<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 000-30698
SINA.COM
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CAYMAN ISLANDS 52-2236363
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
VICWOOD PLAZA
ROOMS 1801-4
18TH FLOOR
199 DES VOEUX ROAD
CENTRAL, HONG KONG
(852) 2155-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
VICTOR LEE
1313 GENEVA DRIVE
SUNNYVALE, CA 94089
(408) 548-0000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
ORDINARY SHARE, $0.133 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $468,972,674 as of September 15, 2000, based
upon the closing sale price on computed by reference to the closing price for
the Common Stock as quoted by the Nasdaq National Stock Market reported for such
date. Shares of Ordinary Shares held by each officer and director and by each
person who owns 5% or more of the outstanding Ordinary Shares have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of September 15, 2000, there were 40,933,557 shares of the Registrant's
Ordinary Shares, $0.133 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Items 11-13 incorporate information by reference from the definitive proxy
statement for the Annual Meeting of Shareholders to be held on November 21,
2000.
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<PAGE> 2
PART 1
ITEM 1. BUSINESS
OVERVIEW
SINA.com is a leading Internet media and services company for Chinese
communities worldwide. We offer a portal network of four localized Web sites
targeting China, Taiwan, Hong Kong and overseas Chinese in North America. Our
users enjoy a full array of Chinese-language news, entertainment, e-commerce
platforms, financial information and lifestyle tips covering both global events
and issues and specific topics of interest to the Chinese community. Users can
also shop in our online stores located on our China and North America Web sites
from the convenience of their homes. In addition, we offer proprietary software
products that simplify access to Chinese Internet content.
One of our subsidiaries, Beijing Stone Rich Sight Information Technology
Co. Ltd., or BSRS, a Sino-Foreign joint venture company based in Beijing, China,
began operations in December 1993 as a computer software company focused on
providing solutions to computer users wishing to communicate in Chinese. In May
1996, we launched our online network, then called SRSnet.com, offering
Chinese-language news, information and community features such as bulletin
boards and chat services targeted at online users in China. In March 1999, we
expanded our online network by acquiring Sinanet.com, a leading Chinese-
language Internet content company with offices in California and Taiwan and two
distinct Web sites targeting Chinese users in North America and Taiwan. In July
1999, we continued our network expansion by launching our Hong Kong destination
Web site targeting Chinese users in Hong Kong.
We make our portal network available without charge to users. Our total
average daily page views have grown from approximately 5 million in June 1999 to
approximately 34 million in June 2000. China Internet users voted our China Web
site as their favorite Web site in various surveys conducted by independent
institutions during the past fiscal year. Because of the popularity and growth
in usage of our Web sites, we attract advertisers and merchants who wish to
target the Chinese market.
We generate revenue primarily through the sale of advertisements,
promotions and sponsorships to advertisers and merchants. The majority of
advertising on our portal network is sold through the Company's internal
advertising sales force. We also derive a portion of revenues from sales of
software products and related licenses to OEM PC manufacturers and corporate PC
users.
INDUSTRY BACKGROUND
Internet Use in Greater China and Other Chinese-Speaking Regions
The adoption and development of the Internet differs among China, Taiwan,
Hong Kong and North America, and these markets present a range of significant
near-term and long-term market opportunities. These opportunities have led a
number of companies to provide portal, content and e-commerce services to
address these markets. Accordingly, the market for online content and services
targeted at these markets is competitive, and we expect competition to increase
in the future.
China. China is expected to experience among the largest growth in the
number of PC Internet users in Asia, growing from approximately 4.5 million in
1999 to 51.2 million in 2004, as projected by International Data Corporation
("IDC"). The Internet user penetration rate was approximately 0.3% in 1999 and,
as access costs decline and PC penetration rates increase, we expect that
Internet usage will grow rapidly in China.
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The following table shows China Internet growth statistics as reported by
CNNIC for the period from June 1999 to June 2000, which may not be indicative of
future growth rates:
<TABLE>
<CAPTION>
NO. OF
NO. OF WEB SITES
DEVICES INTERNET BASED IN
CHINA INTERNET GROWTH STATISTICS ONLINE USERS CHINA
-------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
June 1999......................................... 1,460,000 4,000,000 9,906
December 1999..................................... 3,500,000 8,900,000 15,153
June 2000......................................... 6,500,000 16,900,000 27,289
Percentage Growth from June 1999 to June 2000..... 345% 323% 175%
</TABLE>
In addition to the personal computer access to the Internet, alternative
accesses, such as wireless access and television based devices access using
telephone lines, cable, or satellite, could together enhance internet
penetrations in the future. According to The Gartner Group, there were
approximately 51.7 million mobile phone users in China in the first quarter of
2000, representing a 81.0% increase compared to the same quarter in 1999. The
growing number of wireless users presents an attractive opportunity for us to
increase our internet user base. According to Kagan World Media, there were 73.3
million cable television households in China at August 2000. Projects to develop
television set-top Internet access devices for the Greater China market, if
successful, could potentially further increase the Internet user base.
The market in China for online advertising and e-commerce is in an early
stage of development. According to Forrester Research, Inc., online advertising
is projected to grow from $8.0 million in 1999 to $440.0 million by 2004. IDC
estimates that e-commerce revenue in China will reach $26,152.7 million by 2004
from $76.7 million in 1999.
Taiwan. The Internet has received relatively widespread attention and
usage in Taiwan. According to IDC, Taiwan had approximately 2.0 million Internet
users in 1999 and is expected to have approximately 6.3 million users by 2004.
We believe Taiwan, with a gross domestic product per capita of $12,700 in 1999
according to International Monetary Fund ("IMF"), represents a relatively
affluent market that will readily adopt the Internet as a means of entertainment
and commerce. Moreover, according to Kagan World Media, Taiwan has one of the
world's highest cable television penetration rates at 77.6% of all Taiwanese
households. In addition, Taiwan's Government Information Office announced in
October 1999 that it had approved five operator licenses for providing pay
television satellite services in Taiwan. We expect that both cable and these
satellite services will have Internet access capabilities that will have the
potential to contribute to the growth in Internet usage in Taiwan. As Internet
usage increases in Taiwan, Forrester Research projects that Taiwan online
advertising will grow from $4.0 million in 1999 to $116.0 million by 2004, and
IDC projects that e-commerce revenue in Taiwan will reach $12,285.9 million by
2004 from $193.0 million in 1999.
Hong Kong. According to IDC, the number of Internet users in Hong Kong is
expected to increase approximately 3.4 million by 2004 from 1.0 million in 1999.
Hong Kong has high Internet connectivity compared to many of its Asian neighbors
with a 15.2% Internet penetration rate in 1999. In addition, Hong Kong was one
of the first major population centers to have a fully-digitized
telecommunications network and is expanding its broadband Internet access
capability through cable television access. We expect Internet usage to increase
significantly in the next few years, especially as more Hong Kong-focused
content, commerce and services become available. According to IMF, Hong Kong had
one of the highest Asian per capita gross domestic products in 1999 at $23,640,
and IDC projects that e-commerce revenue in Hong Kong will reach $7,528.9
million by 2004 from $191.9 million in 1999.
North America and Other Markets. North America enjoys much higher Internet
penetration than Greater China. According to Jupiter Consumer Survey, the number
of Internet users in the U.S. in 1999 was 104.0 million, representing an
Internet penetration rate of approximately 38%. We believe, based on this
Internet penetration rate and the stage of development of the Internet in the
U.S., that the substantial Chinese population resident in the U.S. and Canada
has easier access to the Internet than their counterparts in the Greater China
region. However, there is a significant lack of Chinese Internet content that
caters to this
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population. We believe that many Chinese students and professionals living
abroad, as well as recent immigrants, will benefit from Internet services that
enable them to obtain news about their home countries, maintain ties to their
former communities and communicate in their native language.
THE SINA.COM SOLUTION
We have achieved our leading market position by integrating our proprietary
software platform, our portal network and our e-commerce initiatives to offer
Chinese users and advertisers a comprehensive Internet solution.
Our array of proprietary software products is designed to drive traffic to
our portal network. RichWin, our popular operating system overlay that we have
sold since 1994, enables users to move easily between English and Chinese
operating systems and offers a link to our portal network. In March 2000, we
introduced SinaPlus, our new generation language translation software which
incorporates Internet access capability to help attract users to our Web sites.
Our portal network consists of four Web sites targeting Internet users in
China, Taiwan and Hong Kong and overseas Chinese in North America, each of which
offers an extensive range of local, regional and international Chinese language
content, Web-based community and communication services, sophisticated search,
directory services and free email services. By addressing a global Chinese
audience, we offer advertisers and merchants an attractive market for
advertisements and e-commerce offerings.
Our e-commerce initiatives include SinaMall, an online shopping mall
currently offered on our China and North America Web sites, online airline
ticketing on our Taiwan Web site.
We have achieved our leading market position as a result of the following
key factors:
Extensive, Localized Content and a Broad Range of Community Features for
the Global Chinese Community. Our portal network brings together Chinese
Internet users across national and geographic boundaries, while providing
content and services tailored to each local market. We have extensive
relationships with international, regional and local content providers,
including Central News Agency, CBS MarketWatch, Dow Jones, AFP, Reuters and
Xinhua News Agency. Local content is made available to all of our Web site
production teams so that they can create the desired mix of local, regional and
international content. Although content may vary across Web sites, our brand
identity and look and feel are consistent across our network. In addition to
extensive and customized global, regional and local content, we provide a broad
range of community features like chat, email and instant messaging that allow
Chinese Internet users worldwide to interact. We distinguish ourselves from our
competition by offering a customized Web site for each of the China, Taiwan,
Hong Kong and North America markets.
User-Friendly Software Platform that Supports Our Portal Network. We have
used the brand recognition and large installed base that we have achieved
through our RichWin product to draw traffic to our Web sites. In addition to
providing a link to our destination sites, our RichWin software also allows
users to easily view Chinese content without regard to the underlying operating
system. We sell the latest version of our RichWin software product to businesses
and consumers and, often at lower margin, to original equipment manufacturers
and provide free downloads of older versions of RichWin on our network to
increase our brand recognition and help drive traffic to our Web sites. Our
software development team, which successfully developed the popular RichWin
product, is now being employed to develop products to support our portal
network. In March 2000, we introduced SinaPlus, our new generation language
translation engine to consumers to further increase user recognition of our Web
sites.
E-commerce Initiatives. We currently offer online shopping on our China
and North America Web sites. We also anticipate releasing in the second half of
2000 our software, which will provide merchants with an easy way to begin
presenting goods and services on our Web sites.
Business Models, Strategic Relationships and Technology Leveraged Across
Multiple Web Sites. We deploy across our network successful business models and
strategic relationships that we establish in each of our local markets, thereby
allowing us to grow rapidly and effectively. We also manage a majority of our
core
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technology and applications centrally, which we believe has enabled us to derive
cost savings and enhanced our ability to grow our network and business quickly
and effectively.
PRODUCTS AND SERVICES
Our portal network, e-commerce initiatives and software platform are
closely related and we believe that each of these components will benefit from
the growth of the other two.
