirements, and limitations on the ability of our operating subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business and fund our operations.

        We are a holding company and conduct substantially all of our business through our operating subsidiary and affiliated entities, which are limited liability companies established in China. We rely principally on dividends paid by our subsidiary for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities organized in China is subject to limitations. In particular, regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiary, ChinaCache Beijing, is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. In addition, it is required to allocate a portion of its after-tax profit to its staff welfare and bonus fund at the discretion of its board of directors. Moreover, if ChinaCache Beijing incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitation on the ability of ChinaCache Beijing to distribute dividends and other distributions to us could materially and adversely limit our ability to make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

Under China's Enterprise Income Tax Law, we may be classified as a "resident enterprise" of China. Such classification could result in unfavorable tax consequences to us and our non-PRC resident shareholders.

        Pursuant to the Enterprise Income Tax Law, an enterprise established outside of China with "de facto management bodies" within China is considered a "resident enterprise," meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The term "de facto management body" is defined as the management body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. Given that the Enterprise Income Tax Law is relatively new and ambiguous in terms of some definitions, requirements and detailed procedures, it is unclear how tax authorities will determine tax residency based on the facts of each case.

        If the PRC tax authorities determine that our Cayman Islands holding company is a "resident enterprise" for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow: (i) we may be subject to enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations; and (ii) a 10% withholding tax may be imposed on dividends we pay to our non-PRC resident shareholders and a 10% PRC tax may apply to gains derived by our non-PRC resident shareholders from transferring our shares or ADSs, if such income is considered PRC-sourced income. Similarly, such unfavorable tax consequences could apply to ChinaCache North America Inc., JNet Holdings and ChinaCache Network (Hong Kong) Limited if they are deemed to be "resident enterprises" by the PRC tax authorities. Notwithstanding the foregoing provisions, the Enterprise Income Tax Law also provides that the dividends paid between "qualified resident enterprises" are exempt from enterprise income tax. If our Cayman Islands holding company is deemed a "resident enterprise" for PRC enterprise income tax purposes, the dividends it receives from its PRC subsidiary, ChinaCache Beijing, may constitute dividends between "qualified resident enterprises" and therefore qualify for tax exemption. However, the definition of qualified resident enterprises is unclear and the relevant PRC government authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Even if such dividends qualify as "tax-exempt income," we cannot guarantee that such dividends will not be subject to any withholding tax.

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Any requirement to obtain a prior approval from the China Securities Regulatory Commission could delay this offering, and a failure to obtain such approval, if required, could have a material adverse effect on our business, results of operations and trading price of our ADSs.

        In 2006, six PRC regulatory agencies jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules. The M&A Rules, effective on September 8, 2006, require that, if an overseas company established or controlled by PRC domestic companies or citizens intends to acquire equity interest or assets of any other PRC domestic company affiliated with the PRC domestic companies or citizens, such acquisition must be submitted to the Ministry of Commerce, rather than local regulators, for approval. In addition, this regulation requires that an offshore special purpose vehicle formed for the purpose of overseas listing of the equity interests in PRC companies via acquisition and controlled directly or indirectly by PRC persons to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of their securities on overseas stock exchanges. On September 21, 2006, the CSRC published a notice on its official website specifying the documents and materials required to be submitted by overseas special purpose companies seeking the CSRC's approval of their overseas listings.

        Our PRC legal counsel, Han Kun Law Offices, has advised us that the M&A Rules do not require an application to be submitted to the CSRC for its approval of the listing and trading of our ADSs on the Nasdaq Global Market, given that (i) we have completed our restructuring in all material respects prior to the effective date of the M&A Rules, (ii) ChinaCache Beijing was established in 2005 through new incorporation rather than acquisition of any equity or assets of a "PRC domestic company" as defined under the M&A Rules, and (iii) no explicit provision in the M&A Rules classifies contractual arrangements like those between ChinaCache Holdings and each of Beijing Blue I.T., Shanghai JNet and Beijing Jingtian as a type of transaction falling under the M&A Rules.

        However, there can be no assurance that the CSRC will not in the future take a view that is contrary to the above opinion of our PRC legal counsel. If the CSRC requires that we obtain its approval prior to the completion of this offering, this offering will be delayed until we obtain the approval from the CSRC, which may take several months or longer. If a prior approval from the CSRC is required but not obtained, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. CSRC or other PRC regulatory agencies may also take actions requiring us to halt this offering before settlement and delivery of our ADSs.

Any requirement to obtain the approval of the Ministry of Industry and Information Technology and a failure to do so, if required, may create uncertainties for this offering and have a material adverse effect on the trading price of our ADSs.

        Pursuant to the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-Added Telecommunications Business, domestic telecommunications companies that intend to be listed overseas must obtain the approval from the Ministry of Industry and Information Technology for such overseas listing. The Ministry of Industry and Information Technology currently has not issued any definitive rule concerning whether offerings like ours under this prospectus would be deemed an indirect overseas listing of our PRC affiliates that engage in telecommunications business. Based on our oral consultation with certain officials of the Ministry of Industry and Information Technology, we believe that in practice, our offering should not be deemed an overseas listing of a domestic company. However, if the Ministry of Industry and Information Technology subsequently requires that we obtain its approval, it may create uncertainties for this offering and have a material adverse effect on the trading price of our ADSs.

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The M&A Rules establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it difficult for us to pursue growth through acquisitions in China.

        The M&A Rules include provisions that purport to require approval of the Ministry of Commerce for acquisitions by offshore entities established or controlled by domestic companies, enterprises or natural persons of onshore entities that are related to such domestic companies, enterprises or natural persons, and prohibit offshore entities from using their foreign-invested subsidiaries in China, or through "other means," circumvent such requirement. As part of our growth strategy, we obtained control over Shanghai JNet in January 2008 and Beijing Jingtian in July 2008, by entering into contractual arrangements with Shanghai JNet, Beijing Jingtian and their shareholders. We did not seek the approval of the Ministry of Commerce for these transactions based on the legal advice we obtained from our PRC legal counsel in those transactions that such approval was unnecessary. However, the M&A Rules also prohibit companies use any "other means" to circumvent the approval requirement set forth therein and there is no clear interpretation as to what constitutes "other means" of circumvention of the requirement under the M&A Rules. The Ministry of Commerce and other applicable government authorities would therefore have broad discretion in determining whether an acquisition is in violation of the M&A Rules. If PRC regulatory authorities take a view that is contrary to ours, we could be subject to severe penalties. In addition, we may in the future grow our business in part by acquiring complementary businesses in China. If we are required to obtain the approval from the Ministry of Commerce, completion of such transaction may be delayed or even inhibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary or affiliated entities, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

        In utilizing the proceeds of this offering in the manner described in "Use of Proceeds," as an offshore holding company, we may make loans to our PRC subsidiary, ChinaCache Beijing, or affiliated entities, or we may make additional capital contributions to ChinaCache Beijing. Any loans to ChinaCache Beijing or affiliated entities are subject to PRC regulations. For example, loans by us to ChinaCache Beijing, which is a foreign-invested enterprise, to finance its activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange.

        We may also decide to finance our operations in China by means of capital contributions. These capital contributions must be approved by the Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiary. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

Governmental control of currency conversion may limit our ability to utilize our revenues.

        Substantially all of our revenues and expenses are denominated in Renminbi. Under PRC laws, the Renminbi is currently convertible under the "current account," which includes dividends, trade and service-related foreign exchange transactions, but not under the "capital account," which includes foreign direct investment and loans, without the prior approval of the State Administration of Foreign Exchange. Currently, our PRC subsidiary, ChinaCache Beijing, may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange. However, foreign exchange transactions by ChinaCache Beijing under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC governmental authorities, including the State Administration of Foreign Exchange. In particular, if ChinaCache Beijing borrows foreign

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currency loans from us or other foreign lenders, these loans must first be registered with the State Administration of Foreign Exchange. If ChinaCache Beijing, a wholly foreign-owned enterprise, borrows foreign currency, the accumulative amount of its foreign currency loans shall not exceed the difference between the total investment and the registered capital of ChinaCache Beijing. If we finance ChinaCache Beijing by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the National Development and Reform Commission, the Ministry of Commerce, or their respective local counterparts. Any existing and future restrictions on currency exchange may affect the ability of our PRC subsidiary or affiliated entities to obtain foreign currencies, limit our ability to meet our foreign currency obligations, or otherwise materially and adversely affect our business.

Fluctuation in the value of the Renminbi may reduce the value of your investment.

        The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on exchange rates set by the People's Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi solely to the U.S. dollar. Under this revised policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. For almost two years after July 2008, the Renminbi traded within a narrow range against the U.S. dollar. As a consequence, the Renminbi fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would increase Renminbi exchange rate flexibility. However, it remains unclear how this flexibility might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar.

        Because substantially all of our revenues and expenditures are denominated in Renminbi and the net proceeds from this offering will be denominated in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and Renminbi will affect the relative purchasing power of these proceeds and our balance sheet and earnings per share in U.S. dollars following this offering. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue after this offering that will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

        Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by Chinese exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

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PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners to personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiary's ability to distribute profits to us, or otherwise materially and adversely affect us.

        The State Administration of Foreign Exchange issued Circular 75, requiring PRC residents, including both legal persons and natural persons, to register with the relevant local branch of the State Administration of Foreign Exchange before establishing or controlling any company outside of China, referred to as an "offshore special purpose company," for the purpose of raising fund from overseas to acquire assets of, or equity interest in, PRC companies. In addition, any PRC resident that is the beneficial owner of an offshore special purpose company is required to amend his or her registration with the local branch of the State Administration of Foreign Exchange, with respect to that offshore special purpose company in connection with any of its increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. Any failure to comply with the above registration requirements could result in PRC subsidiaries being prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to their offshore parent company, offshore parent company being restricted in its ability to contribute additional capital into its PRC subsidiaries, and other liabilities under PRC laws for evasion of foreign exchange restrictions.

        Our current PRC resident beneficial owners have made the necessary registrations as required under Circular 75. Our founders, Song Wang and Jean Xiaohong Kou, recently established a trust to hold their shares in their offshore personal holding companies, which own our ordinary shares. As a result of this transaction, our founders need to amend their registrations under Circular 75 and are in the process of filing such amendment. We cannot assure you that our current and future beneficial owners who are PRC residents will comply with Circular 75; nor can we ensure you that there will not be further filing or registration requirements imposed by the PRC government concerning ownership in foreign companies of PRC residents. The failure or inability of our PRC resident beneficial owners to make any required registrations or comply with these requirements may subject such beneficial owners to fines and legal sanctions and may also limit our ability to contribute additional capital into or provide loans to (including using the proceeds from this offering) our PRC subsidiary, ChinaCache Beijing, and affiliated entities, limit ChinaCache Beijing's ability to pay dividends or otherwise distribute profits to us, or otherwise materially and adversely affect us.

Risks Related to Our ADSs and This Offering

There has been no public market for our ordinary shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.

        Prior to this initial public offering, there has been no public market for our ordinary shares or ADSs. We have been approved to list our ADSs on the Nasdaq Global Market. Our ordinary shares will not be listed on any exchange. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected.

        The initial public offering price for our ADSs is determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after the initial public offering. We cannot assure you that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.

The market price for our ADSs may be volatile.

        The market price for our ADSs may be highly volatile and subject to wide fluctuations in response to factors including the following:

    actual or anticipated fluctuations in our quarterly results of operations;

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    changes in financial estimates by securities research analysts;

    announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;

    addition or departure of key personnel;

    fluctuations of exchange rates between the RMB and U.S. dollar;

    intellectual property litigation;

    release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or sales of additional ADSs; and

    general economic or political conditions in China and the U.S.

        In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

Because the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. In addition, at an assumed offering price of US$            per ADS, the midpoint of the estimated range of the public offering price,             ordinary shares will be issued to Sundream Holdings Limited and Smart Asia Holdings Limited pursuant to a supplementary agreement we have entered into with them in connection with our acquisition of JNet Holdings. As a result, you will experience immediate and substantial dilution of approximately US$            per ADS (assuming no exercise by the underwriters of their over-allotment option to acquire additional ADSs), representing the difference between our pro forma adjusted net tangible book value per ADS as of June 30, 2010, after giving effect to this offering and an initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial offering price. In addition, you may experience further dilution to the extent that our ordinary shares are issued upon the exercise of share options. See "Dilution" for a more complete description of how the value of your investment in our ADSs will be diluted upon completion of this offering.

Substantial future sales of our ADSs in the public market, or the perception that these sales could occur, could cause the price of our ADSs to decline.

        Additional sales of our ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Upon completion of this offering, we will have ordinary shares outstanding. All shares sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the closing of this offering, subject to volume and other restrictions as applicable under Rule 144 under the Securities Act. Any or all of these shares may be released prior to expiration of the lock-up period at the discretion of the lead underwriters for this offering. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could decline.

        In addition, certain holders of our ordinary shares after the completion of this offering will have the right to cause us to register the sale of those shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the public market could cause the price of our ADSs to decline.

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You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

        Except as described in this prospectus and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. The deposit agreement provides that if the depositary does not timely receive valid voting instructions from the ADS holders, then the depositary shall, with certain limited exceptions, give a discretionary proxy to a person designated by us to vote such shares.

We are a "foreign private issuer," and have disclosure obligations that are different from those of U.S. domestic reporting companies; as a result, you should not expect to receive the same information about us at the same time when a U.S. domestic reporting company provides the information required to be disclosed.

        We are a foreign private issuer and, as a result, we are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Securities Exchange Act of 1934, or the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports or proxy statements. We will have six months to file our annual report with the SEC for the fiscal year ending December 31, 2010 and will have 120 days to file for the fiscal years ending on or after December 15, 2011. We are not required to disclose detailed individual executive compensation information that is required to be disclosed by U.S. domestic issuers. Further, our directors and executive officers are not required to report equity holdings under Section 16 of the Securities Act and are not subject to the insider short-swing profit disclosure and recovery regime. As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. We are, however, still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer are different than those imposed on U.S. domestic reporting companies, our shareholders should not expect to receive the same information about us and at the same time as the information received from, or provided by U.S. domestic reporting companies.

We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.

        Depending upon the value of our assets, which may be determined based on the market value of our ordinary shares and ADSs, and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or a PFIC. Under the U.S. federal tax law, we will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on the average quarterly value of our assets during the taxable year) is attributable to assets that produce or are held for the production of passive income. Based on our current income and assets and projections as to the value of our ordinary shares and ADSs following this offering, we do not expect to be classified as a PFIC for the current taxable year or in the foreseeable future. While we do not anticipate becoming a PFIC, fluctuations in the market price of our ADSs or ordinary shares may cause us to become a PFIC for the current or any subsequent taxable year.

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        Although the law in this regard is unclear, we treat Beijing Blue I.T., Beijing Jingtian and Shanghai JNet as being owned by us for United States federal income tax purposes, not only because we control their management decisions but also because we are entitled to substantially all of the economic benefits associated with these entities, and, as a result, we consolidate these entities' results of operations in our consolidated, U.S. GAAP financial statements. If it were determined, however, that we are not the owner of Beijing Blue I.T., Beijing Jingtian and Shanghai JNet for United States federal income tax purposes, we would likely be treated as a PFIC for our taxable year ending on December 31, 2010 and any subsequent taxable year. Because of the uncertainties in the application of the relevant rules and because PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets, there can be no assurance that we will not be a PFIC for the taxable year 2010 or any future taxable year. The overall level of our passive assets will be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. Under circumstances where revenues from activities that produce passive royalty income significantly increase relative to our revenues from activities that produce non-passive income or where we determine not to deploy significant amounts of cash for working capital or other active purposes, our risk of becoming classified as a PFIC may substantially increase.

        If we were to be or become classified as a PFIC, a U.S. Holder (as defined in "Taxation—Material United States Federal Income Tax Considerations—General") may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an "excess distribution" under the United States federal income tax rules. Further, if we were a PFIC for any year during which a U.S. Holder held our ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. Holder held our ADSs or ordinary shares. You are urged to consult your tax advisor concerning the United States federal income tax consequences of acquiring, holding, and disposing of ADSs or ordinary shares if we are or become classified as a PFIC. For more information, see "Taxation—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations."

You may not be able to participate in rights offerings and may experience dilution of your holdings and you may not receive cash dividends if it is impractical to make them available to you.

        We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act, or exempt from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to take advantage of any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings as a result.

        In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and you will not receive such distribution.

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You may be subject to limitations on transfer of your ADSs.

        Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law, conduct substantially all of our operations in China and a majority of our officers and directors reside outside the United States.

        We are incorporated in the Cayman Islands and substantially all of our assets are located outside of the United States. We conduct substantially all of our operations in China through our wholly-owned subsidiary in China. The majority of our officers and directors reside outside the United States and a substantial portion of the assets of those persons are located outside of the United States. As a result, it may be difficult for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state, and it is uncertain whether such Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforceability of Civil Liabilities."

        Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law (as amended) and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

        As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a public company of the United States.

Our management will have considerable discretion as to the use of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree.

        We have not specifically allocated most of the net proceeds of this offering to any particular purpose. Rather, our management will have considerable discretion in the application of the net

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proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to achieve profitability or increase our ADS price. Such proceeds from this offering may also be placed in investments that do not produce income or that may lose value.

Our memorandum and articles of association will contain anti-takeover provisions that could adversely affect the rights of holders of our ordinary shares and ADSs.

        We will adopt an amended and restated articles of association that will become effective immediately upon the closing of this offering. Our new memorandum and articles of association will contain certain provisions that could limit the ability of others to acquire control of our company, including a provision that grants authority to our board directors to establish from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. The provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions.

We will incur increased costs as a result of being a public company.

        As a public company, we will incur significant accounting, legal and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC and the Nasdaq Global Market, have detailed requirements concerning corporate governance practices of public companies including Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. We expect these new rules and regulations to increase our director and officer liability insurance, accounting, legal and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

If securities or industry analysts do not actively follow our business or if they publish unfavorable research about our business, our ADS price and trading volume could decline.

        The trading market for our ADS will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our ADSs may be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our ADSs or publishes unfavorable research about our business, our ADS price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our ADSs could decrease, which could cause our ADSs price and trading volume to decline.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." You can identify some of these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to," "potential," "continue" or other similar expressions, although not all forward-looking statement contain these words.

        Forward-looking statements include, but are not limited to, statements relating to:

    our goals and strategies;

    our expansion plans;

    our future business development, financial condition and results of operations;

    the expected growth of the content and application delivery services market;

    our expectations regarding demand for, and market acceptance of, our services;

    our expectations regarding keeping and strengthening our relationships with customers;

    our plans to invest in research and development to enhance our solution and service offerings; and

    general economic and business conditions in the regions where we provide our solutions and services.

        We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Known and unknown risks, uncertainties and other factors, including those important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in "Prospectus Summary—Our Challenges," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Regulation" and other sections in this prospectus. You should read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements with these cautionary statements. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance.

        This prospectus contains statistical data that we obtained from various government and private publications. The market for content and application delivery services may not grow at the rate projected by market data, or at all. The failure of this market to grow at the projected rate may have a material adverse effect on our business and the market price of our ADSs. In addition, the rapidly evolving technologies or business models result in significant uncertainties in any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

        Unless otherwise indicated, information in this prospectus concerning economic conditions and our industry is based on information from independent industry analysts and publications, as well as our

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estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third-party sources, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe to be reasonable.

        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately US$             million, or approximately US$             million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and the estimated offering expenses payable by us. These estimates are based upon an assumed initial offering price of US$            per ADS (the mid-point of the range shown on the front cover page of this prospectus). A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS would increase (decrease) the net proceeds to us from this offering by US$             million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

        The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives, and obtain additional capital. We currently plan to use the net proceeds of this offering as follows:

    approximately US$            to expand our research and development efforts;

    approximately US$            to fund our capital expenditures for network and other equipment; and

    the remaining amount to fund working capital and for other general corporate purposes, including strategic investment in and acquisitions of complementary businesses (although we are not negotiating any such investment or acquisition).

        The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

        To the extent that a certain portion or all of the net proceeds we receive from this offering are not immediately applied for the above purposes, we plan to invest the net proceeds in short-term, interest-bearing, debt instruments or bank deposits. These investments may have a material adverse effect on the U.S. federal income tax consequences of your investment in our ADSs. These consequences are described in more detail in "Taxation—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations."

        In using the proceeds of this offering, as an offshore holding company, we are permitted, under PRC laws and regulations, to provide funding to our PRC subsidiary only through loans or capital contributions and to our PRC affiliated entities only through loans, subject to satisfaction of applicable government registration and approval requirements. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary or affiliated entities, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

        We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

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DIVIDEND POLICY

        We do not have any present plan to pay any dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

        Our board of directors has complete discretion whether to distribute dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

        Holders of our ADSs will be entitled to receive dividends, if any, subject to the terms of the deposit agreement, to the same extent as the holders of our ordinary shares. Cash dividends will be paid to the depositary in U.S. dollars, which will distribute them to the holders of ADSs according to the terms of the deposit agreement. Other distributions, if any, will be paid by the depositary to the holders of ADSs in any means it deems legal, fair and practical. See "Description of American Depositary Shares—Dividends and Other Distributions."

        We are a holding company incorporated in the Cayman Islands. We rely on dividends from our subsidiary in China for our cash needs. Our PRC subsidiary is required to comply with the applicable PRC regulations when it pays dividends to us. See "Risk Factors—Risks Relating to Doing Business in China—We rely principally on dividends paid by our operating subsidiary to fund cash and financing requirements, and limitations on the ability of our operating subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business and fund our operations."

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CAPITALIZATION

        The following table sets forth our capitalization as of June 30, 2010:

    on an actual basis;

    on a pro forma basis to reflect the automatic conversion of all of our outstanding redeemable convertible preferred shares into 205,565,425 ordinary shares immediately upon completion of this offering; and

    on a pro forma as adjusted basis to reflect (i) the sale of                        ordinary shares in the form of ADSs by us in this offering and (ii) the issuance of                        ordinary shares to Sundream Holdings Limited and Smart Asia Holdings Limited; in each case of (i) and (ii), assuming an initial public offering price of                        per share, the midpoint of the estimated range of our initial public offering price, after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us.

        You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of June 30, 2010  
 
  Actual   Pro forma   Pro forma
as adjusted
 
 
  (US$ in thousands)
 

Mezzanine equity:

                   
 

Series A redeemable convertible preferred shares, US$0.0001 par value, 73,100,000 shares authorized, 73,076,921 issued and outstanding

    16,231            
 

Series B redeemable convertible preferred shares, US$0.0001 par value, 79,800,000 shares authorized, 79,765,142 issued and outstanding

    42,772            
 

Series C redeemable convertible preferred shares, US$0.0001 par value, 45,000,000 shares authorized, 44,780,836 issued and outstanding

    17,079            
               

Total Mezzanine equity

    76,082            

Shareholders' (deficit) equity:

                   
 

Ordinary shares (US$0.0001 par value, 310,000,000 shares authorized 84,475,892 shares issued and outstanding, and 290,041,317 shares issued and outstanding on a pro forma basis)

    10     31        
 

Additional paid-in capital(1)

    9,202     85,263        
 

Statutory reserves

    196     196        
 

Accumulated deficit

    (66,845 )   (66,845 )      
 

Accumulated other comprehensive income

    83     83        
               

Total shareholders' (deficit) equity(1)

    (57,354 )   18,728        
               

Total capitalization(1)

    18,728     18,728        
               

(1)
A US$1.00 increase (decrease) in the assumed initial public offering price of US$            would increase (decrease) each of additional paid-in capital, total shareholders equity and total capitalization by US$            .

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DILUTION

        If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the conversion of our preferred shares and the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Our net tangible book value as of June 30, 2010 was approximately US$             million, or US$            per ordinary share as of that date, and US$            per ADS. Net tangible book value represents the amount of our total consolidated assets, excluding goodwill, acquired intangible assets and deferred IPO costs, less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the conversion of all outstanding preferred shares into ordinary shares upon completion of this offering and the additional proceeds we will receive from this offering, from the assumed initial public offering price per ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us.

        Without taking into account any other changes in net tangible book value after June 30, 2010, other than to give effect to the conversion of all outstanding preferred shares as of June 30, 2010 into ordinary shares upon completion of this offering, our sale of the ADSs offered in this offering at the initial public offering price of US$            per ADS after deduction of the underwriting discounts and commissions and the estimated offering expenses payable by us and the issuance of            ordinary shares to Sundream Holdings Limited and Smart Asia Holdings Limited, our pro forma as adjusted net tangible book value as of June 30, 2010 would have been US$             million, or US$            per outstanding ordinary share, and US$            per ADS. This represents an immediate increase in net tangible book value of US$            per ordinary share and US$            per ADS, to the existing shareholders and an immediate dilution in net tangible book value of US$            per ordinary share and US$            per ADS, to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 
  Per Ordinary Share   Per ADS  

Assumed initial public offering price

  US$     US$    

Net tangible book value per share as of June 30, 2010

  US$     US$    

Pro forma net tangible book value per share after giving effect to the conversion of our preferred shares

  US$     US$    

Pro forma as adjusted net tangible book value per share after giving effect to the conversion of our preferred shares, this offering and the issuance of ordinary shares to Sundream Holdings Limited and Smart Asia Holdings Limited

  US$     US$    

Amount of dilution in net tangible book value per share to new investors in the offering

  US$     US$    

        The following table summarizes, on a pro forma as adjusted basis as of June 30, 2010, the differences between existing shareholders, including holders of our preferred shares that will be automatically converted into ordinary shares immediately prior the completion of this offering, and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share/ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total

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number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.

 
  Ordinary Shares
Purchased
  Total Consideration   Average
Price Per
Ordinary
Share
  Average
Price Per
ADS
 
 
  Number
  Percent
  Amount
  Percent
 
 
  (US$ in thousands, except number of shares and percentages)
 

Existing shareholders(1)

            % US$         %

New investors

            % US$         %
                   
 

Total

          100.0 % US$       100.0 %
                   

(1)
Takes into account the issuance of            ordinary shares to Sundream Holdings Limited and Smart Asia Holdings Limited, assuming an initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial public offering price.

        A US$1.00 increase (decrease) in the assumed public offering price of US$            per ADS would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to the offering by US$             million, the pro forma as adjusted net tangible book value per ordinary share and per ADS after giving effect to the automatic conversion of our preferred shares and this offering by US$            per ordinary share and US$            per ADS and the dilution in pro forma net tangible book value per ordinary share and per ADS to new investors in this offering by US$            per ordinary share and US$            per ADS, assuming no charge to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other offering expenses.

        The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

        The discussion and tables above also assume no exercise of any outstanding stock options. As of the date of this prospectus, there were 22,591,260 ordinary shares issuable upon exercise of outstanding stock options at a weighted average exercise price of US$0.16 per share, and there were 9,008,740 ordinary shares available for future issuance upon the exercise of future grants under our stock incentive plans. To the extent that any of these options are exercised, there will be further dilution to new investors.

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EXCHANGE RATE INFORMATION

        Substantially all of our operations are conducted in China and substantially all of our revenues are denominated in RMB. This prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this prospectus were made at a rate of RMB6.7815 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Board of Governors of Federal Reserve Bank on June 30, 2010. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On September 3, 2010, the certified exchange rate was RMB6.8014 to US$1.00.

        The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Statistical Release.

 
  Exchange Rate  
Period
  Period End   Average(1)   Low   High  
 
  (RMB Per US$1.00)
 

2005

    8.0702     8.1826     8.2765     8.0702  

2006

    7.8041     7.9579     8.0702     7.8041  

2007

    7.2946     7.5806     7.8127     7.2946  

2008

    6.8225     6.9193     7.2946     6.7800  

2009

    6.8259     6.8295     6.8470     6.8176  

2010

                         

March

    6.8258     6.8262     6.8270     6.8254  

April

    6.8247     6.8256     6.8275     6.8229  

May

    6.8305     6.8275     6.8310     6.8245  

June

    6.7815     6.8184     6.8323     6.7815  

July

    6.7735     6.7762     6.7807     6.7709  

August

    6.8069     6.7873     6.8069     6.7670  

September (through September 3, 2010)

    6.8014     6.8062     6.8102     6.8014  

Source: Federal Reserve Statistical Release

(1)
Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are calculated by using the average of the daily rates during the relevant month.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We were incorporated in the Cayman Islands in order to enjoy certain benefits, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions, and the availability of professional and support services. However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include a less developed body of Cayman Islands securities laws that provide significantly less protection to investors as compared to the laws of the United States, and the potential lack of standing by Cayman Islands companies to sue before the federal courts of the United States.