Portal Network
Destination Sites. Our portal network consists of four destination Web
sites dedicated to users in China, Taiwan, Hong Kong and overseas Chinese in
North America. In June 2000, our total average daily page views were
approximately 34 million. Each of our destination sites consists of
Chinese-language content organized into interest-specific channels, extensive
community and communication services and sophisticated search capabilities:
www.sina.com.cn Our China destination site was launched in May
1996 and was voted the favorite Web site of
users according to various surveys conducted by
independent parties. The goal of the China Web
site is to be the first and only Web site
Chinese users need to visit in order to satisfy
their news, information, service and product
needs.
www.sina.com.tw Our Taiwan destination Web site was launched in
October 1998 and has grown rapidly to become
one of the leading Web sites in Taiwan. The
Taiwan Web site has launched innovative
communications and community services such as
Web2Pager, a service that allows for email
messages to be delivered to pagers, and
SinaBaby, an interactive virtual parenting
game.
www.sina.com.hk Our Hong Kong destination Web site was launched
in July 1999. As a beneficiary of content and
service offerings leveraged from our other Web
sites, our Hong Kong Web site was launched
after less than three months of preparation.
www.sina.com We believe our North American destination Web
site, launched in May 1995, is a leading
Chinese-language Web site among ethnic Chinese
Internet users in North America. Our North
America Web site caters to a diverse audience
of first and second-generation Chinese
immigrants as well as Chinese students and
professionals studying, working and living
abroad in the U.S. and Canada.
Content. We make available on all of our Web sites our four or five most
popular content channels. We also create for each individual site two localized
channels specifically tailored for the local market. Although content varies
across our Web sites, we are careful to preserve a consistent brand identity and
look and feel throughout our network. We believe we satisfy the demand of
Chinese users for timely, in-depth coverage of current events, sports, finance
and arts with the following channels:
SinaNews Comprehensive selection of international,
regional and local news. Content for our
SinaNews channel is provided by local and
syndicated wire services such as Xinhua News
Agency and Central News Agency, television
stations such as China Central Television and
Beijing Television, newspapers such as China
Economic Times, and by our team of editors,
producers, writers and translators.
SinaSports Broad international, regional and local sports
news and information, including events such as
the Asian Games, the World Cup
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and the Olympic Games. SinaSports also provides
up to the minute sports scores for China's
professional sports teams.
SinaLiving Coverage of the arts and living scene,
including entertainment news, popular
magazines, travel, games, horoscopes, a Feng
Shui Center, information on education and
studying abroad and up-to-date weather reports.
SinaLiving also hosts global live chat forums
featuring diverse entertainment personalities
such as world-famous film director Zhang Yi
Mou, "canto-pop" singer Gigi Leung and film
star Zhao Wei.
SinaFinance Financial information, news, company
information and stock quotes from major U.S.
and European stock markets and the Shanghai,
Shenzhen, Taipei and Hong Kong stock exchanges.
Users can also individualize their online stock
portfolios.
SinaTechnology Free software downloads, technology news,
product information, and introductory
information on how to use the Internet.
SinaA/V Center Streaming audio and video content from Chinese
language television and radio stations.
Community. We believe the establishment of cohesive online communities
will enrich the experience of Internet users. Consequently, we offer the
following array of community features designed to encourage users to become
active and loyal registered users, or SINA Netizens:
SinaMail
(email) Free Web-based email service with over 5
million registered users as of June 30, 2000.
Our users can send and receive messages in both
Chinese and English.
SinaPager
(instant messaging) Instant-messaging service, currently offered on
our China Web site, which enables SINA Netizens
to know whether their SINA.com friends are
online and to send messages to them instantly.
SinaSearch
(search) Directory and keyword search in both
traditional and simplified Chinese character
text modes. We offer search technology by two
of the leading search engines for locating
desired Chinese content on the Internet, Alta
Vista and OpenFind. We categorize information
in over ten thousand categories.
SinaChat
(online chat) Chat service that creates a virtual meeting
place where participants can interact in group
or one-on-one discussions. Chat rooms are
organized around topics of interest such as
sports, entertainment, games and romance. VIP
Chat is a special event version of SinaChat
where participants from around the globe
through any of our four Web sites can interact
with famous personalities such as movie stars
and musicians.
Club Yuan
(romance and matchmaking) Our interactive dating service with
approximately 0.4 million active members as of
June 30, 2000. Club Yuan exists as a "community
within a community" for users in search of new
friends and relationships. Members who sign up
for Club Yuan are asked to create a new user
profile and are assigned a special message box
where they can send and receive messages and
create "buddy" lists. Club Yuan also provides
user profile search, real-time chat, bulletin
board services and Dr. Love, an online
consultant who answers questions about romance.
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e-Card
(electronic greeting card) Electronic greeting cards organized into
categories such as Chinese New Year, Christmas,
Birthday, Thank-You and Lovers. A user can
customize the card with his or her own personal
message. The receiver of the card is notified
by an email message with a link to our Web site
where the card can be viewed, which introduces
other users to our Web site.
SinaWeb2Pager
(online paging) Communication tool on our Taiwan Web site that
allows users to send email messages in Chinese
or English directly to the recipient's pager.
SinaBaby
(virtualparenting) Popular virtual parenting game offered on our
China and Taiwan Web sites that allows users to
adopt and raise a virtual baby. The child is
given a name and immediately begins demanding
love and attention. If the parents neglect to
care for the child, they will receive angry
emails from their child. Good parents, however,
are amply rewarded with successful and adoring
progeny.
SinaForum
(bulletin board) Bulletin board service where users can pose and
respond to comments on a wide array of topics.
MySina
(home page personalization) Home page personalization service whereby users
can customize the layout of their home page.
E-commerce Initiatives
Our e-commerce initiatives consist of:
Online Shopping Mall. Online shopping is a natural extension of our portal
network. We have successfully launched SinaMall, a virtual shopping mall that
has been designed to offer users an intuitive and fun shopping experience, on
our China and North American Web sites. Our China SinaMall, launched in November
1999, has online stores that offer beauty products, books, clothing, computer
hardware, electronics, event ticketing and food. We sell goods on-line under
arrangements with both department stores and various suppliers. Our North
American SinaMall is organized around nine "floors", each of which specializes
in a particular product category, such as Food Plaza, Computer Hardware and
Electronics, Health and Beauty Products and Travel and Leisure. Users in each
case "push" around a virtual shopping cart, "fill" the cart up with items they
choose to purchase and "checkout" by paying with a credit card or debit card.
Participating merchants pay us a fee to host their site and an additional
commission for sales that we generate.
Online Ticketing. We are one of the first few Chinese-language portal Web
sites in Taiwan that offers airline tickets over the Internet. We have
contracted with several Taiwan travel agencies to sell discounted tickets on our
Taiwan site in exchange for a commission. We intend to seek strategic joint
ventures to expand our e-ticketing model to our other Web sites.
Co-branded Debit Card. In September 1999, we signed an agreement with
China Merchants Bank to set up online payment systems and online banking
services and in November 1999 launched a co-branded debit card. Users of our
China Web site are able to use this debit card to make online purchases from our
China SinaMall. We believe by being a leader in creating mechanisms for secure
transactions on the Internet in China, we will help foster the acceptance and
growth of e-commerce in China and gain the trust of e-commerce customers and
merchants.
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Software Platform
We have designed an array of proprietary software products, most of which
will be available for free download from our Web sites, in order to drive
increased traffic to our portal network. Our family of software offerings
includes:
RichWin. RichWin, first launched in April 1994, is an operating system
overlay that allows users to move easily between a Chinese and an English
operating environment. Without RichWin or a similar software overlay, a user
using an English operating system cannot view Chinese content because the
English operating system cannot recognize Chinese characters. By installing
RichWin, a user can simply click on a button to switch from an English to a
Chinese operating environment to view Chinese content, and then click again to
return to an English operating environment.
SinaPlus. SinaPlus is our new-generation language translation engine
launched in March 2000. Within SinaPlus we have bundled tools and services such
as SinaMail and SinaPager, dictionary utilities and a feature that changes the
user's default home page to the SINA.com Web site closest to the user's
geographic location. SinaPlus will be available for free download from our
sites.
SinaXpress. We use our SinaXpress software on our servers to automatically
convert Chinese content into image files viewable online without a
Chinese-language operating system or a translation overlay.
We believe our software products provide the value-added functionalities in
introducing users to our portal network, enabling communication between global
Chinese communities and facilitating e-commerce.
STRATEGIC PARTNERSHIPS
We have developed strategic relationships with a range of content, service,
application and distribution partners in order to serve users more effectively
and to extend our brand and services to a broad internet network.
Content Partnerships
The goal of our content partnerships is to provide our users with the
broadest offering of Chinese-language content available. We contract with our
content partners to display their content on one or more of our Web sites free
of charge or in exchange for a share of revenue, a licensing fee, access to our
content or a combination of these arrangements. The following table shows some
of our existing content partnerships in key content areas for our China, Taiwan,
Hong Kong and North America destination sites:
<TABLE>
<CAPTION>
CHANNEL CHINA TAIWAN NORTH AMERICA HONG KONG
------- -------------------- ----------------------- ---------------- --------------
<S> <C> <C> <C> <C>
SINANEWS.............. Xinhua News Agency Central News Agency China Press Metro
China News Agency China Times Interactive Kwong Wah Ri Bao Broadcast
China Central TV Formosa Television Singtao Daily Corporation
HuaSheng News UDN News Zhong Guo Daily Limited
China Youth Daily Power News Hwa Sheng Mingpao.com
Beijing Youth Daily Central News Limited
Reuters Agency Wisers
AFP Information
Limited
SINASPORTS............ Ballsweekly Min Sheng Bao China Press
China Football News
Sportsyouth
SINALIVING............ Life Week Chinese Television Hwa Sheng Easy Group
Neweekly System Togo Travel Holdings
AV World Crown Magazine Crown Magazine Limited
DaZhong Movie Journalist
China Entertainment Magazine
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL CHINA TAIWAN NORTH AMERICA HONG KONG
------- -------------------- ----------------------- ---------------- --------------
<S> <C> <C> <C> <C>
SINAFINANCE........... CITIC Securities Business Weekly CBS MarketWatch Core Pacific-
Shanghai Securities Taiwan Economics News Dow Jones Yamaichi
News Reuters International
Stock 247 (HK) Limited
SINATECHNOLOGY........ ZDNet China Openfind Search Isnet PaceMaker
Science & Technology ZDNet Zdnet Technologies
Daily Openfind Search
</TABLE>
The content partnerships are usually one to two years' duration with one
year automatic renewal.
Application and Service Partnerships
The goal of our application and service partnerships is to ensure that our
users have access to user-friendly, reliable and scalable communication and
search tools. Because most of our prospective partners have traditionally
focused on non-Chinese speaking markets, our internal engineering and
development teams often work closely with them to adapt their solutions to the
Chinese-language market. The following are our most critical application and
service partnerships:
Critical Path. In June 1999, we signed an outsourcing agreement with
Critical Path, under which Critical Path provides our Web-based email service.
Critical Path has agreed to service not only our branded Web emails, but also
any co-branded Web email services launched by us and our partners.
Alta Vista. We entered into a relationship with Alta Vista in June 1999,
under which Alta Vista agreed to provide Chinese full-text search services to
our Web sites, while we agreed to promote Alta Vista as our strategic partner in
our public relations campaign and in search pages where Alta Vista's technology
is employed.
OpenFind. In July 1999, we signed an agreement with OpenFind to provide
additional Chinese search functionality to our Web sites. We believe that Alta
Vista and OpenFind are two of the leading search engines for locating desired
Chinese content on the Internet and wanted one or both to be available for our
users.
ADVERTISING SALES
Sales Organization
We believe that the global Chinese Internet community is an attractive
demographic target for advertisers because it represents an affluent, educated
and technically sophisticated market. To capitalize on this advertising
opportunity, we employ a multi-pronged sales strategy that targets both
short-term revenue opportunities such as banner advertising campaigns, as well
as longer-term, high-value contracts such as integrated marketing and
communications packages.
Our primary target client base for advertisers and sponsors consists of
global corporations and Asia-focused regional companies, to which we sell from
both our corporate and regional headquarters. Global corporations are typically
Fortune 500 and 1000 companies with significant operations worldwide and employ
a global approach to their branding, marketing and communications programs.