        Our organizational documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

        Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. A majority of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

        Conyers Dill & Pearman, our counsel as to Cayman Islands law, and Han Kun Law Offices, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, would:

    recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

    entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

        Conyers Dill & Pearman has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, and which was neither obtained in a manner nor is of a kind enforcement of which is contrary to natural justice or the public policy of the Cayman Islands, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation without any re-examination of the merits of the underlying dispute. However, the Cayman Islands courts are unlikely to enforce a punitive judgment of a United States court predicated upon the liabilities provision of the federal securities laws in the United States without retrial on the merits if such judgment gives rise to obligations to make payments that may be regarded as fines, penalties or similar charges.

        Han Kun Law Offices has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

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OUR CORPORATE HISTORY AND STRUCTURE

Our History and Corporate Structure

        We commenced operations through Beijing Blue I.T. Technologies Co., Ltd., or Beijing Blue I.T., a company incorporated in China in June 1998. In June 2005, we incorporated ChinaCache International Holdings Ltd., or ChinaCache Holdings, under the laws of the Cayman Islands to become our offshore holding company through a series of corporate restructuring transactions. In August 2005, we established our wholly-owned PRC subsidiary, ChinaCache Network Technology (Beijing) Limited, or ChinaCache Beijing.

        In January 2008, we acquired JNet Holdings Limited, or JNet Holdings, a British Virgin Islands company, and obtained control over Shanghai JNet Telecom Co., Ltd., or Shanghai JNet, an affiliate of JNet Holdings in China through contractual arrangements. As the consideration for these transactions, we paid US$6,823,334 in cash and issued 5,566,955 of our ordinary shares to the shareholders of JNet Holdings.

        In July 2008, we obtained control over Beijing Jingtian Technology Co., Ltd., or Beijing Jingtian, through contractual arrangements for a cash consideration of RMB100,000.

        We currently have nine branch offices in nine cities in China, namely, Wuhan, Shanghai, Harbin, Shenzhen, Chengdu, Nanjing, Shenyang, Xi'an and Guangzhou. We have two overseas subsidiaries, ChinaCache North America, Inc., established in California, the United States, in August 2007, and ChinaCache Networks (Hong Kong) Limited, established in Hong Kong in April 2008.

        The following diagram illustrates our corporate structure as of the date of this prospectus:

GRAPHIC

Contractual Arrangements with Our Consolidated Variable Interest Entities

        PRC laws and regulations currently restrict foreign ownership of telecommunications value-added services, including content and application delivery services. Because we are a Cayman Islands company, we are classified as a foreign enterprise under PRC laws and regulations and our wholly-

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owned PRC subsidiary, ChinaCache Beijing, is a foreign-invested enterprise. To comply with PRC laws and regulations, we conduct our operations in China through a series of contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, and their respective shareholders. Beijing Blue I.T. is currently 55% owned by Song Wang, our co-founder, chairman of our board of directors, our chief executive officer and our ultimate shareholder, and 45% owned by Jean Xiaohong Kou, our co-founder, director, senior vice president and our ultimate shareholder. Beijing Jingtian is 50% owned by Ms. Xinxin Zheng and 50% owned by Ms. Huiling Ying. Both Ms. Zheng and Ms. Ying are our employees. Shanghai JNet is 50% owned by Ms. Huiling Ying, 41% owned by Mr. Robert Yong Sha, our chief financial officer, 3% owned by Mr. Hao Yin, our chief scientist and ultimate shareholder, 3% owned by Mr. Yongkai Mei, our ultimate shareholder, and 3% owned by Ms. Xiurong Mei, our ultimate shareholder. All current shareholders of Beijing Blue I.T., Beijing Jingtian and Shanghai JNet are PRC citizens and accordingly these three entities are domestic companies under the PRC laws.

        We have been and are expected to continue to rely on our consolidated variable interest entities to operate our content and application delivery business in China as long as PRC laws and regulations do not allow us to directly operate such business in China. Our contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, and their respective shareholders enable us to:

    exercise effective control over Beijing Blue I.T., Beijing Jingtian and Shanghai JNet;

    receive substantially all of the economic benefits and incur substantially all the losses of Beijing Blue I.T., Beijing Jingtian and Shanghai JNet in consideration for the services provided by our subsidiary in China; and

    have an exclusive option to purchase all of the equity interest in Beijing Blue I.T., Beijing Jingtian and Shanghai JNet when and to the extent permitted under PRC law.

        Accordingly, under U.S. GAAP, we consolidate Beijing Blue I.T., Beijing Jingtian and Shanghai JNet as our "variable interest entities" in our consolidated financial statements.

        Our contractual arrangements with our consolidated variable interest entities and their shareholders are described in further detail as follows:

Agreements that Provide Us Effective Control

        Loan Agreements.    Each shareholder of Beijing Blue I.T. entered into a loan agreement on September 23, 2005 and a supplementary agreement on May 10, 2010 with ChinaCache Holdings. Pursuant to these agreements, ChinaCache Holdings provided an interest-free loan facility of RMB5.5 million and RMB4.5 million, respectively, to the two shareholders of Beijing Blue I.T., Mr. Song Wang and Ms. Jean Xiaohong Kou, for the purpose of providing capital to Beijing Blue I.T. to develop its business. In addition, ChinaCache Holdings also agreed to provide continuous financial support to the shareholders of Beijing Blue I.T. to be used for the operations of Beijing Blue I.T. The term of the loan agreement is ten years and may be extended upon mutual written consent of the parties. The method of repayment shall be at the sole discretion of ChinaCache Holdings and the proceeds from the transfer of the shareholder's equity interest in Beijing Blue I.T. to ChinaCache Holdings or another person designated by ChinaCache Holdings as permitted under PRC law shall be used to repay the loan. The shareholder shall repay the loans immediately upon certain events, including the shareholder leaving our employment, a third party filing a claim against the shareholder which exceeds RMB100,000 or ChinaCache Holdings exercising its option to purchase the shareholder's equity interest in Beijing Blue I.T. pursuant to the exclusive option agreement described below. Each loan agreement contains a number of covenants that restrict the actions the shareholder can take or cause Beijing Blue I.T. to take. For example, these covenants provide that the shareholder will:

    not transfer, pledge or otherwise dispose of or encumber his or her equity interest in Beijing Blue I.T. without the prior written consent of ChinaCache Holdings;

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    not take any action without the prior written consent of ChinaCache Holdings, if such action will have a material impact on the assets, business and liabilities of Beijing Blue I.T.;

    not vote for, or execute any resolutions to approve, any merger or consolidation with any person, or any acquisition of or investment in any person by Beijing Blue I.T. without the prior written consent of ChinaCache Holdings; and

    vote to elect the directors candidates nominated by ChinaCache Holdings.

        Each shareholder of Beijing Jingtian entered into a loan agreement on July 31, 2008, which was supplemented on May 10, 2010 with ChinaCache Beijing. Pursuant to these agreements, ChinaCache Beijing provided an interest-free loan of RMB50,000 to each of the two shareholders of Beijing Jingtian, Ms. Xinxin Zheng and Ms. Huiling Ying, for their investment in the registered share capital of Beijing Jingtian. The other terms of these agreements are substantially the same as those of the loan agreement and supplementary agreement between ChinaCache Holdings and the shareholders of Beijing Blue I.T.

        Each of the two shareholders of Shanghai JNet, Mr. Robert Yong Sha and Ms. Huiling Ying, entered into a loan agreement on January 10, 2008 with ChinaCache Beijing, pursuant to which ChinaCache Beijing agreed to provide an interest-free loan facility of RMB500,000 to each of Mr. Robert Yong Sha and Ms. Huiling Ying, for their investment in the registered share capital of Shanghai JNet. The other terms of the loan agreements are substantially the same as those of the loan agreement between ChinaCache Holdings and the shareholders of Beijing Blue I.T. In April 2010, Mr. Sha transferred 9% equity interest in Shanghai JNet to Hao Yin, Yongkai Mei and Xiurong Mei, who joined as new shareholders, each holding 3% equity interest, and reduced the outstanding loan payable by Mr. Sha to RMB410,000 by repaying RMB90,000 to ChinaCache Beijing. On April 8, 2010, each of Hao Yin, Yongkai Mei and Xiurong Mei entered into a loan agreement with ChinaCache Beijing with terms substantially similar to those of the loan agreements between ChinaCache Beijing and Robert Yong Sha and Huiling Ying. Pursuant to the loan agreements, ChinaCache Beijing provided an interest-free loan of RMB30,000 to each of Hao Yin, Yongkai Mei and Xiurong Mei for their respective acquisition of 3% equity interest in Shanghai JNet.

        ChinaCache Holdings also agreed to provide continuous financial support to the shareholders of Beijing Jingtian and Shanghai JNet to be used for the operations of Beijing Jingtian and Shanghai JNet and agreed to forego the right to seek repayment in the event that the shareholders of Beijing Jingtian and Shanghai JNet are unable to repay such funding, to the extent permitted by PRC law.

        Share Pledge Agreements.    Pursuant to the share pledge agreements entered into on September 23, 2005 among ChinaCache Beijing, each shareholder of Beijing Blue I.T. and Beijing Blue I.T., each shareholder pledged his or her equity interest in Beijing Blue I.T. to ChinaCache Beijing to secure Beijing Blue I.T.'s obligations under the exclusive business cooperation agreement with ChinaCache Beijing. Each shareholder also agreed not to transfer or create any new encumbrance adverse to ChinaCache Beijing on his or her equity interest in Beijing Blue I.T. without the prior written consent of ChinaCache Beijing. During the term of the share pledge agreement, ChinaCache Beijing is entitled to all the dividends declared on the pledged equity interest. If Beijing Blue I.T. fails to perform its contractual obligations, ChinaCache Beijing, as pledgee, will be entitled to certain rights, including the right to take possession and to dispose of the pledged equity interest.

        Pursuant to the share pledge agreements entered into on July 31, 2008 among ChinaCache Beijing, each shareholder of Beijing Jingtian, and Beijing Jingtian, each shareholder pledged his or her equity interest in Beijing Jingtian to ChinaCache Beijing to secure Beijing Jingtian's obligations under the exclusive business cooperation agreement with ChinaCache Beijing. The other terms of the share pledge agreements are substantially the same as those of the share pledge agreements between ChinaCache Beijing, each shareholder of Beijing Blue I.T. and Beijing Blue I.T.

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        Pursuant to the share pledge agreements dated January 10, 2008 or April 8, 2010 among ChinaCache Beijing, Shanghai JNet and the shareholders of Shanghai JNet, each shareholder of Shanghai JNet pledged his or her equity interest in Shanghai JNet to ChinaCache Beijing to secure Shanghai JNet's obligations under the exclusive business cooperation agreement with ChinaCache Beijing. The other terms of the share pledge agreements are substantially the same as those of the share pledge agreements between ChinaCache Beijing, each shareholder of Beijing Blue I.T. and Beijing Blue I.T.

        We have registered the pledges of the equity interests in Beijing Blue I.T., Beijing Jingtian and Shanghai JNet, with the local administration for industry and commerce.

        Irrevocable Power of Attorney.    Each shareholder of Beijing Blue I.T. executed an irrevocable power of attorney on September 23, 2005, appointing ChinaCache Beijing or a person designated by ChinaCache Beijing as his or her attorney-in-fact to attend shareholders' meetings of Beijing Blue I.T. and to vote on his or her behalf on all matters requiring shareholder approval, including but not limited to, the sale, transfer, pledge, or disposition of his or her shareholding in Beijing Blue I.T. The power of attorney remains valid and irrevocable from the date of its execution, so long as he or she remains the shareholder of Beijing Blue I.T.

        Pursuant to the irrevocable power of attorney entered into on July 31, 2008, each shareholder of Beijing Jingtian appointed ChinaCache Beijing or a person designated by ChinaCache Beijing as his or her attorney-in-fact to attend shareholders' meetings and to vote on his or her behalf on all matters requiring shareholder approval. These powers of attorneys are substantially the same as those granted by each of the shareholders of Beijing Blue I.T. to ChinaCache Beijing.

        Pursuant to the irrevocable powers of attorney dated January 10, 2008 or April 8, 2010, each shareholder of Shanghai JNet appointed ChinaCache Beijing or a person designated by ChinaCache Beijing as his or her attorney-in-fact to attend shareholders' meetings and to vote on his or her behalf on all matters requiring shareholder approval. These powers of attorneys are substantially the same as those granted by each of the shareholder of Beijing Blue I.T. to ChinaCache Beijing.

Agreements that Transfer Economic Benefits to Us

        Exclusive Business Cooperation Agreement.    Pursuant to the exclusive business cooperation agreement between ChinaCache Beijing and Beijing Blue I.T. entered into on September 23, 2005, ChinaCache Beijing agreed to provide Beijing Blue I.T. with exclusive business support and technical and consulting services, including technical services, business consultations, intellectual property licensing, equipment or property leasing, marketing consultancy, system integration, research and development, and system maintenance in return for fees determined at the sole discretion of ChinaCache Beijing. Beijing Blue I.T. agreed that it will not accept any consultation or services provided by any third party without ChinaCache Beijing's prior written consent. ChinaCache Beijing is entitled to have exclusive and proprietary rights and interests to any intellectual properties or technologies arising out of or created during the performance of this agreement. Further exclusive technical support and service agreements will be entered into separately pursuant to which the amount and payment of service fees are determined. The term of this agreement is 10 years. This agreement may be extended with ChinaCache Beijing's written confirmation prior to the expiration date.

        The exclusive business cooperation agreement dated July 31, 2008 between ChinaCache Beijing and Beijing Jingtian and the exclusive business cooperation agreement dated January 10, 2008 between ChinaCache Beijing and Shanghai JNet contain terms substantially similar to those of the exclusive business cooperation agreement between ChinaCache Beijing and Beijing Blue I.T.

        Exclusive Technical Consultation and Training Agreement.    On September 23, 2005, ChinaCache Beijing and Beijing Blue I.T. entered into an exclusive technical consultation and training agreement.

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Under this agreement, ChinaCache Beijing agreed to provide Beijing Blue I.T. with evaluation and analysis of Beijing Blue I.T.'s research and development system, process and results of operations, and training service. In return, Beijing Blue I.T. agreed to pay ChinaCache Beijing service fees determined at the sole discretion of ChinaCache Beijing. Beijing Blue I.T. agreed that it will not accept any consultation or services provided by any third party without ChinaCache Beijing's prior written consent. ChinaCache Beijing is entitled to have exclusive and proprietary rights and interests arising out of or created during the performance of this agreement, whether by ChinaCache Beijing or Beijing Blue I.T., including but not limited to, patent, copyright, and know-how property. The term of this agreement is five years and may be extended for another five years only with ChinaCache Beijing's written confirmation prior to the expiration date.