Regional companies consist of medium to large companies that are focused on
specific geographic as well as demographic markets, such as Asian-Americans or
Taiwanese, and smaller companies whose markets are within a local territory,
such as Beijing or Hong Kong. A partial list of our advertising clients include:
Acer, AT&T, Alibaba, Asia Online, Charles Schwab, Compaq, Creative Technologies,
Dell, E*Trade, Firstrade, General Motor, HungryForWords.com, IBM, Intel, Kodak,
Legend, MindShare Communications, Motorola, Nestle, Nokia, President Enterprise,
Scottstrade Securities, TD Waterhouse, 3Com, Tianhe Network Union and Trend
Micro, Inc. In order to leverage our global resources, we have established
advertising sales centers in Hong Kong, New York and California. Salespeople in
each of these sales centers may sell a global promotions campaign to customers
for delivery on any of our Web sites.
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We have built a global sales and marketing organization of approximately
120 professionals as of June 2000.
Marketing and Brand Awareness
Our global marketing strategy is to make our brand synonymous with the
Internet for the global Chinese community of users, advertisers and merchants.
We employ a variety of methods to promote our brand, grow our membership base
and increase user loyalty, including
- a comprehensive, aggressive branding campaign through extensive
traditional media and Internet advertising;
- comprehensive global public relations program, including special event
and movie sponsorships and online VIP Chats with local and global
celebrities;
- distribution relationships; and
- strategic alliances.
We have launched a series of user loyalty programs, such as member referral
and frequent visitor rewards, with the goal of attracting new users, increasing
the frequency of visits and expanding our network's overall traffic.
SINA.COM TECHNOLOGY INFRASTRUCTURE
Our operating infrastructure is designed to serve and deliver tens of
millions of page views a day to our users. This scalable infrastructure allows
our users to access our products and services quickly and efficiently,
regardless of their geographical location. Our infrastructure is also designed
to provide high-speed access by forwarding queries to our Web hosting sites with
greater resources or lower loads. Our Web pages are generated, served and cached
by servers hosted at various co-location Web hosting sites in China, U.S.,
Taiwan and Hong Kong.
Our servers run on RedHat Linux, FreeBSD, and Solaris platforms using
Apache, Netscape and Weblogic servers. These servers are maintained at Cable and
Wireless in Santa Clara, California, Abovenet, Inc. in San Jose, California,
Beijing Telecommunications Authority in Beijing, China, China Netcom Corporation
and Shanghai Telecommunications Authority in Shanghai, China, Seednet, Hinet in
Taipei, Taiwan, HkNet, AsiaOnline and iAdvantage in Hong Kong. We believe that
these hosting partners provide significant operating advantages, including an
enhanced ability to protect our systems from power loss, break-ins and other
potential external causes of service interruption. They provide continuous
customer service, multiple connections to the Internet and a continuous power
supply to our systems. In addition, we conduct online monitoring of all our
systems for accessibility, load, system resources, network-server intrusion and
timeliness of content.
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COMPETITION
The market for Web sites offering online content and services targeting the
global Chinese community is competitive and we expect competition to increase in
the future. Many of the companies attempting to address this market offer
portal, content and e-commerce services to distinct local markets within Greater
China. The following table lists the Chinese-language Web sites that we believe
are currently our primary competitors:
<TABLE>
<CAPTION>
CHINA TAIWAN HONG KONG NORTH AMERICA
-------------- ---------------------- ----------------------- --------------
<S> <C> <C> <C> <C>
PORTALS.............. Netease Hinet HongKong.com Yahoo! Chinese
Sohu Kimo Netvigator
Capital Online Seednet PacificConvergence
Yahoo! China Yahoo! Taiwan Tom.com
Chinadotcom YAM Yahoo! Hong Kong
CONTENT.............. ChinaByte PCHome South China Morning
ChinaTimes Interactive Post Interactive
TVBS/ERA Apple Daily Interactive
United Daily Network
E-COMMERCE........... 8848.com AcerMall Boom.com
Eachnet.com
</TABLE>
We also face competition from providers of software and other Internet
products and services that incorporate search and retrieval features into their
offerings. In addition, entities that sponsor or maintain high-traffic Web sites
or that provide an initial point of entry for Internet users, such as ISPs,
including large, well-capitalized entities such as Microsoft (MSN), Yahoo!,
Cable & Wireless HKT (Netvigator) and AOL, currently offer and could further
develop or acquire content and services that compete with those that we offer.
We expect that as Internet usage in Greater China increases and the Greater
China market becomes more attractive to advertisers and for conducting
electronic commerce, large global competitors may increasingly focus their
resources on the Greater China market. We also compete for advertisers with
traditional media companies, such as newspapers, television networks and radio
stations, that have a longer history of use and greater acceptance among
advertisers. In addition, providers of Chinese language Internet tools and
services may be acquired by, receive investments from, or enter into other
commercial relationships with, large, well-established and well-financed
Internet, media or other companies. For example, America Online Inc. and Xinhua
News Agency, one of our content suppliers, are major shareholders of
Chinadotcom, News Corp Ltd. is a major shareholder of Netease.com and Intel
Corporation is a major shareholder of Sohu.com.
Our ability to compete successfully depends on many factors, including the
quality of our content, the breadth, depth and ease of use of our services, our
sales and marketing efforts and the performance of our technology. See also
"Risk Factors -- The markets in which we operate are highly competitive, and we
may be unable to compete successfully against new entrants and established
industry competitors, many of which have greater financial resources than we do
or currently enjoy a superior market position than we do."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Chinese government restricts foreign investment in Internet-related
businesses. In an effort to comply with this restriction, we have restructured
our China Internet operations by forming two Chinese entities to acquire
appropriate government licenses to conduct our business there. For a description
of the contractual arrangements we have with these entities, please see "Related
Party Transactions -- Transactions with ICP Company and Ad Company."
In the opinion of our Chinese counsel, the ownership of BSRS and its
businesses comply with existing Chinese laws and regulations. We cannot be sure
that these and other corporate activities carried out by us will be viewed by
Chinese regulatory authorities as in compliance with applicable licensing
requirements. Our business in China will be adversely affected if our business
license is revoked as a result of non-compliance.
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Non-compliance with a business license can also result in the imposition of a
fine up to RMB100,000. In addition, we cannot be sure that we will be able to
obtain all of the licenses we may need in the future or that future changes in
Chinese government policies affecting the provision of information services,
including the provision of online services and Internet access, will not impose
additional regulatory requirements on us or our service providers or otherwise
harm our business. If we are not viewed as complying with these policies or any
regulations that may be created relating to foreign ownership of
Internet-related businesses, the Chinese government could require us to
discontinue our operations in China or take other actions that could harm our
business.
We believe Chinese governmental regulation of our China operations and of
Internet content would not significantly impede our ability to compete against
other Internet companies in the Taiwan, Hong Kong or North America market
because we offer a separate and customized Web site for each of these different
markets. Within each market, we have established a local presence and entered
into arrangements with local content providers to obtain localized content, in
many cases, on a exclusive basis. As a result, users in each individual market
have access to local, regional and international news content from a variety of
sources, and are not wholly dependent on Chinese content.
In addition to business licensing and registration requirements, China is
in the process of enacting additional regulations governing Internet access and
the distribution of news and other information over Internet. In the past, the
Chinese government stopped the distribution of information through the Internet
that it believed to be inappropriate pursuant to relevant governing regulations.
If the Chinese government were to take any action to limit or prohibit the
distribution of information through our network or to limit or regulate any
current or future content or services available to users on our network, our
business would be adversely affected.
We cannot predict the effect of further developments in the Chinese legal
system, particularly with regard to the Internet, including the promulgation of
new laws, changes to existing laws or the interpretation or enforcement of laws.
For a description of how the unsettled nature of Chinese regulations may affect
our business, please see "Risk Factors -- We may not be in compliance with
Chinese government regulations relating to foreign investment prohibitions and,
if so determined, the Chinese government could cause us to discontinue our
operations in China" and "-- Even if we are in compliance with Chinese
governmental regulations relating to licensing and foreign investment
prohibitions, the Chinese government may prevent us from distributing, and we
may be subject to liability for, content that it believes is inappropriate."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy or otherwise obtain and use our technology. Monitoring unauthorized use
of our products is difficult and costly, and we cannot be certain that the steps
we have taken will prevent misappropriations of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as fully
as in the United States. From time to time, we may have to resort to litigation
to enforce our intellectual property rights, which could result in substantial
costs and diversion of our resources.
In addition, third parties may initiate litigation against us alleging
infringement of their proprietary rights. In the event of a successful claim of
infringement and our failure or inability to develop non-infringing technology
or license the infringed or similar technology on a timely basis, our business
could be harmed. In addition, even if we are able to license the infringed or
similar technology, license fees could be substantial and may adversely affect
our results of operations. See "Risk Factors -- We may not be able to adequately
protect our intellectual property, which could cause us to be less competitive"
and "-- We may be exposed to infringement claims by third parties, which, if
successful, could cause us to pay significant damage awards."
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CORPORATE STRUCTURE
SINA.com is a holding company owning a 100% interest in four subsidiaries:
- Rich Sight Investment Limited, or RSIL, a Hong Kong company,
- SINA.com (Hong Kong) Limited, a Hong Kong company,
- SINA.com Online, a California corporation, and
- SINA.com (B.V.I.) Ltd., a British Virgin Islands company.
RSIL was formed in March 1993 to hold an interest in Beijing Stone Rich
Sight Information Technology Co. Ltd., or BSRS. BSRS was formed as a
Sino-Foreign joint venture company based in Beijing, China between RSIL and a
third party, Beijing Stone Electronic Technology Co., Ltd., a China company.
BSRS began operations in December 1993 as a computer software company focused on
providing solutions to computer users wishing to communicate in Chinese. In May
1996, BSRS launched our online network, then called SRSnet.com, offering Chinese
language news, information and community features such as bulletin boards and
chat services targeted at online users in China. In July 1997, SRS International
Limited, a Cayman Island company, was formed to become the holding company for
RSIL.
In March 1999, we expanded our online network by acquiring Sinanet.com, a
leading Chinese language Internet content company with offices in California and
Taiwan and two distinct Web sites targeting Chinese users in North America and
Taiwan. In connection with the acquisition, we changed the name of Sinanet.com
to SINA.com Online and the name of the holding company from SRS International
Limited to SINA.com. In July 1999, we continued our network expansion by
launching our Hong Kong destination Web site targeting Chinese users in Hong
Kong.
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The diagram below illustrates our current operating structure:
[Sina.Com Flow Chart]
To comply with Chinese regulations, BSRS has entered into agreements with
two Chinese entities: Beijing SINA Interactive Advertising Co., Ltd., a Chinese
advertising company that is 75% owned by Yan Wang, our general manager of China
operations, and 25% owned by BSRS, and which we refer to as the Ad Company, and
Beijing SINA Internet Information Services Co., Ltd., a Chinese Internet content
provider that is 70% owned by Zhidong Wang, our president and chief executive
officer, and 30% owned by Yan Wang, and which we refer to as the ICP Company. We
have amended our employment agreements with Zhidong Wang and Yan Wang to require
that they transfer their interest in the Ad Company or ICP Company at the net
book value to us when allowed under Chinese law or to an employee or group of
employees specified by us upon termination of their employment with us. Both
entities are limited liability companies incorporated in China. In the opinion
of our Chinese counsel, the ownership of BSRS and its businesses comply with
existing Chinese laws and regulations.
Pursuant to these agreements, the ICP Company is responsible for operating
www.sina.com.cn in connection with its Internet content company license and
sells advertising space on the China Web site to the Ad Company. The Ad Company,
in turn, places advertisements in this space for third parties under its
advertising license. In addition, BSRS has licensed intellectual property and
transferred equipment to the ICP Company, and acts as the ICP Company's provider
of technical services, all in exchange for fees or other payments. BSRS also
serves as a consultant and service provider to the Ad Company for its domestic
Chinese customers. Substantially all of the income received from advertising
sales by the Ad Company and ICP Company is paid to BSRS.