        Exclusive Technical Support and Service Agreement.    Pursuant to the exclusive technical support and service agreement between ChinaCache Beijing and Beijing Blue I.T., entered into on September 23, 2005, ChinaCache Beijing has the exclusive right to provide Beijing Blue I.T. with technical support and services, including but not limited to, research and development of technology, daily maintenance, monitoring, testing and malfunction resolution of Beijing Blue I.T.'s equipment, and consultation on Beijing Blue I.T.'s network equipment, products and software. In return, Beijing Blue I.T. agreed to pay ChinaCache Beijing service fees determined at the sole discretion of ChinaCache Beijing. Beijing Blue I.T. agreed that it will not accept any consultation or services provided by any third party without ChinaCache Beijing's prior written consent. ChinaCache Beijing is entitled to have exclusive and proprietary rights and interests arising out of or created during the performance of this agreement, whether by ChinaCache Beijing or Beijing Blue I.T., including but not limited to, patent, copyright, and know-how property. The term of this agreement is five years and may be extended for another five years only with ChinaCache Beijing's written confirmation prior to the expiration date.

        Equipment Leasing Agreement.    Under the equipment leasing agreement between ChinaCache Beijing and Beijing Blue I.T. dated September 23, 2005, ChinaCache Beijing agreed to lease its equipment to Beijing Blue I.T. and Beijing Blue I.T. agreed to pay the rent within five business days of the first month of each quarter. Beijing Blue I.T. can only use the equipment to conduct business according to its authorized business scope. The term of this agreement is five years. The agreement may be extended only with ChinaCache Beijing's written confirmation prior to the expiration date.

        Exclusive Option Agreements.    On September 23, 2005, ChinaCache Holdings entered into exclusive option agreements with Beijing Blue I.T. and each of its two shareholders, Mr. Song Wang and Ms. Jean Xiaohong Kou. Such agreements were amended and supplemented on May 10, 2010. Pursuant to these agreements, the shareholders irrevocably granted ChinaCache Holdings or its designated representative an exclusive option to purchase, when and to the extent permitted under PRC law, all or part of the equity interest in Beijing Blue I.T. The consideration in excess of the outstanding loan amount when received by the shareholders upon the exercise of the exclusive option is required to be remitted to ChinaCache Beijing in accordance with PRC law. The shareholders must remit any funds received from Beijing Blue I.T. to ChinaCache Beijing in the manner permitted under PRC law, in the event that any distributions are made by Beijing Blue I.T. pursuant to any written consents by ChinaCache Holdings. ChinaCache Holdings or its designated representative has sole discretion to decide when to exercise the option and whether in part or in full. The terms of these agreements are 10 years. The agreements may be renewed for an additional 10 years at ChinaCache Holdings' discretion, and the times of such renewals are unlimited.

        On July 31, 2008, ChinaCache Beijing entered into exclusive option agreements with Beijing Jingtian and each of its two shareholders, Ms. Xinxin Zheng and Ms. Huiling Ying. Such agreements were amended and supplemented on May 10, 2010. Pursuant to these agreements, the shareholders irrevocably granted ChinaCache Beijing or its designated representative an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interest in Beijing Jingtian.

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ChinaCache Beijing has sole discretion to decide when to exercise the option and whether in part or in full. The term of these agreements is 10 years, which may be renewed at ChinaCache Beijing's discretion. Other terms of the exclusive purchase option agreement with Beijing Jingtian are substantially the same as those of the agreement between ChinaCache Holdings and Beijing Blue I.T.

        ChinaCache Beijing entered into exclusive option agreements with Shanghai JNet and its shareholders, Mr. Robert Yong Sha and Ms. Huiling Ying on January 10, 2008, and Mr. Hao Yin, Mr. Mei Yongkai Mei and Ms. Xiurong Mei on April 8, 2010. The exclusive option agreement of Ying Huiling was amended and supplemented on May 10, 2010, and due to the transfer by Mr. Robert Yong Sha of 9% equity interest in Shanghai JNet, Mr. Sha entered into a new exclusive option agreement on April 8, 2010 to replace the original one. The exclusive option agreement with Shanghai JNet contains terms substantially the same as those of the exclusive options granted by each of the shareholders of Beijing Jingtian to ChinaCache Beijing.

        In the opinion of Han Kun Law Offices, our PRC legal counsel:

    the ownership structure of our PRC subsidiary, our PRC affiliated entities and their branches and subsidiaries, both currently and after giving effect to this offering, comply with all existing PRC laws and regulations;

    each and all of the contracts under the contractual arrangements among our PRC subsidiary, PRC affiliated entities and their shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect; and

    the business operations of our PRC subsidiary, our PRC affiliated entities and their branches and subsidiaries are in all material respects in compliance with existing PRC laws and regulations and the terms of their licenses and permits.

        We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities, in particular the Ministry of Industry and Information Technology, which regulates providers of content and application delivery services and other participants in the PRC telecommunications industry, and the Ministry of Commerce, will not in the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our content and application delivery business in China do not comply with PRC government restrictions on foreign investment in the telecommunications industry, we could be subject to severe penalties including being prohibited from continuing our operations. See "Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the arrangements that establish the structure for operating our business do not comply with PRC government restrictions on foreign investment in the telecommunications business, we could be subject to severe penalties." In addition, these contractual arrangements may not be as effective in providing us with control over Beijing Blue I.T., Beijing Jingtian and Shanghai JNet as would direct ownership of such entities. See "Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with Beijing Blue I.T., Beijing Jingtian and Shanghai JNet and their respective shareholders for our China operations, which may not be as effective as direct ownership in providing operational control."

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following selected consolidated financial information for the periods and as of the dates indicated should be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

        Our selected consolidated financial data presented below (other than earnings (losses) per ADS data) for the years ended December 31, 2007, 2008 and 2009 and our balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.

        The selected consolidated statement of operations data (other than earnings (losses) per ADS data) for the six months ended June 30, 2009 and 2010 and the selected consolidated balance sheet data as of June 30, 2010 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial information on the same basis as our audited consolidated financial statements. The unaudited financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented.

        Our selected consolidated statement of operations data for the years ended December 31, 2005 and 2006 and our balance sheet data as of December 31, 2005, 2006 and 2007 have been derived from our audited consolidated financial statements, which are not included in this prospectus. Our historical results do not necessarily indicate results expected for any future periods.

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  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
 
  2005   2006   2007   2008   2009   2009   2010  
 
  RMB
  RMB
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
   
   
   
   
   
   
  (unaudited)
 
 
  (in thousands, except share, per share and per ADS data)
 

Consolidated Statement of Operations Data:

                                                       

Revenues:

                                                       

Net revenues

    47,025     70,033     160,973     291,404     272,370     39,902     132,192     170,342     25,119  

Cost of revenues(1)

    (26,305 )   (46,782 )   (170,902 )   (273,262 )   (206,181 )   (30,206 )   (101,203 )   (118,476 )   (17,471 )
                                       
 

Gross profit

    20,720     23,251     (9,929 )   18,142     66,189     9,696     30,989     51,866     7,648  

Operating costs and expenses:

                                                       

Sales and marketing expenses(1)

    (4,150 )   (8,151 )   (13,387 )   (28,481 )   (36,775 )   (5,387 )   (19,109 )   (27,654 )   (4,078 )

General and administrative expenses(1)

    (19,753 )   (27,720 )   (42,551 )   (36,491 )   (25,469 )   (3,731 )   (12,655 )   (16,691 )   (2,461 )

Research and development expenses(1)

    (1,522 )   (4,100 )   (6,827 )   (16,807 )   (16,639 )   (2,438 )   (8,519 )   (10,334 )   (1,524 )

Post-acquisition settlement consideration

                                (30,711 )   (4,528 )
                                       
 

Operating loss

    (4,705 )   (16,720 )   (72,694 )   (63,637 )   (12,694 )   (1,860 )   (9,294 )   (33,524 )   (4,943 )

Interest income

    216     303     1,843     261     110     16     47     95     14  

Interest expense

    (155 )   (311 )   (1,139 )   (6,562 )   (16,187 )   (2,371 )   (2,889 )   (1,978 )   (292 )

Other expense

    (374 )   (1,646 )   (8 )   (4,567 )   (772 )   (113 )   (1,177 )   (385 )   (57 )

Foreign exchange (loss)/gain, net

    (199 )   (207 )   (1,711 )   3,787     (661 )   (97 )   (676 )   (201 )   (30 )

Changes in fair value of warrants on Series A preferred shares

    238     (10,443 )   (4,286 )                        

Impairment of goodwill and intangible assets

                (75,147 )   (6,920 )   (1,014 )   (6,920 )        

Impairment of property and equipment

            (9,912 )   (2,872 )                    
                                       
 

Loss before income tax expense

    (4,979 )   (29,024 )   (87,907 )   (148,737 )   (37,124 )   (5,439 )   (20,909 )   (35,993 )   (5,308 )

Income tax (expense)/benefit

    (299 )   (766 )   (6 )   (3,063 )   (2,043 )   (299 )   (1,224 )   11,792     1,739  
                                       
 

Net loss

    (5,278 )   (29,790 )   (87,913 )   (151,800 )   (39,167 )   (5,738 )   (22,133 )   (24,201 )   (3,569 )
                                       

Net loss attributable to ordinary shareholders

    (7,378 )   (36,397 )   (99,215 )   (162,981 )   (75,244 )   (11,022 )   (40,247 )   (52,026 )   (7,672 )
                                       

Loss per share:

                                                       
 

Basic

    (0.09 )   (0.42 )   (1.12 )   (1.73 )   (0.78 )   (0.11 )   (0.42 )   (0.62 )   (0.09 )
 

Diluted

    (0.09 )   (0.42 )   (1.12 )   (1.73 )   (0.78 )   (0.11 )   (0.42 )   (0.62 )   (0.09 )

Loss per ADS:

                                                       
 

Basic

                                                       
 

Diluted

                                                       

Weighted average number of ordinary shares outstanding used in loss per share computation:

                                                       
 

Basic

    86,000,000     86,374,322     88,791,173     94,441,786     96,844,453     96,844,453     96,912,599     84,475,892     84,475,892  
 

Diluted

    86,000,000     86,374,322     88,791,173     94,441,786     96,844,453     96,844,453     96,912,599     84,475,892     84,475,892  

Pro forma loss per share (unaudited):

                                                       
 

Basic

                            (0.13 )   (0.02 )       (0.08 )   (0.01 )
 

Diluted

                            (0.13 )   (0.02 )       (0.08 )   (0.01 )

Weighted average number of ordinary shares outstanding used on pro forma loss per share computation (unaudited):

                                                       
 

Basic

                            302,409,878     302,409,878         290,041,317     290,041,317  
 

Diluted

                            302,409,878     302,409,878         290,041,317     290,041,317  

(1)
Includes share-based compensation expense as follows:

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  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
   
  2007   2008   2009   2009   2010  
   
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
   
   
   
   
   
  (unaudited)
 
   
  (in thousands)
 
 

Allocation of share-based compensation expenses:

                                           
   

Cost of revenues

        1,499     2,489     365     1,251     3,651     539  
                                 
   

Sales and marketing expenses

        3,223     5,352     784     2,693     7,877     1,162  
   

General and administrative expenses

    3,379     (156 )   4,185     613     2,886     6,505     959  
   

Research and development expenses

        1,424     2,365     346     1,189     3,468     511  
                                 
 

Total share-based compensation expenses included in cost of revenues and total operating expenses

    3,379     5,990     14,391     2,108     8,019     21,501     3,171  
                                 

        The following table presents a summary of our consolidated balance sheet data as of December 31, 2005, 2006, 2007, 2008 and 2009 and as of June 30, 2010.

 
  As of December 31,   As of
June 30,
 
 
  2005   2006   2007   2008   2009   2010  
 
  RMB
  RMB
  RMB
  RMB
  RMB
  US$
  RMB
  US$
 
 
   
   
   
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                                                 

Cash and cash equivalents

    47,833     16,078     57,720     12,883     64,702     9,479     79,557     11,731  

Accounts receivable, net

    5,311     9,622     52,784     48,327     54,520     7,987     83,319     12,286  

Total current assets

    56,962     32,863     120,053     116,639     225,120     32,980     235,965     34,794  

Property, plant and equipment, net

    45,566     109,378     201,811     210,531     151,009     22,123     136,969     20,197  

Acquired intangible assets, net

            12,271     18,883     3,330     488     1,943     287  

Goodwill

                20,035     16,989     2,489     16,989     2,505  

Total current liabilities

    35,879     97,516     110,732     247,145     231,353     33,894     252,456     37,226  

Total liabilities

    36,879     103,014     116,422     272,307     248,751     36,442     265,939     39,214  

Total mezzanine equity

    62,617     69,224     350,156     361,337     488,126     71,511     515,951     76,082  

Total shareholders' equity (deficit)

    4,280     (27,429 )   (127,248 )   (264,151 )   (339,250 )   (49,700 )   (388,949 )   (57,354 )

        The following table presents an unaudited non-GAAP financial measure and selected operating data as of and for the dates and periods indicated.

 
  As of and for the Year Ended December 31,   As of and for the Six Months
Ended June 30,
 
 
  2007   2008   2009   2009   2010  
 
  (in thousands, except customer numbers)
 

Non-GAAP Financial Measure:

                                           

Adjusted EBITDA(1)(2)

    RMB(31,812 )   RMB23,057     RMB70,651   US$ 10,350     RMB33,466     RMB48,299   US$ 7,122  

Other Operating Data:

                                           

Active customers at period end(3)

    129     204     281           217     418        

(1)
In evaluating our business, we consider and use Adjusted EBITDA as a supplemental measure of our operating performance. We use EBITDA to assist in reconciliation to Adjusted EBITDA. We define EBITDA as net income (loss) before interest expense, interest income, income tax expense, penalty on tax uncertainties, depreciation and amortization. We define Adjusted EBITDA as EBITDA plus share-based compensation expenses and expenses that we do not consider reflective of our ongoing operations. We believe use of Adjusted EBITDA facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in items such as capital structures (affecting relative interest expense and share-based compensation expense), the book amortization of intangibles (affecting relative amortization expense), the age and book value of facilities and equipment (affecting relative depreciation expense) and other non cash expenses. We present Adjusted EBITDA also because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance.

The terms EBITDA and Adjusted EBITDA are not defined under U.S. GAAP and are not measures of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Our EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, you should not consider EBITDA and

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    Adjusted EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. These limitations include, but are not limited to:

    EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

    they do not reflect changes in, or cash requirements for, our working capital needs;

    they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

    they do not reflect income taxes or the cash requirements for any tax payments;

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;

    while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as assumed life of the options and assumed volatility of our ordinary shares; and

    other companies may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

(2)
We calculate Adjusted EBITDA as follows:


   
  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
   
  2007   2008   2009   2009   2010  
   
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
   
   
   
   
   
  (unaudited)
 
   
  (in thousands)
 
 

Net loss

    (87,913 )   (151,800 )   (39,167 )   (5,738 )   (22,133 )   (24,201 )   (3,569 )
 

Plus: depreciation

    35,761     60,230     56,961     8,345     29,063     28,186     4,156  
 

Plus: amortization

    6,036     21,915     11,679     1,711     6,128     1,387     205  
 

Plus: interest expense

    1,139     6,562     16,187     2,371     2,889     1,978     292  
 

Plus: penalty on tax uncertainties

        3,126     1,086     159     727     423     62  
 

Less: interest income

    (1,843 )   (261 )   (110 )   (16 )   (47 )   (95 )   (14 )
 

Plus: income tax expense/(benefit)

    6     3,063     2,043     299     1,224     (11,792 )   (1,739 )
 

EBITDA

   
(46,814

)
 
(57,165

)
 
48,679
   
7,131
   
17,851
   
(4,114

)
 
(607

)
 

Plus: share-based compensation

    3,379     5,990     14,391     2,108     8,019     21,501     3,171  
 

Plus: foreign exchange loss (gain)

    1,711     (3,787 )   661     97     676     201     30  
 

Plus: impairment of goodwill and acquired intangible assets

        75,147     6,920     1,014     6,920          
 

Plus: impairment of property and equipment

    9,912     2,872                      
 

Plus: post-acquisition settlement consideration

                        30,711     4,528  
 

Adjusted EBITDA

   
(31,812

)
 
23,057
   
70,651
   
10,350
   
33,466
   
48,299
   
7,122
 
(3)
We define active customers as those from whom we generated revenues within 30 days before the period end.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are the leading provider of Internet content and application delivery services in China, accounting for 53% market share in terms of revenue in 2009, according to iResearch. We provide a portfolio of services and solutions to businesses, government agencies and other enterprises to enhance the reliability and scalability of their online services and applications and improve end-user experience. Our nationwide service platform, which consists of our network, servers and intelligent software, is designed to handle planned and unplanned peaks without significant upfront and ongoing capital outlay and other investments on the part of our customers.

        As a carrier-neutral service provider, our network in China is interconnected with networks operated by all telecommunications carriers, major non-carriers and local Internet service providers in China. We deploy servers and nodes across networks throughout China and we use a private transmission backbone that connects our nodes and data centers, thereby optimizing our content and applications delivery performance and reliability.

        We derive substantially all of our revenues from the sale of content and application services to our customers. Our services are typically provided under a one-year master service agreement, which is typically accompanied with a one-year renewal option. Customers choose at the outset of the arrangement to either use our services through a monthly fixed bandwidth or traffic volume usage and fee arrangement or choose a plan based on actual bandwidth or traffic volume used during the period at fixed pre-set rates.

        Our net revenues were RMB161.0 million, RMB291.4 million, RMB272.4 million (US$39.9 million) and RMB170.3 million (US$25.1 million) in 2007, 2008, 2009 and for the six months ended June 30, 2010, respectively. The number of our active customers has grown over the years, increasing from 129 as of December 31, 2007, to 418 as of June 30, 2010. For the six months ended June 30, 2010, our top five customers accounted for 32.1% of total net revenues, down from 42.0% in 2007. We incurred net losses of RMB87.9 million, RMB151.8 million, RMB39.2 million (US$5.7 million) and RMB24.2 million (US$3.6 million), respectively, in 2007, 2008, 2009 and for the six months ended June 30, 2010.

Key Factors Affecting Our Results of Operations

        Our financial condition and results of operations are mainly affected by the following factors:

    Number of active customers and customer mix

        The number of active customers affect our revenues. We had 129, 204, 281 and 418 active customers as of December 31, 2007, 2008 and 2009 and June 30, 2010, respectively. With the growth of our customer base and the diversification of our customers, our customer concentration level has decreased over the years. Revenues from our top five customers accounted for 42.0% and 38.2% of our total net revenues in 2007 and 2008, respectively, while such percentage decreased to 34.8% and 32.1% in 2009 and the six months ended June 30, 2010, respectively. We anticipate that our customer base will continue to grow and diversify.

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        Our revenues are also affected by the composition of our customer base, which we refer to as customer mix. Our overall customer mix improved in 2009 as compared to prior years, as the number of customers that purchase services with higher average selling price, which we refer to as high-value customers, increased. In 2008, customers from the Internet and software industry contributed a significant portion of our revenues, but such customers generally generated lower average selling price. In 2009, we significantly increased our sales to high-value mobile Internet, enterprise customers and e-commerce customers. The improved overall customer mix contributed to our better gross profit margins in 2009 compared with 2008. We intend to attract and retain more high-value customers to increase our revenues and gross margins.

    Average selling price

        We operate in a competitive market and we face pricing pressure for our services. We typically charge customers on a per-gigabit per second basis for the bandwidth usage or per-gigabyte basis for traffic volume used. Prices for our services are affected by a variety of factors, including supply and demand conditions and pricing pressures from our competitors. In recent years, the average selling prices for our services have declined. The price erosion was partially due to price discounts granted at the outset of the arrangement to customers with large contractual service commitments. Furthermore, increased competition has also caused price declines. We expect that the average selling prices for our services will continue to be under pricing pressure. Therefore, we must reduce our cost of revenues to offset the average selling price decline and to maintain and increase our gross profit.

    Cost reductions

        Our ability to achieve and increase profitability depends on our ability to effectively reduce our cost of revenues. Our cost of revenues as a percentage of our total net revenues improved from 106.0% in 2007 to 75.7% in 2009. Such improvement was the cumulative result of the improved efficiency of our network and operation, decrease of our average procurement costs for both bandwidth and equipment and cost reduction measures. We plan to devote significant resources to enhancing the efficiency of our operations and in particular to increasing the scalability of our bandwidth usage. However, if we fail to continue to effectively reduce our cost of revenues, our profitability and competitiveness will be adversely affected.

        A significant component of our cost of revenues is the depreciation of our network equipment, which is related to our capital expenditures. In 2007, we had capital expenditures of RMB152.1 million, as compared to RMB74.7 million in 2008 and RMB2.0 million in 2009. Significant capital expenditures in 2007 contributed to the significant depreciation expenses we had in 2008 and 2009. In 2010, as we further expand and improve our network and operation, we expect our capital expenditures to be approximately RMB50.0 million (US$7.3 million). We make our investment decisions based upon evaluation of a number of factors, such as the amount of bandwidth and storage that our customers may demand, the cost of the physical network equipment required to meet such requirements and the forecasted capacity utilization of our network. If we over-estimate or under-estimate future demand for our services, our results of operations may suffer.

Components of Results of Operations

Revenues

        In 2007, 2008 and 2009, we generated net revenues of RMB161.0 million, RMB291.4 million and RMB272.4 million (US$39.9 million), respectively. For the six months ended June 30, 2010, we generated net revenues of RMB170.3 million (US$25.1 million), as compared to RMB132.2 million for the six months ended June 30, 2009.

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        Substantially all of our revenues were derived from the sale of our content and application delivery services to our customers. We typically charge customers on a per-gigabit per second basis for the bandwidth usage or per-gigabyte basis for traffic volume used. Our customer service agreements generally commit the customers to a minimum level of usage and specify the rate that the customers must pay for actual usage above the minimum usage commitment. These agreements typically provide for a one-year term with a one-year renewal option.

        The number of our active customers has steadily grown in the past three years, from 129 as of December 31, 2007, to 204 as of December 31, 2008, to 281 as of December 31, 2009 and to 418 as of June 30, 2010. We categorize our customer into eight industry groups: media, mobile Internet, online games, e-commerce, Internet and software services, enterprises, financial institutions and government agencies. In 2008, customers from the Internet and software industry contributed a significant portion of our revenues. We experienced strong growth in sales to customers in the mobile Internet, media, e-commerce, and enterprises industry groups in 2009 and the first six months in 2010 and we expect this trend to continue in the second half of 2010.

        During any given period, a relatively small number of customers typically accounts for a significant percentage of our total net revenues. Our largest customer contributed 24.4% and 16.0%, respectively, of our total net revenues for the years ended December 31, 2007 and 2008. In 2009, our largest customer, Tencent, contributed approximately 14.8% of our total net revenue. For the six months ended June 30, 2010, China Mobile became our largest customer and contributing approximately 12.8% of our total net revenues during the period.

        We are subject to PRC businesses taxes and related surcharges at rates between 3.27% to 5.5% on our revenues related to certain types of services that we provide. Our revenues are presented net of such business taxes in the same period in which the related revenues are recognized.

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Cost of Revenues and Operating Expenses

        The following table sets forth, for the periods indicated, our cost of revenues and operating expenses, in absolute amount and as a percentage of total net revenues:

 
  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
 
  2007   2008   2009   2009   2010  
 
  RMB   %   RMB   %   RMB   US$   %   RMB   RMB   US$   %  
 
   
   
   
   
   
   
   
  (unaudited)
 
 
  (in thousands, except percentages)
 

Net revenues

    160,973     100.0 %   291,404     100.0 %   272,370     39,902     100.0 %   132,192     170,342     25,119     100.0 %
                                               

Cost of revenues(1)

                                                                   
 

Bandwidth, co-location and storage fees

    117,254     72.8 %   166,765     57.2 %   116,024     16,998     42.6 %   57,013     74,895     11,044     44.0 %
 

Depreciation of network equipment and amortization of acquired intangible assets

    40,159     24.9 %   80,387     27.6 %   67,097     9,830     24.6 %   33,954     28,342     4,180     16.6 %
 

Payroll and other compensation costs of network operations personnel

    10,363     6.4 %   17,548     6.0 %   14,007     2,052     5.1 %   7,377     11,209     1,653     6.6 %
 

Other cost of revenues

    3,126     1.9 %   8,562     2.9 %   9,053     1,326     3.3 %   2,859     4,030     594     2.4 %
                                               

Total cost of revenues

    170,902     106.0 %   273,262     93.7 %   206,181     30,206     75.6 %   101,203     118,476     17,471     69.6 %
                                               

Operating expenses(1)

                                                                   
 

Sales and marketing expenses

    13,387     8.3 %   28,481     9.8 %   36,775     5,388     13.5 %   19,109     27,654     4,078     16.2 %
 

General and administrative expenses

    42,551     26.4 %   36,491     12.5 %   25,469     3,731     9.4 %   12,655     16,691     2,461     9.8 %
 

Research and development expenses

    6,827     4.2 %   16,807     5.8 %   16,639     2,438     6.1 %   8,519     10,334     1,524     6.1 %
 

Post-acquisition settlement consideration

                                    30,711     4,528     18.0 %
                                               

Total operating expenses

    62,765     38.9 %   81,779     28.1 %   78,883     11,557     29.0 %   40,283     85,390     12,591     50.1 %
                                               

(1)
Includes share-based compensation expenses as follows:

   
  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
   
  2007   2008   2009   2009   2010  
   
  RMB   %   RMB   %   RMB   US$   %   RMB   RMB   US$   %  
   
   
   
   
   
   
   
   
  (unaudited)
 
   
  (in thousands, except percentages)
 
 

Allocation of share-based compensation expenses:

                                                                   
   

Cost of revenues

   
   
   
1,499
   
25.0

%
 
2,489
   
365
   
17.3

%
 
1,251
   
3,651
   
539
   
17.0

%
   

Sales and marketing expenses

            3,223     53.8 %   5,352     784     37.2 %   2,693     7,877     1,162     36.6 %
   

General and administrative expenses

    3,379     100.0 %   (156 )   (2.6 )%   4,185     613     29.1 %   2,886     6,505     959     30.3 %
   

Research and development expenses

            1,424     23.8 %   2,365     346     16.4 %   1,189     3,468     511     16.1 %
                                                 
 

Total share-based compensation expenses included in cost of revenues and total operating expenses

    3,379     100.0 %   5,990     100.0 %   14,391     2,108     100.0 %   8,019     21,501     3,171     100.0 %
                                                 

Cost of Revenues

        Our cost of revenues primarily consists principally of the following:

    bandwidth, co-location and storage fees;

    depreciation of network equipment and amortization of acquired intangible assets;

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    payroll and other compensation costs of network operations personnel; and

    other cost and expenses that are directly attributable to the provisions of our content and application delivery services.

        Bandwidth, co-location and storage fees are the amounts we pay to purchase bandwidth usage, co-location services and data storage from telecommunications carriers or ISPs. For the years ended December 31, 2007, 2008 and 2009 and for the six months ended June 30, 2010, 98%, 99%, 99% and 99%, respectively, of our bandwidth, co-location and data storage were purchased from two major PRC telecommunications carriers, China Telecom and China Unicom, through their respective subsidiaries and sale agents. Our agreements with the telecommunication carriers typically use a standard form provided by the carriers, with pricing terms individually negotiated with the carriers' local subsidiaries or sale agents. The agreements are typically of a one-year term with renewal options. We pay monthly service fees based on the number of Internet gateways, bandwidth usage and the number of server clusters.

        Depreciation of network equipment expenses primarily consists of depreciation of our network servers and depreciation of the optical fiber cables that serve as our private transmission backbone. In April 2008, we entered into an agreement with Tong Zhen Networks Co., Ltd., an unrelated third party, pursuant to which we agreed to lease an optical fiber cable from Beijing to Hangzhou for a term of 20 years commencing from the date of the agreement. We have prepaid an aggregate amount of RMB13.1 million (US$1.9 million) in rental fees for the entire 20-year period. We also have the right to renew the lease by notifying the lessor within 12 months prior to the expiration of the lease. Amortization of acquired intangible assets in 2008 and 2009 were related to our acquisition of JNet Group. Depreciation of network equipment and amortization of acquired intangible assets increased significantly from RMB40.2 million in 2007 to RMB80.4 million in 2008, and then decreased to RMB67.1 million (US$9.8 million) in 2009. Our depreciation expense in each period closely correlated to the amount of equipment we purchased. In 2007, we had capital expenditures of RMB152.1 million, as compared to RMB74.7 million in 2008 and RMB2.0 million in 2009. Significant capital expenditures in 2007 contributed to the significant depreciation and amortization costs we had in 2008 and 2009. The decrease in equipment purchased in 2009 contributed to the decreased depreciation of network equipment and amortization of acquired intangible assets expenses in 2009 as compared to 2008. In 2010, as we further expand and improve our network, we expect our capital expenditures to be approximately RMB50.0 million (US$7.3 million), which may result in higher depreciation expenses in 2010.