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EMPLOYEES
As of June 30, 2000, we had 624 full-time employees, of whom 523 were
employed outside the United States. We sometimes need to transfer some of these
international employees to the United States on temporary or extended
assignments, which typically require a visa. From time to time we employ
independent contractors to support our production, engineering, marketing, and
sales departments. Our Chinese employees are members of a labor association that
represents employees with respect to labor disputes and other employee matters.
We have never experienced a work stoppage or a labor dispute that has interfered
with our operations.
RISK FACTORS
Because our operating history is limited and the revenue and income potential
of our business and markets are unproven, we cannot predict whether we will
meet internal or external expectations of future performance.
From our inception through September 1998, our revenues consisted entirely
of sales of our RichWin software products and licenses to copy and use these
products. We continued our software sales during fiscal 1999, but with the
launch of our online network in May 1996 and our acquisition of Sinanet.com in
March 1999, we began to devote our resources primarily to developing our online
Chinese-language network. We believe that our future success depends on our
ability to significantly increase revenue from our Internet advertising and
electronic commerce operations, for which we have a limited operating history.
Accordingly, our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in an early stage of
development. These risks include our ability to: attract advertisers; attract a
larger audience to our network; respond effectively to competitive pressures and
address the effects of strategic relationships or corporate combinations among
our competitors; maintain our current, and develop new, strategic relationships;
increase awareness of the SINA.com brand and continue to build user loyalty;
attract and retain qualified management and employees; upgrade our technology to
support increased traffic and expanded services; and expand the content and
services on our network.
We have a history of losses and we anticipate future losses.
We have never been profitable. As of June 30, 2000, we had an accumulated
deficit of approximately $63.0 million. We anticipate that we will continue to
incur operating losses for the foreseeable future due to increased sales and
marketing costs, additional personnel hires and our continuing branding
campaign. As a result, we cannot be certain when or if we will achieve
profitability. If we do not achieve or sustain profitability, the market price
of our ordinary shares may decline.
We are relying on advertising sales as a significant part of our future
revenue, but the Internet has not been proven as a source of significant
advertising revenue in Greater China.
Our revenue growth is dependent on increased revenue from the sale of
advertising space on our network and the acceptance and use of electronic
commerce. Online advertising in Greater China is an unproven business and many
of our current and potential advertisers have limited experience with the
Internet as an advertising medium, have not traditionally devoted a significant
portion of their advertising expenditures or other available funds to Web-based
advertising, and may not find the Internet to be effective for promoting their
products and services relative to traditional print and broadcast media.
According to Forrester Research, the dollar amount of the online advertising
market in China in 1999 was approximately $8.0 million. Our ability to generate
and maintain significant advertising revenue will therefore depend on a number
of factors, many of which are beyond our control, including: the development of
a large base of users possessing demographic characteristics attractive to
advertisers; downward pressure on online advertising prices; the development of
independent and reliable means of verifying levels of online advertising and
traffic; and the effectiveness of our advertising delivery, tracking and
reporting systems.
If the Internet does not become more widely accepted as a medium for
advertising, our ability to generate increased revenue will be negatively
affected.
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We are relying on electronic commerce as a significant part of our future
revenue, but the Internet has not yet been proven as an effective commerce
medium in Greater China.
Our revenue growth depends on the increasing acceptance and use of
electronic commerce in Greater China. The Internet may not become a viable
commercial marketplace in Asia for various reasons, many of which are beyond our
control, including: inexperience with the Internet as a sales and distribution
channel; inadequate development of the necessary infrastructure to facilitate
electronic commerce; concerns about security, reliability, cost, ease of
deployment, administration and quality of service associated with conducting
business over the Internet; and inexperience with credit card usage or with
other means of electronic payment in China.
If the Internet does not become more widely accepted as a medium for
electronic commerce, our ability to generate increased revenue will be
negatively affected.
Underdeveloped telecommunications infrastructure has limited and may continue
to limit the growth of the Internet market in China which, in turn, could
limit our ability to grow our business.
The telecommunications infrastructure in China is not well developed.
Although private sector ISPs exist in China, almost all access to the Internet
is accomplished through ChinaNet, China's primary commercial network, which is
owned and operated by China Telecom, a state-owned enterprise directly
controlled by China's Ministry of Information Industry. The underdeveloped
Internet infrastructure in China has limited the growth of Internet usage in
China. If the necessary Internet infrastructure is not developed, or is not
developed on a timely basis, future growth of the Internet in China will be
limited and our business could be harmed.
We must rely on the Chinese government to develop China's Internet
infrastructure and if it does not develop this infrastructure our ability to
grow our business will be hindered.
The Chinese government's interconnecting, national networks connect to the
Internet through government-owned international gateways, which are the only
channels through which a domestic Chinese user can connect to the international
Internet network. We rely on this backbone and China Telecom to provide data
communications capacity primarily through local telecommunications lines.
Although the Chinese government has announced plans to develop aggressively the
national information infrastructure, we cannot assure you that this
infrastructure will be developed. In addition, we have no guarantee that we will
have access to alternative networks and services in the event of any disruption
or failure. If the necessary infrastructure standards or protocols or
complementary products, services or facilities are not developed by the Chinese
government, the growth of our business will be hindered.
You should not rely on our quarterly operating results as an indication of our
future performance because our results of operations are subject to
significant fluctuations.
We may experience significant fluctuations in our quarterly operating
results due to a variety of factors, many of which are outside our control.
Factors that may cause our quarterly operating results to fluctuate include: our
ability to retain existing users, attract new users at a steady rate and
maintain user satisfaction; the announcement or introduction of new or enhanced
services, content and products by us or our competitors; dependence on a limited
number of advertisers, the majority of which have agreements with us that are
cancelable upon a specified notice period, and the loss of any major advertiser;
significant news events that increase traffic to our Web sites; technical
difficulties, system downtime or Internet failures; demand for advertising space
from advertisers; the amount and timing of operating costs and capital
expenditures relating to expansion of our business, operations and
infrastructure; governmental regulation; seasonal trends in Internet use; a
shortfall in our revenues relative to our forecasts and a decline in our
operating results due to our inability to adjust our spending quickly; and
general economic conditions and economic conditions specific to the Internet,
electronic commerce and the Greater China market.
As a result of these and other factors, you should not rely on
quarter-to-quarter comparisons of our operating results as indicators of likely
future performance. Our operating results may be below the
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expectations of public market analysts and investors in one or more future
quarters. If that occurs, the price of our ordinary shares could decline and you
could lose part or all of your investment.
Political and economic conditions in Greater China are unpredictable and may
disrupt our operations if these conditions become unfavorable to our business.
We expect to derive a substantial percentage of our revenues from the
Greater China market. Changes in political or economic conditions in the region
are difficult to predict and could adversely affect our operations or cause the
Greater China market to become less attractive to advertisers, which could
reduce our revenues. We maintain a strong local identity and presence in each of
the regions in the Greater China market and we cannot be sure that we would be
able to maintain effectively this local identity if political conditions were to
change. Furthermore, many countries in Asia have experienced significant
economic downturns since the middle of 1997, resulting in slower real gross
domestic product growth for the entire region as a result of higher interest
rates and currency fluctuations. If declining economic growth rates persist,
expenditures for Internet access, infrastructure improvements and advertising
could decrease, which would negatively affect our business and our profitability
over time. In addition, the economic downturn in Asia could also lead to a
devaluation of the currency of China, Taiwan or Hong Kong, which would decrease
our revenues for the Greater China region in U.S. dollar terms.
In addition, economic reforms in the region could affect our business in
ways that are difficult to predict. For example, since the late 1970s, the
Chinese government has been reforming the Chinese economic system to emphasize
enterprise autonomy and the utilization of market mechanisms. Although we
believe that these reforms measures have had a positive effect on the economic
development in China, we cannot be sure that they will be effective or that they
will benefit our business.
We may be adversely affected by Chinese government regulation of Internet
companies.
China has recently begun to regulate its Internet sector by making
pronouncements or enacting regulations regarding the legality of foreign
investment in the Chinese Internet sector, the existence and enforcement of
content restrictions on the Internet and the availability of securities
offerings by companies operating in the Chinese Internet sector. In the opinion
of our Chinese counsel, the ownership of BSRS and its businesses comply with
existing Chinese laws and regulations. There are, however, substantial
uncertainties regarding the proper interpretation of current and future Chinese
Internet laws and regulations.
Issues, risks and uncertainties relating to China government regulation of
the Chinese Internet sector include the following:
A prohibition of foreign investment in businesses providing value-added
telecommunication services, including computer information services or
electronic mail box services, may be applied to Internet businesses such as
ours. Some officials of the Chinese Ministry of Information, or MII, have taken
the position that foreign investment in the Internet sector is prohibited.
The MII has also stated recently that it intends to adopt new laws or
regulations governing foreign investment in the Chinese Internet sector in the
near future. If these new laws or regulations forbid foreign investment in the
Internet sector, our business will be severely impaired.
According to press reports, under the agreement reached in November 1999
between China and the United States concerning the United States' support of
China's entry into the World Trade Organization, or WTO, foreign investment in
Chinese Internet services will be liberalized to allow for 49% foreign ownership
in key telecommunication services, including Chinese Internet ventures, for the
first two years after China's entry into the WTO and 50% thereafter. Even if the
terms of this agreement are as reported, the agreement is still subject to
approval by the U.S. President and faces domestic opposition from trade unions,
environmentalists and human rights organizations.
The MII has also stated recently that the activities of Internet content
providers are also subject to regulation by various Chinese government
authorities, depending on the specific activities conducted by the Internet
content provider. According to press reports, various government authorities are
in the process of
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preparing new laws and regulations that will govern these activities. The areas
of regulation may include online advertising and online news reporting. In
addition, the new laws and regulations may require various Chinese government
approvals for securities offerings by companies engaged in the Internet sector
in China.
The interpretation and application of existing Chinese laws and
regulations, the stated positions of the MII and the possible new laws or
regulations have created substantial uncertainties regarding the legality of
existing and future foreign investments in, and the businesses and activities
of, Chinese Internet businesses, including our business.
Accordingly, it is possible that the relevant Chinese authorities could, at
any time, assert that any portion or all of our existing or future ownership
structure and businesses, or this offering, violates existing or future Chinese
laws and regulations. It is also possible that the new laws or regulations
governing the Chinese Internet sector that may be adopted in the future will
prohibit or restrict foreign investment in, or other aspects of, any of our
current or proposed businesses and operations or require governmental approvals
for this offering. In addition, these new laws and regulations may be
retroactively applied to us.
If we are found to be in violation of any existing or future Chinese laws
or regulations, the relevant Chinese authorities would have broad discretion in
dealing with such a violation, including, without limitation, the following:
levying fines; revoking our business license; requiring us to restructure our
ownership structure or operations; and requiring us to discontinue any portion
or all of our Internet business. Any of these actions could cause our business
to suffer and the price of our ordinary share to decline.
We have attempted to comply with the strict licensing and registration
requirements of the PRC government by entering into agreements with two
Chinese entities majority owned by our employees; if the PRC government finds
that these agreements do not comply with the licensing requirements, our
business in the PRC will be adversely affected.
Because the Chinese government restricts foreign investment in
Internet-related businesses, we have restructured our China Internet operations
by forming two Chinese entities to acquire appropriate government licenses to
conduct our business there. The legal uncertainties associated with the Chinese
government regulation may be summarized as follows: whether the Chinese
government may view our restructuring as being in compliance with their
regulations; whether the Chinese government may revoke such business licenses;
whether the Chinese government may impose additional regulatory requirements
with which we may not be in compliance; whether the Chinese government will
permit the Chinese entities to acquire future licenses necessary in order to
conduct operations in China; and whether the Chinese government will restrict or
prohibit the distribution of content over the Internet.