        Our cost of revenues increased from RMB170.9 million in 2007 to RMB273.3 million in 2008, and then decreased to RMB206.2 million (US$30.2 million) in 2009. Our cost of revenues was RMB118.5 million (US$17.5 million) for the six months ended June 30, 2010, as compared to RMB101.2 million for the six months ended June 30, 2009. Our cost of revenues as a percentage of our total net revenues decreased from 106.0% in 2007 to 93.7% in 2008 and then to 75.6% in 2009. For the six months ended June 30, 2010, our cost of revenues as a percentage of total net revenues was 69.6%. Such decrease in terms of percentage was primarily due to the increased efficiency of our networks and operations and the cost reduction measures we took during 2009. Overall, we expect that our cost of revenues will increase as we expand our operations; however, such increase is likely to be partially offset by lower fix costs per unit as we reduce the per unit costs for bandwidth, co-location and storage fees and enhance the efficiency of our operations.

    Operating Expenses

        Our operating expenses consist of sales and marketing expenses, general and administrative expenses, research and development expenses and post-acquisition settlement consideration.

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        Sales and Marketing Expenses.    Our sales and marketing expenses primarily consist of the following:

    salary and benefit expenses for our sales and marketing staff, including share-based compensation expenses;

    promotion and marketing expenses, including costs for sponsoring special promotional and marketing events and organizing and participating in industry conferences and related expenses for business development activities; and

    travel-related expenses to support sales and marketing functions.

        Our sales and marketing expenses as a percentage of our total net revenues increased from 8.3% for the year ended December 31, 2007, to 9.8% for the year ended December 31, 2008, to 13.5% for the year ended December 31, 2009 and 16.2% for the six months ended June 30, 2010, primarily due to an increase in promotion and marketing expenses and increases in salary and related benefit expenses. Going forward, we expect our sales and marketing expenses to continue to increase as we expand our business.

        General and Administrative Expenses.    Our general and administrative expenses primarily consist of the following:

    salary and benefit expenses for management and administrative staff, including share-based compensation expenses;

    depreciation of facilities and office equipment; and

    professional service expenses.

        Our general and administrative expenses decreased from RMB42.6 million for the year ended December 31, 2007, to RMB36.5 million for the year ended December 31, 2008, to RMB25.5 million for the year ended December 31, 2009. As a percentage of our total net revenues, our general and administrative expenses decreased from 26.4% for the year ended December 31, 2007 to 9.4% for the year ended December 31, 2009, as our revenues grew at a faster pace than our general and administrative expenses during these periods. Our general and administrative expenses were RMB16.7 million (US$2.5 million) for the six months ended June 30, 2010, as compared to RMB12.7 million for the six months ended June 30, 2009. As a percentage of our total net revenues, our general and administrative expenses increased from 9.6% for the six months ended June 30, 2009 to 9.8% for the six months ended June 30, 2010, primarily due to the increased share-based compensation expenses. We expect that our general and administrative expenses in absolute amount will increase from the 2009 level as we incur additional costs in connection with the growth of our business and our becoming a public company, including additional costs in connection with improvements to our internal control, upon completion of this offering.

        Research and Development Expenses.    Our research and development expenses primarily consist of payroll and related personnel costs, including share-based compensation expenses. Research and development costs are expensed as incurred. Our research and development expenses increased by 147.1% from RMB6.8 million in 2007 to RMB16.8 million in 2008, primarily due to the increases in resources committed to research and development activities as we ramped up our business. Our research and development expenses decreased slightly by 1.2% from the 2008 level to RMB16.6 million (US$2.4 million) in 2009. Our research and development expenses were RMB10.3 million (US$1.5 million) for the six months ended June 30, 2010, as compared to RMB8.5 million for the six months ended June 30, 2009. We anticipate that our research and development expenses will increase as we devote more resources to developing and improving technologies to enhance our service offerings and improve operating efficiencies.

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Acquisitions

        As part of our growth strategy, we have acquired, and may in the future acquire, companies that are complementary to our businesses. In January 2008, we completed the acquisition of JNet Holdings and obtained control over Shanghai JNet through contractual arrangements. Shanghai JNet is a PRC company principally engaged in the provision of telecommunications value-added services in China and was an affiliate entity of JNet Holdings prior to the acquisition. We refer to JNet Holdings and Shanghai JNet collectively as JNet Group. As consideration for the purchase, we paid JNet Holdings' shareholders a purchase consideration in installments consisting of 5,566,955 of our ordinary shares and US$6,823,334 in cash as of December 31, 2009. For subsequent events and current outstanding balance, see "Related Party Transactions—Transactions with Certain Directors, Shareholders, Affiliates and Key Management Personnel." In July 2008, we obtained control over Beijing Jingtian, a PRC company principally engaged in the provision of rich media streaming services, through a series of contractual arrangements, for a price of RMB100,000 (US$14,650).

        Shanghai JNet contributed 11.7% and 4.6% of our total net revenues in 2008 and 2009, respectively. Beijing Jingtian's contribution to our total net revenues in 2008 and 2009 was immaterial. We recorded an impairment charge of RMB75.1 million and RMB6.9 million (US$1.0 million) in Shanghai JNet in 2008 and 2009, respectively, as a result of the impairment assessment tests on our recorded goodwill and acquired intangible assets. In addition, we incurred additional expenses in the amount of RMB30.7 million (US$4.5 million) during the six months ended June 30, 2010 associated with the supplementary agreement we entered into with the sellers of JNet Holdings. Furthermore, as part of the supplementary agreement, we agreed to issue additional ordinary shares to the sellers to the extent our public offering price is less than US$1.02952 per ordinary share. We estimate that we will need to issue                        ordinary shares to the sellers of JNet Holdings, assuming an initial public offering price of US$                    per ADS, the midpoint of the estimated range of the initial offering price. See "Risk Factors—Risks Related to Our Business and Industry—We may need to record additional impairment charges to earnings, incur additional post-acquisition settlement consideration or issue additional shares to the sellers in connection with our JNet Holdings acquisition, which may have a material and adverse effect on our results of operations."

Critical Accounting Policies

        We prepare our financial statements in accordance with U.S. GAAP, which requires us to make significant judgments, estimates and assumptions that effect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the end of each reporting period, and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

        Some of our accounting policies require higher degrees of judgment than others in their application. When reviewing our consolidated financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We consider the policies discussed below to be critical to an understanding of our consolidated financial statements as their application places significant demands on the judgment of our management. The following descriptions of our critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements, the risks and uncertainties described under "Risk Factors" and other disclosures included in this prospectus.

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Revenue Recognition

        We provide a portfolio of content and application delivery services, including web page content services, file transfer services, rich media streaming services, guaranteed application delivery, managed Internet data services and value-added services to its customers to improve the performance, reliability and scalability of their online services and applications. Consistent with the criteria of Staff Accounting Bulletin No. 104, "Revenue Recognition", we recognize revenue from sales of these services when there is a signed sales agreement with fixed or determinable fees, services have been provided to the customer and collection of the resulting customer's receivable is reasonably assured.

        Our services are provided under the terms of a one-year master service agreement, which is typically accompanied with a one-year term renewal option with the same terms and conditions. Customers choose at the outset of the arrangement to either use our services through a monthly fixed bandwidth or traffic volume usage and fee arrangement or choose a plan based on actual bandwidth or traffic volume used during the period at fixed pre-set rates. We recognize and bill for revenue for excess usage, if any, in the month of its occurrence to the extent a customer's usage of the services exceeds their pre-set monthly fixed bandwidth usage and fee arrangements. The rates as specified in the master service agreements are fixed for the duration of the contract term and are not subject to adjustment.

        We may charge our customers an initial set-up fee prior to the commencement of their services. To date; these amounts have been insignificant; however, we record these initial set-up fees as deferred revenue and recognizes them as revenue ratably over the estimated life of the customer arrangement. Generally, all our customers' arrangements will require certain amount of initial set-up along with the selected service subscription and very few of the customers' arrangements have contracted to provide more than one type of monthly service.

Fair Value of Financial Instruments

        Financial instruments include cash and cash equivalents, accounts receivable, other receivables, accounts payable, short-term bank borrowings, balances with related parties and other payables, long-term bank borrowings, share-based compensation liability, convertible notes, preferred shares and warrants. The carrying values of these financial instruments, other than long-term bank borrowings, share-based compensation liability, convertible notes, redeemable convertible preferred shares, and warrants, approximate their fair values due to their short-term maturities.

        Long-term bank borrowings bear a stated interest rate, which approximates the market rate. Accordingly, the carrying value of long-term bank borrowings approximates its fair value. The share-based compensation liability is initially recognized at fair value on the date of grant and is subsequently remeasured at the end of each reporting period with an adjustment for fair value recorded to the current period expense. The convertible notes were initially recognized at the face value and subsequently accreted to the redemption value using the effective interest method. The redeemable convertible preferred shares are initially recognized based on residual proceeds after allocation to the detachable warrants at fair value, if applicable, and were subsequently accreted to their respective redemption values using the effective interest rate method. When a beneficial conversion feature exists as of the commitment date, its intrinsic value is allocated from the carrying value of the convertible notes or redeemable convertible preferred shares as a contribution to additional paid-in capital. The discount resulting from the beneficial conversion feature is amortized from the date of issuance to the stated redemption date (for convertible notes) or earliest conversion date (for preferred shares). The convertible notes and preferred shares are then accreted to their respective redemption values using the effective interest method. We, with the assistance of an independent third party valuation firm, determined the estimated fair value of the convertible notes, preferred shares, warrants, and share-based compensation awards recorded in the consolidated financial statements.

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Business Combinations

        In 2009, we adopted ASC 805, Business Combinations, which revised the accounting guidance that we were required to apply for our acquisitions in prior fiscal years, FASB Statement No. 141, Business Combinations. We acquired JNet Group in January 2008 and may make further acquisitions in the future. We accounted for the JNet Group acquisition in accordance with FASB Statement No. 141 whereas future acquisitions will be accounted for pursuant to ASC 805. The underlying principles of ASC 805 and FASB Statement No. 141 are similar and both require us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. In addition, the share purchase agreements entered into may contain contingent consideration provisions obligating us to pay additional purchase consideration, upon the acquired business's achievement of certain operating performance based milestones. Historically, we were required to recognize contingent consideration as an additional element of the cost of the acquired business when the contingency was resolved beyond a reasonable doubt. Under ASC 805, these contingent consideration arrangements are required to be recognized and measured at fair value at the acquisition date as either a liability or equity instrument, with liability instruments being required to be remeasured at each reporting period through the results of our operations.

        In connection with the JNet Group acquisition, we determine the estimated fair values of identifiable intangible and tangible assets as well as assumed liabilities with assistance from a third-party valuation firm. We make estimates of the fair value of assets acquired and liabilities assumed using reasonable assumptions based on historical experience and information obtained from the management of the acquired company. For example, critical estimates in valuing certain of JNet Group's intangible assets included but were not limited to the following items: estimates of future expected cash flows from the acquired business, determination of an appropriate discount rate, assumptions regarding the period of time that the acquired supplier contracts and customer relationship arrangements would continue and measurement of pre-acquisition contingencies and contingent consideration arrangements. Unanticipated events may occur which may affect the accuracy or validity of such assumptions or estimates, as evidenced by the impairment charges we recorded with respect to goodwill and intangible assets resulting from the JNet acquisition.

Impairment of Goodwill

        Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets or business acquired, taking into account the liabilities assumed. Our goodwill at December 31, 2008 and 2009 was related to our acquisition of JNet Group. In accordance with ASC topic 350, "Goodwill and Other Intangible Assets" ("ASC 350"), recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present.

        The performance of the impairment test involves a two-step process. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. Fair value is primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit. If the reporting unit's carrying value exceeds its fair value, goodwill may be impaired. If this occurs, we perform the second step of the goodwill impairment test to determine the amount of impairment loss.

        The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit's goodwill. If the implied goodwill fair value is less than its carrying value, the difference is recognized as impairment loss.

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        In accordance with ASC 350, we assigned and assessed goodwill for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment. We have determined that we have four reporting units, JNet Group, Beijing Blue I.T. (which includes Beijing Jingtian), ChinaCache Beijing and ChinaCache North America. Goodwill resides or is allocable to only one of our reporting units, which is JNet Group. As of December 31, 2008 and 2009, we performed impairment tests on goodwill in a two step process. We determined the fair value of the reporting unit using the income approach based on the discounted expected future cash flows associated with the reporting unit. The discounted cash flows for the reporting unit were based on five year projections. Cash flow projections were based on past experience, actual operating results and management's best estimates about future developments, as well as certain market assumptions. Cash flow after the fifth year were estimated using a terminal value calculation, which considered terminal value growth rate at 3%, considering long-term revenue growth rates for entities in the relevant industries in the PRC. The discount rate of approximately 25% were used in the valuations which reflect the market assessment of the risks specific to JNet Group's industry and is based on the weighted average cost of capital for that particular reporting unit. We base our fair value estimates as assumptions we believe to be reasonable but that are unpredictable and inherently uncertain and as such, actual future results may differ from these estimates.

        As of December 31, 2008 and 2009, we assessed impairment on our goodwill derived from our acquisition of JNet Group. We assessed certain indicators of impairment and their respective timings impacting JNet Group's revenue and cash flow forecasts which were primarily attributed to the resulting and continuing effects of the economic downturn coupled with declines in customer demand, intense pricing pressure and increasing competition. During the year ended December 31, 2009, there were also indicators of impairment such as the loss of key customers of JNet Group that resulted in the carrying value of the reporting unit exceeding its implied fair value. In the years ended December 31, 2008 and 2009 and the six months ended June 30, 2009 and 2010, we recognized an impairment of goodwill derived from the acquisition of JNet Group of RMB53.2 million, RMB3.0 million (US$0.4 million), RMB3.0 million and RMB nil (US$ nil), respectively.

Impairment of Long-lived Assets and Acquired Intangibles

        We evaluate its long-lived assets or asset group, including acquired intangible assets with finite lives, for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying amount of an asset or a group of long-lived assets may not be recoverable. When these events occur, we evaluate potential impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available for the long-lived assets.