The Chinese government regulates Internet access and the distribution of
news and other information through strict business licensing and registration
requirements and other governmental regulation. With respect to licensing, our
subsidiary Beijing Stone Rich Sight Information Technology Co. Ltd., or BSRS, is
currently licensed to operate as a software company. BSRS has entered into
agreements with two Chinese entities: Beijing SINA Interactive Advertising Co.,
Ltd., a Chinese advertising company that is 75% owned by Yan Wang, our general
manager of China operation, and 25% owned by BSRS, and which we refer to as the
Ad Company, and Beijing SINA Internet Information Services Co., Ltd., a Chinese
Internet content provider that is 70% owned by Zhidong Wang, our president and
chief executive officer and 30% owned by Yan Wang and which we refer to as the
ICP Company.
Pursuant to these agreements, the ICP Company is responsible for operating
www.sina.com.cn in connection with its Internet content company license and will
sell advertising space on www.sina.com.cn to the Ad Company. The Ad Company, in
turn, will sell advertisements in this space to third parties under its
advertising license. In addition, BSRS has licensed intellectual property and
transferred equipment to the ICP Company, and acts as the ICP Company's provider
of technical services, all in exchange for fees or other payments. BSRS will
also be a consultant and service provider to the Ad Company for its domestic
Chinese customers.
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We cannot be sure that these and other corporate activities carried out by
us will be viewed by Chinese regulatory authorities as in compliance with
applicable licensing requirements. Our business in China will be adversely
affected if our business license is revoked as a result of non-compliance. In
addition, we cannot be sure that we will be able to obtain all of the licenses
we may need in the future or that future changes in Chinese government policies
affecting the provision of information services, including the provision of
online services and Internet access, will not impose additional regulatory
requirements on us or our service providers or otherwise harm our business.
We depend upon contractual arrangements with the Ad Company and the ICP
Company for the success of our operations in China and these arrangements may
not be as effective in providing operational control as direct ownership of
these businesses.
Because we are restricted by the Chinese government from providing Internet
and advertising services directly in China, we are dependent on the Ad Company,
of which we own 25% and the ICP Company, of which we have no ownership interest,
to provide such services through contractual agreements between the parties.
This arrangement may not be as effective in providing control over advertising
and Internet content operations in China as direct ownership of these
businesses. For example, the Ad Company or ICP Company could fail to take
actions required for our business, such as entering into advertising contracts
with potential customers or failing to maintain our China Web site. The ICP
Company will also be able to transact business with third parties not affiliated
with BSRS. If the Ad Company or ICP fails to perform its obligations under these
agreements, we would potentially have to rely on legal remedies under Chinese
law, which we cannot be sure would be effective.
The ICP Company is controlled by Zhidong Wang, our president and chief
executive officer. As a result, our contractual relationships with the ICP
Company would be viewed as entrenching his management position or transferring
certain value to him, especially if any conflict arose with him.
We may not be in compliance with Chinese government regulations relating to
foreign investment prohibitions and, if so determined, the Chinese government
could cause us to discontinue our operations in China.
Chinese government policy prohibits foreign investment in the
telecommunications services industry, which he has defined to include
Internet-related businesses. While we believe that we are in compliance with
current Chinese government policies, we cannot be sure that the government will
view our business as in compliance with these policies or any policies that may
be made in the future. If we are not viewed as complying with these policies or
any regulations that may be created relating to foreign ownership of Internet-
related businesses, the Chinese government could require us to discontinue our
operations in China or take other actions that could harm our business.
Even if we are in compliance with Chinese governmental regulations relating to
licensing and foreign investment prohibitions, the Chinese government may
prevent us from distributing, and we may be subject to liability for, content
that it believes is inappropriate.
China has enacted regulations governing Internet access and the
distribution of news and other information. In the past, the Chinese government
has stopped the distribution of information over the Internet that it believes
to violate Chinese law, including content that is obscene, incites violence,
endangers national security, is contrary to the national interest or is
defamatory. In addition, we may not publish certain news items, such as news
relating to national security, without permission from the Chinese government.
Furthermore, the Ministry of Public Security has the authority to cause any
local Internet service provider to block any Web site maintained outside China
at its sole discretion. Even if we comply with Chinese governmental regulations
relating to licensing and foreign investment prohibitions, if the Chinese
government were to take any action to limit or prohibit the distribution of
information through our network or to limit or regulate any current or future
content or services available to users on our network, our business would be
harmed.
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In addition, under recently adopted regulations, Internet companies which
provide bulletin board systems, chat rooms or similar services, such as our
company, must apply for the approval of the State Secrecy Bureau. As the
implementing rules of these new regulations have not been issued, however, we do
not know how or when we will be expected to comply. We cannot assure you that
our business, financial condition and results of operations will not be
materially and adversely affected by the application of these regulations.
We are also subject to potential liability for content on our Web sites
that is deemed inappropriate and for any unlawful actions of our subscribers and
other users of our systems under regulations promulgated by the Chinese Ministry
of Information and Industry. Furthermore, we are required to delete content that
clearly violates the laws of China and report content that we suspect may
violate Chinese law. It is difficult to determine the type of content that may
result in liability for us, and if we are wrong, we may be prevented from
operating our Web sites.
We may have to register our encryption software with Chinese regulatory
authorities, and if they request that we change our encryption software, our
business operations will be disrupted as we develop or license replacement
software.
Pursuant to the Regulations for the Administration of Commercial Encryption
promulgated at the end of 1999, foreign and domestic Chinese companies operating
in China are required to register and disclose to Chinese regulatory authorities
the commercial encryption products they use. Because these regulations have just
recently been adopted and because they do not specify what constitutes
encryption products, we are unsure as to whether or how they apply to us and the
encryption software we utilize. We may be required to register, or apply for
permits with the relevant Chinese regulatory authorities for, our current or
future encryption software. If Chinese regulatory authorities request that we
change our encryption software, we may have to develop or license replacement
software, which could disrupt our business operations.
The markets in which we operate are highly competitive, and we may be unable
to compete successfully against new entrants and established industry
competitors, many of which have greater financial resources than we do or
currently enjoy a superior market position than we do.
The Asian market for Internet content and services is competitive and
rapidly changing. Barriers to entry are minimal, and current and new competitors
can launch new Web sites at a relatively low cost. Many companies offer Chinese
language content and services, including informational and community features,
and email and electronic commerce services in the Greater China market that may
be competitive with our future offerings. We also face competition from
providers of software and other Internet products and services that incorporate
search and retrieval features into their offerings. In addition, entities that
sponsor or maintain high-traffic Web sites or that provide an initial point of
entry for Internet users, such as ISPs, including large, well-capitalized
entities such as Microsoft (MSN), Yahoo!, Cable & Wireless HKT (Netvigator) and
AOL, currently offer and could further develop or acquire content and services
that compete with those that we offer. We expect that as Internet usage in
Greater China increases and the Greater China market becomes more attractive to
advertisers and for conducting electronic commerce, large global competitors may
increasingly focus their resources on the Greater China market. We also compete
for advertisers with traditional media companies, such as newspapers, television
networks and radio stations, that have a longer history of use and greater
acceptance among advertisers. In addition, providers of Chinese language
Internet tools and services may be acquired by, receive investments from or
enter into other commercial relationships with large, well-established and
well-financed Internet, media or other companies. For example, America Online
Inc. and Xinhua News Agency, one of our content suppliers, are major
shareholders of Chinadotcom, Intel Corporation is a major shareholder of
Sohu.com, and News Corp Ltd. is a major shareholder of Netease.com.
A number of our current and potential future competitors have greater name
recognition, larger customer bases and greater financial and other resources
than we have, and may be able to more quickly react to changing consumer
requirements and demands, deliver competitive services at lower prices and more
effectively respond to new Internet technologies or technical standards.
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<PAGE> 21
Increased competition could result in reduced page views, loss of market
share and lower profit margins from reduced pricing for Internet-based services.
If we fail to develop successfully and introduce new products and services,
our competitive position and ability to generate revenues will be harmed.
We are developing new products and services. The planned timing or
introduction of new products and services is subject to risks and uncertainties.
Actual timing may differ materially from original plans. Unexpected technical,
operational, distribution or other problems could delay or prevent the
introduction of one or more of our new products or services. Moreover, we cannot
be sure that any of our new products and services will achieve widespread market
acceptance or generate incremental revenue.
We have contracted with third parties to provide content and services for our
portal network and to distribute our software, and we may lose users and
revenue if these arrangements are terminated.
We have arrangements with a number of third parties to provide content and
services to our Web sites and to distribute our software. In the area of
content, we have relied and will continue to rely almost exclusively on third
parties for content that we publish under the SINA brand. Although no single
third party content provider is critical to our operations, if these parties
fail to develop and maintain high-quality and successful media properties, or if
a large number of our existing relationships are terminated, we could lose users
and advertisers and our brand could be harmed.
In the area of Web-based services, we have contracted with AltaVista and
OpenFind for integrated Web search technology to complement our directory and
navigational guide, and with Critical Path for our email services and
third-party providers for our principal Internet connections. If we experience
significant interruptions or delays in service, or if these agreements terminate
or expire, we may incur additional costs to develop or secure replacement
services and our relationship with our users could be harmed.
We depend on a third party's proprietary and licensed advertising serving
technology to deliver advertisements to our network. If the third party fails to
continue to support its technology or if its services fail to meet the
advertising needs of our customers and we cannot find an alternative solution on
a timely basis, our advertising revenue would decline.
In order to create traffic for our online properties and make them more
attractive to advertisers and consumers, we have entered into distribution
agreements and informal relationships with ISPs and personal computer
manufacturers for the distribution of our software. These distribution
arrangements typically are non-exclusive, and may be terminated upon little or
no notice. If our software distributors were to terminate or modify their
distribution arrangements, our ability to promote our network and generate
revenue could be harmed.
Our business and growth will suffer if we are unable to hire and retain key
personnel that are in high demand.
We depend upon the continued contributions of our senior management and
other key personnel, many of whom are difficult to replace. The loss of the
services of any of our executive officers or other key employees could harm our
business. We have experienced changes to our executive management team.
Following our acquisition of Sinanet.com, James Sha served as our chief
executive officer from March 1999 to August 1999. Mr. Sha resigned as chief
executive officer on August 31, 1999 and resigned as a member of our Board of
Directors on September 26, 1999. In August 1999, Zhidong Wang, who has served as
our president since October 1997, was promoted to the position of chief
executive officer. We had two chief financial officers resign in 1999. In
November 1999, Victor Lee joined us as chief financial officer. Our future
success will also depend on our ability to attract and retain highly skilled
technical, managerial, editorial, marketing and customer service personnel,
especially qualified personnel for our international operations in Greater
China. In particular, we have experienced difficulty in hiring and retaining
qualified personnel for our Hong Kong office and may experience similar problems
in our other regional offices. Qualified individuals are in high demand, and we
may not be able to successfully attract, assimilate or retain the personnel we
need to succeed.
20
<PAGE> 22
We may not be able to manage our expanding operations effectively, which could
harm our business.
We anticipate significant expansion of our business as we address growth in
our customer base and market opportunities. In addition, the geographic
dispersion of our operations requires significant management resources that our
locally-based competitors do not need to devote to their operations. In order to
manage the expected growth of our operations and personnel, we will be required
to improve existing and implement new operational and financial systems,
procedures and controls, and to expand, train and manage our growing employee
base. Further, our management will be required to maintain and expand our
relationships with various other Web sites, Internet and other online service
providers and other third parties necessary to our business. We cannot assure
you that our current and planned personnel, systems, procedures and controls
will be adequate to support our future operations.
Concerns about the security of electronic commerce transactions and
confidentiality of information on the Internet may reduce use of our network
and impede our growth.