        During the years ended December 31, 2008 and 2009, we assessed certain indicators of impairment impacting JNet Group's revenue and cash flow forecasts which were primarily attributed to the resulting and continuing effects of the economic downturn coupled with declines in customer demand, intense pricing pressure and increasing competition. During the year ended December 31, 2009, there were also indicators of impairment such as the loss of key customers of JNet Group that resulted in our reassessing the recoverability of our intangible assets. We tested these intangible assets for impairment using valuation methodologies that were consistent with those used to value the intangible

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assets at the date of acquisition. Accordingly, we recorded impairment charges associated with our long-lived assets and acquired intangibles as follows:

 
  For the Year Ended
December 31,
  For the Six months
Ended June 30,
 
 
  2008   2009   2009   2010  
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
  (in thousands)
 

Impairment of acquired intangible assets

    21,991     3,874     568     3,874          

Impairment of property and equipment

    2,872                      

Post-Acquisition Settlement Consideration

        We entered into a supplementary agreement with JNet Holdings' selling shareholders on January 28, 2010. Pursuant to the supplementary agreement, ChinaCache Holdings will supplementally pay out quarterly all of Shanghai JNet's 2010, 2011 and 2012 pre-tax income ("earn-out liabilities") to JNet Holdings' selling shareholders. During the six months ended June 30, 2010, we recorded RMB30.7 million (US$4.5 million) related to this settlement (see "—Key Factors Affecting Our Results of Operations—Acquisitions"), of which RMB18.2 million (US$2.7 million) was related to the estimation of the contingent payout obligation related to these earn-out liabilities.

        The fair value of the earn-out liabilities was obtained through the income approach whereby we derived pre-tax income of Shanghai JNet in 2010, 2011 and 2012. The forecast of pre-tax income of Shanghai JNet was derived from its historical operating results, coupled with estimate of future performance, which required us to make significant estimates and judgments. We applied a discount rate of approximately 18.5%, which was determined through the assessment of the company-specific and industry-specific risks.

        To estimate Shanghai JNet's pre-tax income in the following three years, we must make key assumptions concerning Shanghai JNet's revenue and cost of revenues. For example, we have estimated Shanghai JNet's revenue would grow at rates ranging from approximately 0% to 5% over the next 3 years as compared to approximately 21% and 65% declines that it previously experienced for 2008 and 2009, respectively. On the cost of revenues, Shanghai JNet's cost of revenues decreased as a percentage of revenue from approximately 23% and 26% for fiscal 2008 and 2009. We expect that Shanghai JNet's cost of revenues as a percentage of revenue to decrease to 20% in 2010 and remain stable at the 20% level for 2011 and 2012. Estimating revenue growth rates or costs is inherently subjective. If we used different estimates or assumptions that reasonably could have been used, the post-acquisition settlement consideration we recorded for a historical period could be different. These earn-out liabilities will be remeasured at each reporting period according to the actual results of operations and any revisions to the remaining forecasted period until final settlement occurs. Should Shanghai JNet generate significantly more pre-tax income than our original estimate in any of the three following fiscal years, then we will record additional post-acquisition settlement consideration expenses; likewise, any short-fall in actual pre-tax income as compared to estimate would result in a recovery of post-acquisition settlement consideration expenses.

Income Taxes

        In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.

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        We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a charge to income tax expense, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable. We consider past performance, future expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance.

        In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the various jurisdictional tax authorities. If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result.

Share-based Compensation

        We account for share options issued to employees in accordance with ASC topic 718, or ASC 718, "Compensation-Stock Compensation." In accordance with the fair value recognition provision of ASC 718, share-based compensation cost is measured at the grant date based on the fair value of the option and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. In accordance with ASC 718, we determine whether a share option should be classified and accounted for as a liability award or an equity award. We have accounted for our options as liability awards as the options are indexed to a foreign currency in addition to our share price. Under the liability awards approach, the share-based compensation liability is initially measured at fair value on the date of grant and is subsequently re-measured at the end of each reporting period with an adjustment for fair value recorded to the current period expense in order to properly reflect the cumulative expense based on the current fair value of the vested options over the vesting period. We recognize compensation expenses using the accelerated method for liability classified share options granted with service conditions that have a graded vesting schedule.

        We account for share options issued to non-employees in accordance with the provisions of ASC 718 and ASC sub-topic 505-50, or ASC 505-50, "Equity: Equity-Based Payment to Non-employees." We measure compensation expenses equal to the fair value of the share options at the measurement date, which is determined to be the earlier of the performance commitment date or the service completion date. The fair value of options granted to non-employees is re-measured at each vesting date to determine the appropriate charge to share-based compensation.

        In October 2008, we adopted our 2007 stock option plan, under which we may grant options to purchase up to an aggregate of 14,000,000 of our ordinary shares to our employees, directors and consultants. In May 2009, we adopted our 2008 stock option plan, under which we may grant options to purchase up to an aggregate of 8,600,000 of our ordinary shares to our employees, directors and consultants. In May 2010, we adopted our 2010 stock option plan, under which we may grant options to purchase up to an aggregate of 9,000,000 of our ordinary shares to our employees, directors and consultants. Our 2007, 2008 and 2010 stock option plans are collectively referred to as the "Stock Option Plans."

        As of December 31, 2009, options to purchase 18,928,910 of ordinary shares were outstanding and options to purchase 3,671,090 ordinary shares were available for future grant under the Stock Option Plans. As of the date of this prospectus, options to purchase 22,591,260 of ordinary shares are outstanding and options to purchase 9,008,740 ordinary shares are available for future grant under the Stock Option Plans.

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        The following table summarizes certain information regarding our outstanding share options:

 
  Ordinary
Shares
Underlying
Options
Granted
   
  Fair Value per Ordinary Share at  
Grant Date
  Exercise
Price per
Share
  Grant Date   December 31,
2008
  December 29,
2009
  June 30,
2010
 

October 16, 2008

    6,741,125   US$ 0.01   US$ 0.170   US$ 0.153   US$ 0.304   US$ 0.505  

    4,604,475   US$ 0.13   US$ 0.170   US$ 0.153   US$ 0.304   US$ 0.505  

    2,575,250   US$ 0.26   US$ 0.170   US$ 0.153   US$ 0.304   US$ 0.505  

June 18, 2009

    5,008,060   US$ 0.26   US$ 0.235       US$ 0.304   US$ 0.505  

July 8, 2010

    8,000   US$ 0.01   US$ 0.505              

    50,000   US$ 0.13   US$ 0.505              

    3,604,350   US$ 0.26   US$ 0.505              

        On April 20, 2007, in connection with the Series B Preferred Shares financing, the holders of Series B Preferred Shares granted to our founders, Mr. Song Wang and Ms. Jean Xiaohong Kou, options to acquire up to an aggregate of 3,400,000 ordinary shares, or the Founders' Options, if our audited 2007 revenue was at least RMB148,505,627. The exercise price of each option is US$0.0001. No options will be vested if the audited 2007 revenue reflected in the 2007 audited financial statements is less than the specified revenue milestone. A quarter of the Founders' Options will vest 12, 24, 36, and 48 months from the date on which the above performance condition has been met, subject to the founders' continuous service to us. On July 7, 2009, the holders of the Series B Preferred Shares confirmed that, based on the 2007 audited revenue reflected in the 2007 audited financial statements, the revenue milestone was achieved and confirmed that the vesting commencement date was April 1, 2008. During the year ended December 31, 2007, we had assessed that it was probable that the revenue milestone would be met. Accordindly, we commenced recognition of the related compensation expenses using the accelerated method. The founders attributed the achievement of the performance condition to the joint efforts of all the employees and believed it would be appropriate to recognize this by giving up their rights to 1,000,000 of the Founders' Options and contribute these Founders' Options to our employee share option scheme in the future. At the request of the founders, the number of ordinary shares under the Founders' Options was reduced from 3,400,000 to 2,400,000 and as a result we repurchased and cancelled 1,000,000 Series B convertible preferred shares from Series B convertible preferred share holders at par value of US$0.0001.

        We engaged Greater China Appraisal Limited, or GCA, an independent third-party appraiser, to determine the fair value of options granted to our employees and non-employees, although our management is ultimately responsible for the determination of all amounts related to share-based compensation recorded in our financial statements. GCA and we apply the binomial option pricing model in determining the fair value of the options granted to employees and non-employees. The inputs to the model and major assumptions include our ordinary share price, exercise price, life to expiration, risk free interest rate, volatility, dividend yield, suboptimal exercise multiple, number of steps and post-vesting forfeiture rate. Changes in these assumptions could significantly affect the fair value of stock options and hence the amount of compensation expense we recognized in our consolidated financial statements.

        In determining the grant date fair value of our ordinary shares for purposes of recording share-based compensation in connection with employee stock options and the issuance date fair value of our preferred shares, we have considered the guidance prescribed by the AICPA Audit and Accounting Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. Specifically, paragraph 16 of the Practice Aid sets forth the preferred types of valuation that should be used. We have followed the "level B" recommendation, and established the fair value of our ordinary shares at the date of grant using a retrospective valuation performed by GCA.

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        We obtained a retrospective valuation instead of a contemporaneous valuation by an unrelated valuation specialist because, at the time of the grant of shares in October 2008 and June 2009, our financial and limited human resources were principally focused on our new product development efforts.

        We, with the assistance of GCA, used the income approach to estimate the enterprise value at (i) each date on which options were granted and subsequently remeasured at the end of each reporting period, and (ii) at each date that our preferred shares were issued. We corroborated our overall equity value by comparing the trading multiples of publicly traded guideline companies to our implied multiples based on the similar income approaches. We applied the methodologies consistently for all valuation dates.

        The enterprise value was then allocated to our preferred shares and ordinary shares using the option pricing method. The option pricing method involves making estimates of the anticipated timing of a potential liquidity event such as a sale of our company or an initial public offering, and estimates of the volatility of our equity securities. Estimating the volatility of the share price of a privately held company is complex because there is no readily available market for our shares. We estimated the volatility of our stock based on the comparable available information on volatility of stocks of publicly traded companies in the industry. Had we used different estimates of volatility, the allocations of value between preferred shares and ordinary shares would have been different.

    Income Approach

        The income approach involves applying appropriate discount rates to estimated cash flow forecasts ("discounted cashflows" or "DCF") that are based on forecasts of revenue and costs. Estimation of future cashflows requires us to make complex and subjective judgments regarding projected financial and operating results, our unique business risks, the liquidity of our shares and our limited operating history and future prospects at the time of grant or remeasurement. We also relied upon publicly available information about capital markets, including industry reports, various databases of publicly traded companies and news.

        Our five-year revenue forecasts were based on expected annual growth rates which were derived from a combination of our historical experience and growth rates published by an independent market research organization. The revenue and cost assumptions we used are consistent with our long-range business plan and market conditions in content and application delivery industry. Specifically, our operation was adversely affected by the financial crisis in late 2008 and our financial performance was worse than previously projected. With economic recovery, the success of our cost and expense reduction initiatives and new capital funding in 2009, our gross margin increased significantly from 2008 to mid 2010. As a result, the values of our ordinary shares increase throughout year 2009 till mid 2010. The value trend is consistent with what we observe in capital markets for the comparable companies.

        In addition to calculating the cash flows throughout the projection period, the terminal value was calculated by applying the Gordon Growth Model with a long term growth rate of 3%. Our cash flows were discounted to present value by the weighted average cost of capital, or WACC, of ranging from 22.50% to 18.50%, on each respective grant and remeasurement date, respectively. The WACCs were determined based on a consideration of the factors like risk-free rate, comparative industry risk, equity risk premium, our company size and other company-specific factors. The decrease in WACC from 22.50% to 18.50% was the combined results of the continuous improvement in our results of operations and the security of our financing channel. The risks associated with achieving our forecasts were appropriately assessed in our determination of the appropriate discount rates; if different discount rates had been used, the valuations could have been significantly different.

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    Market Approach

        The Guideline Public Companies Method of the Market Approach provides an indication of value with reference to the market value of publicly traded guideline companies to various measures of their operating results, then applying such multiples to the business being valued. Shares of these companies are actively traded in a public market. A comparison was made between our company and the guideline companies on the basis of business nature, size, and projected growth rates.

        As explained previously, the market approach was applied in our analysis to corroborate the concluded value of the company by comparing the trading multiples of selected publicly traded guideline companies to the implied Enterprise Value ("EV") multiples of the company based on the results of the DCF methodology. The guideline companies used are the same as those used in the assessment and determination of an appropriate estimate of our WACC.

    Lack of Marketability Discount

        We also applied an additional discount for lack of marketability of 25.0% and more recently 8.5%. When determining the discount for lack of marketability, option-pricing method (put option), which can hedge the price change before the privately held shares can be sold, was applied to quantify the discount for lack of marketability. Such put option was used because it incorporates certain company-specific factors, including timing of expected initial public offering and the volatility of the share price of the guideline companies engaged in the same industry. Volatility of 57.5%, 68.5%, 82.5%, 50.0%, 40.2% and 43.3% was determined by using the mean of volatility of the guideline companies used in the market approach as of October 16, 2008, December 31, 2008, June 18, 2009, December 29, 2009, March 31, 2010 and June 30, 2010, respectively. From the results of this put option method and further qualitative analysis, marketability discount of 25%, 25%, 25%, 15%, 11% and 8.5% was adopted at respective valuation date. Although it is reasonable to expect that the completion of the initial public offering will add value to our shares because we will have increased liquidity and marketability as a result of the offering, the amount of additional value can be measured with neither precision nor certainty.

    Option Pricing Model

        In determining the value of stock options granted to employees and non-employees, we have used the Binomial option pricing model. Under this option pricing model, certain assumptions, including the risk-free interest rate, the expected term of the options, the expected dividends on the underlying ordinary shares, and the expected volatility of the price of the underlying shares for the expected term of the options are required in order to determine the fair value of our options. In addition, the fair value of our ordinary shares on the grant date affects the fair value of the options. Changes in these assumptions could significantly affect the fair value of stock options and hence the amount of compensation expense we recognize in our consolidated financial statements. For the options granted, we used the following assumptions in determining the estimated fair value per option:

 
  2008   2009   Mid 2010  

Suboptimal exercise factor

    2.0     2.0     2.0  

Average Risk-free interest rate

    4.11 %   4.09 %   3.18 %

Average Volatility

    80.22 %   78.54 %   70.22 %

Average Dividend yield

    0.00 %   0.00 %   0.00 %

Average Life of option (Year End)

    8.505     8.756     8.256  

Turnover Rate (Staff)

    10.00 %   10.00 %   10.00 %

Turnover Rate (Director)

    5.00 %   5.00 %   5.00 %

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        For the purpose of determining the estimated fair value of our stock options, we believe the expected volatility and the estimated fair value of our ordinary shares are the most critical assumptions. Since we did not have a trading history and we did not have sufficient share price history to calculate our own historical volatility, expected volatility of our future ordinary share price was estimated based on the price volatility of the shares of the public companies in the content and application delivery industry, for which we refer to as guideline companies. We considered the following factors in determining comparable companies:

    The comparable companies should operate in the same or similar businesses;

    The comparable companies should have a trading history comparable to the remaining life of our stock options as of each valuation date; and

    The comparable companies should either have the operations in China, as we only operate in China, or be the market players in the United States, as we plan to become a public company in the United States.