A significant barrier to electronic commerce and communications over the
Internet in general has been public concern over security and privacy,
especially the transmission of confidential information. If these concerns are
not adequately addressed, they may inhibit the growth of the Internet and other
online services generally, especially as a means of conducting commercial
transactions. If a well-publicized Internet breach of security were to occur,
general Internet usage could decline, which could reduce traffic to our
destination sites and impede our growth.
Currency fluctuations and restrictions on currency exchange may adversely
affect our business, including limiting our ability to convert Chinese renminbi
into foreign currencies and, if renminbi were to decline in value, reducing our
revenues in U.S. dollar terms.
We generate revenues and incur expenses and liabilities in Chinese
renminbi, Taiwan dollars, Hong Kong dollars, and U.S. dollars. We generated most
of our revenues for fiscal 1999 in renminbi since all of our revenues were
derived from our China operations until our acquisition of Sinanet.com in March
1999. In the future, we may also conduct business in additional foreign
countries and generate revenues and incur expenses and liabilities in other
foreign currencies. As a result, we are subject to the effects of exchange rate
fluctuations with respect to any of these currencies. For example, the value of
the renminbi depends to a large extent on China's domestic and international
economic and political developments, as well as supply and demand in the local
market. Since 1994, the official exchange rate for the conversion of renminbi to
U.S. dollars has generally been stable and the renminbi has appreciated slightly
against the U.S. dollar. However, given recent economic instability and currency
fluctuations in Asia, we can offer no assurance that the renminbi will continue
to remain stable against the U.S. dollar or any other foreign currency. Our
results of operations and financial condition may be affected by changes in the
value of renminbi and other currencies in which our earnings and obligations are
denominated. We have not entered into agreements or purchased instruments to
hedge our exchange rate risks, although we may do so in the future.
Although Chinese governmental policies were introduced in 1996 to allow the
convertibility of renminbi into foreign currency for current account items,
conversion of renminbi into foreign exchange for capital items, such as foreign
direct investment, loans or security, requires the approval of the State
Administration of Foreign Exchange, or SAFE, which is under the authority of the
People's Bank of China. These approvals, however, do not guarantee the
availability of foreign currency. We cannot be sure that we will be able to
obtain all required conversion approvals for our operations or that Chinese
regulatory authorities will not impose greater restrictions on the
convertibility of the renminbi in the future. Because a significant amount of
our future revenues may be in the form of renminbi, our inability to obtain the
requisite approvals or any future restrictions on currency exchanges will limit
our ability to utilize revenue generated in renminbi to fund our business
activities outside China.
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<PAGE> 23
Our operations could be disrupted by unexpected network interruptions caused by
system failures, natural disasters or unauthorized tamperings with our systems.
The continual accessibility of our Web sites and the performance and
reliability of our network infrastructure are critical to our reputation and our
ability to attract and retain users, advertisers and merchants. Any system
failure or performance inadequacy that causes interruptions in the availability
of our services or increases the response time of our services could reduce our
appeal to advertisers and consumers. Factors that could significantly disrupt
our operations include: system failures and outages caused by fire, floods,
earthquakes, power loss, telecommunications failures and similar events;
software errors; computer viruses, break-ins and similar disruptions from
unauthorized tampering with our computer systems; and security breaches related
to the storage and transmission of proprietary information, such as credit card
numbers or other personal information.
We have limited backup systems and redundancy. Recently, we experienced an
unauthorized tampering of the mail server of our China Web site which briefly
disrupted our operations. Future disruptions or any of the foregoing factors
could damage our reputation, require us to expend significant capital and other
resources and expose us to a risk of loss or litigation and possible liability.
We do not carry sufficient business interruption insurance to compensate for
losses that may occur as a result of any of these events. Accordingly, our
revenues and results of operations may be adversely affected if any of the above
disruptions should occur.
The law of the Internet remains largely unsettled, which subjects our business
to legal uncertainties that could harm our business.
Due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for electronic commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for our products and services and
increase our cost of doing business.
Moreover, the applicability to the Internet and other online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. For example, tax authorities in a number of states in
the U.S. are currently reviewing the appropriate tax treatment of companies
engaged in electronic commerce, and new state tax regulations may subject us to
additional state sales and income taxes. Any new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and other online services could significantly
disrupt our operations.
We may be subject to claims based on the content we provide over our network
and the products and services sold on our network, which, if successful, could
cause us to pay significant damage awards.
As a publisher and distributor of content and a provider of services over
the Internet, we face potential liability for: defamation, negligence,
copyright, patent or trademark infringement and other claims based on the nature
and content of the materials that we publish or distribute; the selection of
listings that are accessible through our branded products and media properties,
or through content and materials that may be posted by users in our classifieds,
message board and chat room services; losses incurred in reliance on any
erroneous information published by us, such as stock quotes, analyst estimates
or other trading information; unsolicited email, lost or misdirected messages,
illegal or fraudulent use of email or interruptions or delays in email service;
and product liability, warranty and similar claims to be asserted against us by
end users who purchase goods and services through our SinaMall and any future
electronic commerce services we may offer.
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<PAGE> 24
We may incur significant costs in investigating and defending any potential
claims, even if they do not result in liability. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or be adequate enough to indemnify us against all potential liabilities.
Privacy concerns may prevent us from selling demographically targeted
advertising in the future and make us less attractive to advertisers.
We collect personal data from our user base in order to understand better
our users and their needs and to help our advertisers target specific
demographic groups. If privacy concerns or regulatory restrictions prevent us
from selling demographically targeted advertising, we may become less attractive
to advertisers. For example, as part of our future advertisement delivery
system, we may integrate user information such as advertisement response rate,
name, address, age or email address, with third-party databases to generate
comprehensive demographic profiles for individual users. In Hong Kong, however,
we would be in violation of the Hong Kong Personal Data Ordinance unless
individual users expressly consented to this integration of their personal
information. The Ordinance provides that an Internet company may not collect
information on its users, analyze the information for a profile of the user's
interests and sell or transmit the profiles to third parties for direct
marketing purposes without the user's consent. If we are unable to construct
demographic profiles for Internet users because they refuse to give consent, we
will be less attractive to advertisers and our business will suffer.
We may not be able to adequately protect our intellectual property, which could
cause us to be less competitive.
We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy or otherwise obtain and use our technology. Monitoring unauthorized use
of our products is difficult and costly, and we cannot be certain that the steps
we have taken will prevent misappropriations of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as fully
as in the United States. From time to time, we may have to resort to litigation
to enforce our intellectual property rights, which could result in substantial
costs and diversion of our resources.
We may be exposed to infringement claims by third parties, which, if
successful, could cause us to pay significant damage awards.
Third parties may initiate litigation against us alleging infringement of
their proprietary rights. In the event of a successful claim of infringement and
our failure or inability to develop non-infringing technology or license the
infringed or similar technology on a timely basis, our business could be harmed.
In addition, even if we are able to license the infringed or similar technology,
license fees could be substantial and may adversely affect our results of
operations.
We may be classified as a passive foreign investment company or as a foreign
personal holding company, which could result in adverse U.S. tax consequences
to you.
Based upon the nature of our income and assets, we may be classified as a
passive foreign investment company, or PFIC, or as a foreign personal holding
company, or FPHC, by the United States Internal Revenue Service for U.S. federal
income tax purposes. This characterization could result in adverse U.S. tax
consequences to you. For example, if we are a PFIC, our U.S. investors will
become subject to increased tax liabilities under U.S. tax laws and regulations
and will become subject to more burdensome reporting requirements. We believe
that we were not a PFIC or an FPHC for 1999 or previous years, and we do not
expect to be either in the future. However, the determination of whether or not
we are a PFIC or an FPHC is made on an annual basis, and those determinations
depend on the composition of our income and assets, in the case of the PFIC
rules, and income and shareholders, in the case of the FPHC rules, from time to
time. Although in the past we have operated our business, and in the future we
intend to operate our business so as to minimize the risk of PFIC or FPHC
treatment, you should be aware that certain factors that could affect our
classification as PFIC or FPHC are out of our control. For example, the
calculation of assets for purposes
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<PAGE> 25
of the PFIC rules depends in large part upon the amount of our goodwill, which
in turn is based, in part, on the then market value of our shares, which is
subject to change. Similarly, the composition of our income and assets is
affected by the extent to which we spend the cash we have raised on acquisitions
and capital expenditures. Therefore, we cannot be sure that we will not be a
PFIC or an FPHC for the current or any future taxable year.
The possible sale of a substantial number of shares in the public market could
adversely affect the price for our shares.
If our shareholders sell substantial amounts of our ordinary shares,
including shares issued upon the exercise of outstanding options and warrants,
in the public market, the market price of our ordinary shares could fall
dramatically. Currently, approximately 35,000,000 shares are held by our
existing shareholders which may be sold in the public market in the future
pursuant to, and subject to the restrictions of, Rule 144, 144(k), 145 or 701
under the Securities Act. Our directors, executive officers and our principal
shareholders have agreed with our underwriters not to offer, sell, contract to
sell, or otherwise dispose of, directly or indirectly, any ordinary shares, or
any securities convertible into or exercisable or exchangeable for ordinary
shares for a period of 180 days following our initial public offering. This
period expires on October 9, 2000.
ITEM 2: PROPERTIES
Our executive offices are located in Hong Kong. In Hong Kong, we have
entered into a three-year lease agreement that began in December 1999. We are
currently leasing our existing facility in Hong Kong on a monthly basis. In
Sunnyvale, California, we have entered into a sublease agreement that expires on
February 7, 2002. In Beijing, we have offices under three lease agreements and
are looking for additional facilities to accommodate our rapid expansion. We do
not believe that we will face difficulty in finding such additional facilities.
We have entered into a lease agreement for our Taipei office which we have
renewed through 2001.
ITEM 3: LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Extraordinary General Meeting of Shareholders held on
April 10, 2000, the following proposals were presented to shareholders and
adopted by the margins indicated:
<TABLE>
<CAPTION>
VOTED
VOTED FOR AGAINST ABSTAIN
---------- ------- ---------
<S> <C> <C> <C> <C>
1. To approve the Amended and Restated Memorandum and 21,688,808 3,810 1,409
Articles of Association to eliminate Series B
Ordinary Shares and to delete certain provisions
relating to Hong Kong stock exchange requirements,
effective the Company's initial public offering of
the Company's Ordinary Shares.
2. To adopt and approve the restructuring of Beijing 20,188,809 3,810 1,501,408
Stone Rich Sight Information Technology Co. Ltd.
("BSRS") and the BSRS arrangements with Beijing SINA
Interactive Advertising Co., Ltd. and Beijing SINA
Internet Information Securities Co., Ltd. and to
empower the executives of the Company to make
necessary changes to the arrangements so long as
such changes are approved by an independent
committee of Directors.
</TABLE>
No other matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
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<PAGE> 26
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) Market Information
SINA.com Ordinary Share is quoted on the Nasdaq National Market System
under the symbol SINA since April 13, 2000. The following table sets forth the
high and low closing sales prices of the Company's Ordinary Share for the fiscal
year ended June 30, 2000 as reported on the Nasdaq Stock Market:
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fourth Quarter (ended 6/30/00).............................. $54.5 $17.0
</TABLE>
The Closing price of the Company's Ordinary Share on the Nasdaq Stock
Market on September 15, 2000 was $20.06.
(b) Holders
As of September 15, 2000, the Company had approximately 424 shareholders of
record.
(c) Dividends
The Company has not declared or paid any cash dividends on its Ordinary
Share at any time and has no present plans to do so in the future.