        We have selected companies which are in the content and application delivery and Internet Data Center business, with preference given to ones whose main business operations are in China. However, there is no such Chinese listed company with sufficient trading history and/or reliable projection data as of valuation dates. Alternatively, seven US-based companies are included in our analysis as we have plans to list our shares on a stock exchange in the United States, and thus a comparison of the risk and return profile is meaningful.

        The fair value of our ordinary shares decreased from US$0.170 per share as of October 16, 2008 to US$0.153 per share as of December 31, 2008. The decrease was principally due to the effects of the global financial crisis in late 2008, which adversely affected our operations and financial performance.

        The fair value of our ordinary shares increased from US$0.153 per share as of December 31, 2008 to US$0.304 per share as of December 29, 2009. The increase was primarily attributable to the growth of our business, which was a result of the improving economic conditions in late 2009, the increase of our gross margins due to our efficient usage of bandwidth, our cost and expense reduction initiatives which positively affected both our gross margins and overall operating income, as well as the new capital funding we received in December 2009.

        The fair value of our ordinary shares increased from US$0.304 per share as of December 29, 2009 to US$0.505 as of June 30, 2010. This increase was primarily attributable to the following factors:

    We derived a lower estimated liquidity discount rate for the lack of the marketability of our ordinary shares because we made substantial progress towards the completion of this offering. Discounts for lack of marketability of 15% and 8.5% were used for the valuation of our ordinary shares based on the then estimated probability of the completion of an public offering of 50% and 80% as of December 29, 2009 and June 30, 2010, respectively.

    The continuous growth and overall sustainability of our business enables us to use a lower discount rate to reflect improvements in overall market conditions and that of comparable companies' performance. These factors decreased our cost of capital and hence the estimated discount rate applied for valuing our ordinary shares from 20.5% as of December 29, 2009 to 18.5% as of June 30, 2010.

    We used a higher probability of initial public offering in equity allocation between our ordinary shares and preferred shares.

    We increased our projected operating earnings and cash flows to better reflect the recent improvement of our revenues and gross margins as sales to mobile Internet, media, enterprises and e-commerce customers exceeded our previous projections.

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        Immediately following the listing of our ADSs on the NASDAQ Global Market, we will account for our share-based compensation as equity awards going forward and accordingly, at the listing date, we will need to remeasure our share-based compensation liabilities using the initial public offering price of our ordinary shares. As a result of the final remeasurement of our share-based compensation liabilities at the listing date, we may record a share-based compensation charge in an approximate amount of RMB             million (US$             million), assuming an initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial offering price, and assuming other inputs to the share option valuation model unchanged to that used as of June 30, 2010. Such share-based compensation expenses may materially and adversely affect our results of operations for the quarter ending September 30, 2010 and the following reporting periods, depending on the term of the share option grants.

Internal Control Over Financial Reporting

        Prior to this offering, we have been a private company with limited accounting personnel and other resources for addressing our internal controls over financial reporting. In connection with the audit of our consolidated financial statements included in this prospectus, we and our independent registered public accounting firm identified one "material weakness" and certain other deficiencies in our internal controls over financial reporting. As defined in the standards established by the Public Company Accounting Oversight Board of the United States, a "material weakness" is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified related to our lack of adequate resources with the requisite U.S. GAAP and SEC financial accounting and reporting expertise to support the accurate and timely assembly and presentation of our consolidated financial statements and related disclosures.

        Following the identification of the material weakness and other control deficiencies, we have taken the following remedial measures to improve our internal control over financial reporting: (i) providing additional accounting and financial reporting training for our new and existing personnel; (ii) preparing a comprehensive set of written accounting policies and procedures manual to guide our financial personnel in addressing significant accounting issues and preparing our financial statements so that they are in compliance with U.S. GAAP and SEC requirements; (iii) adopting formal policies to accommodate our planned accelerated financial reporting close-process that accelerates the timely reconciliations of the amounts recorded by us against the amounts recorded by our customers and suppliers; (iv) implementing formal approval and authorization policies and procedures for user account management to regulate user account creation, modification and deletion; (v) formalizing our transfer pricing policy and maintain sufficient documentation with supportable basis, rationale and assumptions to substantiate our policy; and (vi) implementing a periodic review process to safeguard our property and equipment.

        We plan to take additional measures to improve our internal controls over financial reporting in 2010 and 2011, including (i) hiring additional accounting personnel with extensive experience in U.S. GAAP and SEC reporting requirements; (ii) hiring a director of internal audit with requisite experience in Section 404 of the Sarbanes-Oxley Act and U.S. GAAP; (iii) pursuing plans to build up an internal audit function; and (iv) continuing to develop and improve our internal policies relating to internal controls over financial reporting.

        However, we cannot assure you that we will be able to remediate our material weakness and other control deficiencies in a timely manner. We are not able to estimate with reasonable certainty the costs that we will need to incur to implement these and other measures designed to improve our internal controls over financial reporting. See "Risk Factors—Risks Related to Our Business and Industry—If we fail to establish or maintain an effective system of internal controls over our financing reporting, we

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may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may, therefore, be adversely impacted."

Taxation

Cayman Islands

        We are a tax exempted company incorporated in the Cayman Islands and are not subject to tax in this jurisdiction.

United States of America

        ChinaCache North America, Inc. was incorporated in the State of California, the U.S. and is subject to both California State income tax and the U.S. federal income tax on its income or capital gains under the current laws of California State and the U.S. There have been no material tax expenses related to ChinaCache North America, Inc.

British Virgin Islands

        Our subsidiary in the British Virgin Islands, JNet Holdings, is not subject to income or capital gains tax under the current laws of the British Virgin Islands.

Hong Kong

        Our subsidiary in Hong Kong, ChinaCache Network (Hong Kong) Limited, is subject to a corporate income tax of 16.5% on the estimated assessable profit derived from its Hong Kong operation. ChinaCache Network (Hong Kong) Limited had no assessable profits during the years ended December 31, 2008 and 2009, and accordingly we have made no provision for its income tax.

PRC

        ChinaCache Beijing, Beijing Blue I.T., Beijing Jingtian and Shanghai JNet are companies incorporated in the PRC and as such are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws.

        Prior to the effectiveness of the new PRC Enterprise Income Tax Law on January 1, 2008, Chinese companies were generally subject to PRC enterprise income tax at a statutory rate of 33%. On January 1, 2008, the new PRC Enterprise Income Tax Law took effect. The PRC Enterprise Income Tax Law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. The PRC Enterprise Income Tax Law and related tax rules provide a five-year transitional period for those entities established before March 16, 2007, which enjoyed a favorable income tax rate of less than 25% under the previous income tax laws and rules, to gradually change their rates to 25%, and in the case of preferential tax exemption or reduction for a specified term, until the expiration of such term. Under the new PRC Enterprise Income Tax Law and related implementation rules, enterprises that are qualified as "high and new technology enterprises strongly supported by the State" are entitled to a reduced enterprise income tax rate of 15%.

        ChinaCache Beijing, Beijing Jingtian and Shanghai JNet are currently subject to the statutory tax rate of 25%.

        On December 18, 2008, Beijing Blue I.T. formally received the official approval for its "high and new technology enterprise" status from Beijing Science and Technology Commission, Beijing Municipal Bureau, Beijing State Tax Bureau and Beijing Local Tax Bureau. Accordingly, Beijing Blue I.T. is entitled to a lower tax rate of 15% as its corporate income tax from 2008 through 2010. The status of a

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"high and new technology enterprise" is subject to evaluation and review by the relevant government authorities in China every three years.

        The PRC Enterprise Income Tax Law provides that the "non-resident enterprises" shall be subject to the enterprise income tax rate of 20% (which was reduced by the implementation rules to 10%) on their income sourced from China, if such "non-resident enterprises" (i) do not have establishments or premises of business in China or (ii) have establishments or premises of business in China, but the relevant income does not have actual connection with their establishments or premises of business in China. Therefore, on or after January 1, 2008, dividends from our PRC subsidiary to non-PRC resident entities may be subject to a withholding tax of as high as 20% (although under the implementation rules, the withholding tax is currently 10%), if such dividends are regarded as income derived from sources within China.

        Under the PRC Enterprise Income Tax Law, enterprises that are established under the laws of foreign countries or regions and whose "de facto management bodies" are located within the PRC territory are considered PRC resident enterprises, and will be subject to the PRC enterprise income tax at the rate of 25% on their worldwide income. Under the implementation rules of the PRC Enterprise Income Tax Law, "de facto management bodies" are defined as the bodies that have material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. We cannot assure you that our Cayman Islands holding company, ChinaCache Holdings will not be deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law and be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income. It is also unclear whether the dividends ChinaCache Holdings receives from PRC subsidiary, ChinaCache Beijing, will constitute dividends between "qualified resident enterprises" and therefore qualify for exemption from withholding tax, even if ChinaCache Holdings is deemed to be a "resident enterprise" for PRC enterprise income tax purposes. See "Risk Factors—Risks Related to Doing Business in China—Under China's Enterprise Income Tax Law, we may be classified as a 'resident enterprise' of China. Such classification could result in unfavorable tax consequences to us and our non-PRC resident shareholders."

Results of Operations

        The following table sets forth a summary of our consolidated results of operations for the periods indicated both in absolute amount and as a percentage of our total net revenues. This information

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should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  For the Year Ended December 31,   For the Six Months
Ended June 30,
 
 
  2007   2008   2009   2009   2010  
 
  RMB   %   RMB   %   RMB   US$   %   RMB   RMB   US$   %  
 
   
   
   
   
   
   
   
  (unaudited)
 
 
  (in thousands, except for percentages and per share data)
 

Revenues:

                                                                   

Net revenues

    160,973     100.0 %   291,404     100.0 %   272,370     39,902     100.0 %   132,192     170,342     25,119     100.0  
                                                       

Cost of revenues(1)

    (170,902 )   (106.2 )%   (273,262 )   (93.8 )%   (206,181 )   (30,206 )   (75.6 )%   (101,203 )   (118,476 )   (17,471 )   (69.6 )
                                                       
 

Gross profit

    (9,929 )   (6.2 )%   18,142     6.2 %   66,189     9,696     24.4 %   30,989     51,866     7,648     30.4  
                                                       

Operating expenses(1):

                                                                   

Sales and marketing expenses(1)

    (13,387 )   (8.3 )%   (28,481 )   (9.8 )%   (36,775 )   (5,387 )   (13.5 )%   (19,109 )   (27,654 )   (4,078 )   (16.2 )

General and administrative expenses(1)

    (42,551 )   (26.4 )%   (36,491 )   (12.5 )%   (25,469 )   (3,731 )   (9.4 )%   (12,655 )   (16,691 )   (2,461 )   (9.8 )

Research and development expenses(1)

    (6,827 )   (4.2 )%   (16,807 )   (5.8 )%   (16,639 )   (2,438 )   (6.1 )%   (8,519 )   (10,334 )   (1,524 )   (6.1 )

Post-acquisition settlement consideration

                                    (30,711 )   (4,528 )   (18.0 )
                                                       

Total operating expenses

    (62,765 )   (39.0 )%   (81,779 )   (28.1 )%   (78,883 )   (11,556 )   (29.0 )%   (40,283 )   (85,390 )   (12,591 )   (50.1 )
                                                       
 

Operating loss

    (72,694 )   (45.2 )%   (63,637 )   (21.8 )%   (12,694 )   (1,860 )   (4.7 )%   (9,294 )   (33,524 )   (4,943 )   (19.7 )
                                                       

Interest income

    1,843     1.1 %   261     0.1 %   110     16         47     95     14     0.1  

Interest expense

    (1,139 )   (0.7 )%   (6,562 )   (2.3 )%   (16,187 )   (2,371 )   (5.9 )%   (2,889 )   (1,978 )   (292 )   (1.2 )

Other expense

    (8 )   (0.0 )%   (4,567 )   (1.6 )%   (772 )   (113 )   (0.3 )%   (1,177 )   (385 )   (57 )   (0.2 )

Foreign exchange (loss)/gain, net

    (1,711 )   (1.1 )%   3,787     1.3 %   (661 )   (97 )   (0.2 )%   (676 )   (201 )   (30 )   (0.1 )

Changes in fair value of warrants

    (4,286 )   (2.7 )%       0.0 %           0.0 %                

Impairment of acquired intangible assets and goodwill

        0.0 %   (75,147 )   (25.7 )%   (6,920 )   (1,014 )   2.5 %   (6,920 )            

Impairment of property and equipment

    (9,912 )   (6.2 )%   (2,872 )   (1 )%                            
                                                       
 

Loss before income tax expense

    (87,907 )   (54.6 )%   (148,737 )   (51.0 )%   (37,124 )   (5,439 )   (13.6 )%   (20,909 )   (35,993 )   (5,308 )   (21.1 )

Income tax (expense)/benefit

    (6 )   (0.0 )%   (3,063 )   (1.1 )%   (2,043 )   (299 )   (0.8 )%   (1,224 )   11,792     1,739     6.9  
                                                       
 

Net loss

    (87,913 )   (54.6 )%   (151,800 )   (52.1 )%   (39,167 )   (5,738 )   (14.4 )%   (22,133 )   (24,201 )   (3,569 )   (14.2 )
                                                       

Loss per share:

                                                                   
 

Basic

    (1.12 )         (1.73 )         (0.78 )   (0.11 )         (0.42 )   (0.62 )   (0.09 )      
 

Diluted

    (1.12 )         (1.73 )         (0.78 )   (0.11 )         (0.42 )   (0.62 )   (0.09 )      

Weighted average number of ordinary shares outstanding used in loss per share computation:

                                                                   
 

Basic

    88,791,173           94,441,786           96,844,453     96,844,453     &