(d) Report of offering securities and use of proceeds therefrom
On April 13, 2000, in connection with the Company's initial public
offering, a Registration Statement on Form F-1 (No. 333-11718) was declared
effective by the Securities and Exchange Commission, pursuant to which 4,600,000
shares of the Company's Ordinary Share were offered and sold for the account of
the Company at a price of $17.00 per share, generating gross offering proceeds
of $78.2 million. The managing underwriters were Morgan Stanley Dean Witter,
China International Capital Corporation, Chase H&Q and Robertson Stephens.
The Company incurred the following expenses in connection with the
offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions...................... $5,474,000
Other expenses.............................................. 3,907,000
----------
Total Expenses.............................................. $9,381,000
</TABLE>
All of such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total expenses
above were approximately $68,819,000. Approximately $27,454,000 of the proceeds
was invested in short-term corporate notes and bonds and the remaining proceeds
are being used as working capital or are included within cash and cash
equivalents.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and notes
thereto and the other information contained in this Form 10-K.
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<PAGE> 27
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------ ------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Advertising..................................... $ 11,013 $ 561 $ -- $ -- $ --
Software products............................... 2,943 2,248 2,499 942 430
E-commerce...................................... 214 18 -- -- --
-------- ------- ------ ------- ------
14,170 2,827 2,499 942 430
-------- ------- ------ ------- ------
Cost of revenues:
Advertising..................................... 8,950 1,156 -- -- --
Software products............................... 1,640 1,285 674 325 82
E-commerce...................................... 325 32 -- -- --
Stock-based compensation........................ 605 32 -- -- --
-------- ------- ------ ------- ------
11,520 2,505 674 325 82
-------- ------- ------ ------- ------
Gross profit...................................... 2,650 322 1,825 617 348
-------- ------- ------ ------- ------
Operating expenses:
Sales and marketing............................. 17,476 1,405 622 210 121
Product development............................. 7,358 1,512 452 155 120
General and administrative...................... 6,951 2,085 941 371 268
Stock-based compensation........................ 18,460 3,360 -- 1,737 --
Amortization of intangible assets............... 6,807 1,745 43 -- --
-------- ------- ------ ------- ------
57,052 10,107 2,058 2,473 509
-------- ------- ------ ------- ------
Loss from operations.............................. $(54,402) $(9,785) $ (233) $(1,856) $ (161)
======== ======= ====== ======= ======
Net loss attributable to ordinary shareholders.... $(51,067) $(9,394) $ (253) $(1,868) $ (113)
======== ======= ====== ======= ======
Basic and diluted net loss per share attributable
to ordinary shareholders........................ $ (3.44) $ (1.72) $ (.05) $ (4.42) $(10.8)
======== ======= ====== ======= ======
Shares used in computing basic and diluted net
loss per share.................................. 14,836 5,466 4,962 423 10.5
======== ======= ====== ======= ======
Pro forma for conversion of preference shares
basic and diluted net loss per share............ $ (1.58)
========
Shares used in computing pro forma basic and
diluted net loss per share...................... 32,281
========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 99,149 $20,571 $5,090 $ 239 $ 223
Working capital (deficit)......................... 125,867 24,057 5,268 133 (421)
Total assets...................................... 156,038 47,582 6,685 777 533
Mandatorily redeemable convertible preference
shares and warrants............................. -- 37,415 6,004 -- --
Total shareholders' equity (deficit).............. 146,817 7,703 (5) 203 (337)
</TABLE>
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<PAGE> 28
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are signified by the
words "expect", "anticipate", "intend", "believe", or similar language. All
forward-looking statements included in this documents are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. In evaluating our business,
you should carefully consider the information set forth below under the caption
"Risk Factors" set forth herein. We caution you that our businesses and
financial performance are subject to substantial risks and uncertainties.
OVERVIEW
We are a leading Internet media and services company for Chinese
communities worldwide, offering a full array of Chinese-language news,
entertainment, e-commerce platforms, financial information, and lifestyle tips.
One of our subsidiaries, Beijing Stone Rich Sight Information Technology Co.
Ltd., or BSRS, a Sino-Foreign joint venture company based in Beijing, China,
began operations in December 1993 as a computer software company focused on
providing solutions to computer users wishing to communicate in Chinese. In May
1996, we launched our online network, then called SRSnet.com, offering
Chinese-language news, information and community features such as bulletin
boards and chat services targeted at online users in China. In March 1999, we
expanded our online network by acquiring Sinanet.com, a leading Chinese-
language Internet content company with offices in California and Taiwan and two
distinct Web sites targeting Chinese users in North America and Taiwan. In July
1999, we continued our network expansion by launching our Hong Kong destination
Web site targeting Chinese users in Hong Kong. Today, we operate separate Web
sites in China, Hong Kong, Taiwan, and North America to provide global content
and services that speak directly to the audience of each region, enriching the
online experience of their users.
We derive our revenues from several sources, including online Internet
advertising, software sales, and e-commerce. Advertising revenues are derived
principally from advertising arrangements under which we receive revenues on a
cost-per-thousand impression basis, fixed payment sponsorship from advertisers,
and design of advertising campaigns to be placed on our network. We derive our
software revenues from sales of our software products primarily in China and
Hong Kong through our network of OEM partners, value-added resellers,
distributors, retail merchants, and our direct sales force. Our e-commerce
revenues are mainly derived from transaction and setup fees paid by merchants
for selling their goods at our online mall, SinaMall.
Our overall revenues were $14.2 million for the year ended June 30, 2000,
as compared to $2.8 million and $2.5 million for the years ended June 30, 1999
and 1998, respectively. The increase in revenues was primarily driven by high
growth of our Internet advertising business.
We have incurred significant net losses and negative cash flows from
operations since our inception. As of June 30, 2000, we had an accumulated
deficit of $63.0 million. These losses have been funded primarily through the
issuance of our equity securities in the private and public market. We intend to
continually increase our spending on marketing and brand development, content
enhancements and technology and infrastructure. We anticipate net losses and
negative cash flows from operations in the foreseeable future.
We recorded cumulative deferred stock compensation of approximately $37.5
million, net through June 30, 2000, which represents the difference between the
exercise price of options granted through June 30, 2000 and the fair market
value of the underlying stock at the date of grant. Deferred stock compensation
is amortized on an accelerated basis over the vesting period of the applicable
options, which is generally four years. The amortization of deferred
compensation was $19.1 million and $3.4 million in fiscal 2000 and 1999,
respectively. We expect the amortization of deferred compensation to approximate
$8.2 million for fiscal 2001, $4.4 million for fiscal 2002, $2.0 million for
fiscal 2003 and $0.2 million for fiscal 2004.
On March 29, 1999, we acquired Sinanet.com. The fair value of the total
consideration paid in the acquisition, including assumed liabilities of
approximately $4.3 million and acquisition costs of $0.1 million,
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<PAGE> 29
was $21.7 million. The $4.3 million in liabilities that we assumed included $3.5
million of notes payable which were subsequently converted into our Series A4
preference shares. We accounted for the acquisition as a purchase. We recorded
goodwill and other intangible assets of approximately $20.3 million as a result
of this transaction, which are being amortized over a three-year period.
On August 31, 1999, we entered into an agreement with AdForce, Inc. and
Compuserve Consultants, Ltd. to form a joint venture to provide outsourced,
centralized advertising management and delivery services on the Internet for
customers primarily using the Chinese language in China, Hong Kong, Taiwan and
Singapore. In December 1999, we invested $1.4 million in cash for a 35.4%
interest in the joint venture. We account for our investment in the joint
venture using the equity method of accounting. During the year ended June 30,
2000, we recorded $501,000 loss from our investment in the joint venture.
In April 2000, the Company sold 4,600,000 ordinary shares in an
underwritten initial public offering, inclusive of 600,000 ordinary shares
through the exercise of the underwriter's over-allotment option for net proceeds
of approximately $72.7 million, before offering expenses.
RESULTS OF OPERATIONS
Net Revenues
Advertising. We began to generate revenues from Internet advertising in
the second quarter of fiscal 1999. We generated $11.0 million and $0.6 million
in advertising revenues for the years ended June 30, 2000 and 1999,
respectively. For the years ended June 30, 2000 and 1999, barter revenues
accounted for 1.3% and less than 1%, respectively, of our total advertising
revenues. We recorded less than $15,000 barter revenues during the year ended
June 30, 1999. The increase in advertising revenues for the year ended June 30,
2000 was primarily due to the increase in number of advertisers and amount of
advertising contracts. For the years ended June 30, 2000 and 1999, advertising
revenues accounted for 78% and 20% of our total revenues, respectively.
Software. Our software revenues increased by 30.9% to $2.9 million for the
year ended June 30, 2000 from $2.2 million for the year ended June 30, 1999. The
increase was due to an increase in sales of bundled software products to OEM
partners during the first two quarters of fiscal 2000 compared to the same
period in the fiscal 1999. Bundled software products incorporate software
products from other vendors and have a higher unit selling price than the
unbundled software products. In the year ended June 30, 1999, software revenue
decreased by 10% to $2.2 million for the year ended June 30, 1999 from $2.5
million for the year ended June 30, 1998. The decrease was mainly due to the
fact that, as part our strategy to draw increased traffic to out portal
networks, we began to provide free downloads of some our software products on
our Web sites during fiscal 1999.
E-commerce. We started to generate e-commerce revenues after we acquired
Sinanet.com in March 1999. Our e-commerce revenues for the years ended June 30,
2000 and 1999 were $214,000 and $18,000, respectively. The increase in
e-commerce revenues from fiscal 1999 to 2000 was primarily due to the increased
e-commerce activities our North America site and the establishment of SinaMall
on our China site in the second quarter of fiscal 2000.
Cost of Revenues
Advertising. Our cost of advertising revenues increased significantly from
$1.2 million for the year ended June 30, 1999 to $9.0 million for the year ended
June 30, 2000. Our cost of advertising revenues consists of costs associated
with the production of our Web site. These costs primarily consist of fees paid
to third parties for Internet connection, content and services, and compensation
related costs and equipment depreciation expense. Compared to the same periods
in the prior year, the increase in cost of advertising revenues to support our
rapidly growing internet user traffic was primarily due to an increase in
personnel of our production department associated with the continued expansion
in China, our acquisition of Sinanet.com, and the establishment of our Web site
in Hong Kong. Secondarily the expenses increase was due to an increase in
Internet connection costs, such as bandwidth expansion and server co-location
cost to support
28
<PAGE> 30
increased Internet traffic on our Web sites, and an increase in content and
service provider fees to expand our Web site contents and to support the
increased advertisement impressions.
Software. Our cost of software revenues was $1.6 million, $1.3 million and
$0.7 million for the years ended June 30, 2000, 1999 and 1998, respectively. The
increases in cost of software revenues from year to year were due to the
increase in sales to OEM customers with lower gross margin to expand user base
of our Web sites. In addition, we began to sell bundled software products which
incorporate other vendors' software or hardware products to OEM customers during
fiscal 1999 and fiscal 2000. We included the cost paid to other vendors in the
cost of software revenues.
E-commerce. We had not incurred any e-commerce related costs until we
acquired Sinanet.com on March 29, 1999. For the years ended June 30, 2000 and
1999, our cost of e-commerce revenues amounted to $325,000 and $32,000,
respectively. The increase in cost of e-commerce revenue was primarily due to
the increase in personnel of e-commerce activities.
Sales and Marketing Expenses
Our sales and marketing expenses were $17.5 million, or 123% of net
revenues for the year ended June 30, 2000 compared to $1.4 million and $0.6
million, or 50% and 25% of net revenues for years ended June 30, 1999 and 1998,
respectively. Sales and marketing expenses consist primarily of compensation
expenses, sales commissions, advertising and promotion expenditures and travel
expenses. The increase in dollar amounts was mainly attributable to an increase
in advertising costs associated with our brand-building strategy, an increase in
compensation expense associated with the growth in our direct sales force and
marketing personnel, and an increase in sales commissions associated with the
increased revenues.
Product Development Expenses
Our product development expenses were $7.4 million, or 51.9% of net
revenues for the year ended June 30, 2000, compared to $1.5 million and $0.5
million, or 53.5% and 18.1% of net revenues in the year ended June 30, 1999 and
1998, respectively. Product development expenses consist primarily of payroll
and related expenses incurred for enhancement to and maintenance of our Web
sites as well as engineering costs related to develop our software products. The
increases in product development expenses from year to year were attributable to
increased staffing and associated support for engineers for developing and
enhancing our online network.
General and Administrative Expense
Our general and administrative expenses were $7.0 million, or 49.0% of net
revenues for the year ended June 30, 2000, compared to $2.1 million and $0.9
million, or 73.8% and 37.7% of net revenues in the year ended June 30, 1999 and
1998, respectively. The increases were mainly due to the increase in general
business activities as a result of business expansion and building our
administrative infrastructure.
Stock-Based Compensation Expense
In connection with the grant of certain stock options, the Company recorded
net unearned compensation totaling $37.5 million through June 30, 2000, which is
being amortized over the four-year vesting period of the options. Of the total
unearned compensation, approximately $19.1 million and $3.4 million was
amortized in the years ended June 30, 2000 and 1999, respectively.
Amortization of Intangible Assets
As a result of the acquisition of Sinanet.com in March 1999, we recorded
goodwill and other intangible assets of $20.3 million, which are being amortized
over three years. The amortization expense for the years ended June 30, 2000 and
1999 was $6.8 million and $1.7 million, respectively.
29
<PAGE> 31
Interest Income (Expense), Net
Interest income, net increased from $40,000 for the year ended June 30,
1998, to $0.4 million and $3.8 million for the years ended June 30, 1999 and
2000, respectively. The increase in interest income was primarily due to higher
cash and short-term investment balances as a result of the proceeds from our
sale of Series B preference shares in April 1999, Series C preference shares in
October and November 1999, and the initial public offering in April 2000.
Loss on Equity Investment
In December 1999, we contributed $1.4 million in cash for a 35.4% interest
in a joint venture with Adforce, Inc. and Compuserve Consultants, Ltd.. We
account for our investment in the joint venture using the equity method of
accounting. We recorded $501,000 loss from our investment in the joint venture
in the year ended June 30, 2000.
30
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS:
The following tables reflect our unaudited quarterly consolidated statement
of operations data for each of the eight quarters in the period ended June 30,
2000. We believe that the historical quarterly information has been prepared
substantially on the same basis as the audited consolidated financial statements
appearing elsewhere in this Form 10-K, and all necessary adjustments, consisting
only of normal recurring adjustments, have been included in the amounts below to
present fairly the unaudited quarterly results of operations data. You should
read the quarterly data with our consolidated financial statements and the notes
to those statements appearing elsewhere in this Form 10-K.
HISTORICAL QUARTERLY INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
2000 2000 1999 1999 1999 1999 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Advertising.................. $ 4,909 $ 3,076 $ 2,106 $ 922 $ 396 $ 120 $ 45 $ --
Software products............ 752 525 811 855 589 681 455 523
E-commerce................... 96 44 43 31 18 -- -- --
-------- -------- -------- -------- ------- ------- ----- -----
5,757 3,645 2,960 1,808 1,003 801 500 523
-------- -------- -------- -------- ------- ------- ----- -----
Cost of revenues:
Advertising.................. 3,217 2,463 1,866 1,404 869 142 145 --
Software products............ 355 250 503 532 326 491 239 229
E-commerce................... 127 116 49 33 32 -- -- --
Stock-based compensation..... 168 168 148 121 32 -- -- --
-------- -------- -------- -------- ------- ------- ----- -----
3,867 2,997 2,566 2,090 1,259 633 384 229
-------- -------- -------- -------- ------- ------- ----- -----
Gross profit (loss)............ 1,890 648 394 (282) (256) 168 116 294
-------- -------- -------- -------- ------- ------- ----- -----
Operating expenses:
Product development.......... 2,354 2,029 1,615 1,360 868 277 167 200
Sales and marketing.......... 6,030 4,589 4,367 2,490 829 205 206 165
General and administrative... 1,980 1,667 1,653 1,651 1,240 324 291 230
Stock-based compensation..... 3,391 3,537 3,368 8,164 2,437 692 231 --
Amortization of intangible
assets..................... 1,701 1,702 1,702 1,702 1,703 14 14 14
-------- -------- -------- -------- ------- ------- ----- -----
15,456 13,524 12,705 15,367 7,077 1,512 909 609
-------- -------- -------- -------- ------- ------- ----- -----
Loss from operations........... (13,566) (12,876) (12,311) (15,649) (7,333) (1,344) (793) (315)
======== ======== ======== ======== ======= ======= ===== =====
Net loss attributable to
ordinary shareholders........ $(12,126) $(12,146) $(11,441) $(15,354) $(7,055) $(1,276) $(764) $(299)
======== ======== ======== ======== ======= ======= ===== =====
</TABLE>
31
<PAGE> 33
PRO FORMA QUARTERLY INFORMATION:
The pro forma quarterly information for the quarters ended March 31, 1999,
December 31, 1998 and September 30, 1998 reflected the combined operations of
SINA.com and Sinanet.com as if the acquisition of Sinanet.com had occurred on
July 1, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
2000 2000 1999 1999 1999 1999 1998 1998
-------- --------- -------- --------- -------- --------- --------- ---------
ACTUAL PRO FORMA
------------------------------------------------------ ---------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Advertising................ $ 4,909 $ 3,076 $ 2,106 $ 922 $ 396 $ 348 $ 351 $ 252
Software products.......... 752 525 811 855 589 681 455 523
E-commerce................. 96 44 43 31 18 21 10 17
-------- -------- -------- -------- ------- ------- ------- -------
5,757 3,645 2,960 1,808 1,003 1,050 816 792
-------- -------- -------- -------- ------- ------- ------- -------
Cost of revenues:
Advertising................ 3,217 2,463 1,866 1,404 869 464 403 222
Software products.......... 355 250 503 532 326 490 239 230
E-commerce................. 127 116 49 33 32 20 14 14
Stock-based compensation... 168 168 148 121 32 -- -- --
-------- -------- -------- -------- ------- ------- ------- -------
3,867 2,997 2,566 2,090 1,259 974 656 466
-------- -------- -------- -------- ------- ------- ------- -------
Gross profit (loss).......... 1,890 648 394 (282) (256) 76 160 326
-------- -------- -------- -------- ------- ------- ------- -------
Operating expenses:
Product development........ 2,354 2,029 1,615 1,360 868 715 395 290
Sales and marketing........ 6,030 4,589 4,367 2,490 829 779 796 535
General and
administrative........... 1,980 1,667 1,653 1,651 1,240 764 639 429
Stock-based compensation... 3,391 3,537 3,368 8,164 2,437 1,002 231 --
Amortization of intangible
assets................... 1,701 1,702 1,702 1,702 1,703 1,702 1,702 1,702
-------- -------- -------- -------- ------- ------- ------- -------
15,456 13,524 12,705 15,367 7,077 4,962 3,763 2,956
-------- -------- -------- -------- ------- ------- ------- -------
Loss from operations......... (13,566) (12,876) (12,311) (15,649) (7,333) (4,886) (3,603) (2,630)
======== ======== ======== ======== ======= ======= ======= =======
Net loss attributable to
ordinary shareholders...... $(12,126) $(12,146) $(11,441) $(15,354) $(7,055) $(4,838) $(3,606) $(2,637)
======== ======== ======== ======== ======= ======= ======= =======
</TABLE>
Our future revenues and results of operations may fluctuate significantly
in future periods. For a discussion of factors that could cause our operating
results to fluctuate, see "Risk Factors -- You should not rely on our quarterly
operating results as an indication of our future performance because our results
of operations are subject to significant fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations principally through private sales of our
preference shares and initial public offering. From inception through June 30,
2000, we have raised net proceeds of $97.5 million through the sale of
preference shares and $68.8 million from the sale of ordinary shares in the
initial public offering. As of June 30, 2000, we had $129.6 million in cash and
cash equivalents and short-term investments.
Net cash used in operating activities was $20.1 million for the year ended
June 30, 2000 and was primarily attributable to our net loss of $51.1 million,
largely offset by the non-cash stock-based compensation expense of $19.1
million, amortization expense of $6.8 million related to goodwill and other
intangible assets resulting from the acquisition of Sinanet.com and an increase
in accrued liabilities of $6.6 million. For the year ended June 30, 1999, net
cash used in operating activities was $3.7 million and was primarily
attributable to our net loss of $9.4 million, offset by non-cash stock-based
compensation of $3.4 million and goodwill and
32
<PAGE> 34
other intangible assets amortization of $1.7 million. For the year ended June
30, 1998, net cash used in operating activities was $0.3 and was primarily
attributable to our net loss of $0.3 million.
Net cash used in investing activities was $34.9 million for the year ended
June 30, 2000, primarily due to the purchase of short-term investments of $26.4
million, the purchase of capital equipment of $7.0 million and the investment in
a joint venture of $1.4 million. Net cash used in investing activities was $5.0
million for the year ended June 30, 1999 primarily due to the purchase of
short-term investments of $4.0 million and purchase of capital equipment of $1.3
million. These expenditures were partially offset by $0.3 million of cash
received from the Sinanet.com acquisition. Net cash used in investing activities
was $0.6 million for the year ended June 30, 1998 primarily due to the purchase
of capital equipment.
Net cash provided by financing activities was $133.5 million for the year
ended June 30, 2000, primarily attributable to net proceeds of $68.8 million
received from the initial public offering in April 2000 and of $63.9 million
received from the Series C preference share issuance in October and November
1999. The remaining cash provided by the financing activities was primarily from
the proceeds of exercising stock options and preference share warrants. Net cash
provided by financing activities was $24.2 million and $5.7 million for the
years ended June 30, 1999 and 1998, respectively, consisted primarily of net
proceeds from sales of our preference shares.
Our principal commitments consist of obligations outstanding under various
operating leases for our facilities. Since our acquisition of Sinanet.com in
March 1999, we have experienced an increase in our capital expenditures and
operating lease arrangements, consistent with the growth in our operations and
staffing. We anticipate that this will continue for the foreseeable future.
We believe that our existing cash, cash equivalents and short-term
investments will be sufficient to fund our operating activities, capital
expenditures and other obligations for at least the next twelve months. However,
we may sell additional equities or obtain credit facilities to enhance our
liquidity position. The sale of additional equity will result in further
dilution to our shareholders. The incurrence of indebtedness would result in
increased fixed obligations and could result in operating covenants that would
restrict our operations. We cannot assure you that financing will be available
in amounts or on terms acceptable to us, if at all.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. In June
2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting
for Derivatives Instruments and Hedging Activities -- An Amendment of FASB
Statement No. 133". SFAS No. 138 amends the accounting and reporting standards
for certain derivatives and hedging activities such as net settlement contracts,
foreign currency transactions and intercompany derivatives. The Company believes
the adoption of this pronouncement will have no material impact on the Company's
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. The Company has complied with the guidance in SAB 101 for
all periods presented.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination.
33
<PAGE> 35
FIN 44 is effective July 1, 2000, but certain conclusions cover specific events
that occur either after December 15, 1998, or January 12, 2000. The adoption of
certain of the provisions of FIN 44 prior to March 31, 2000 did not have a
material impact on the financial statements. Management does not expect that the
adoption of the remaining provisions will have a material effect on the
financial statements.
In various areas, including revenue recognition and stock-based
compensation, accounting standards and practices continue to evolve. The SEC is
preparing to issue interpretative guidance relating to SAB 101, and the FASB
continues to address revenue and other related accounting issues. The management
of the Company believes it is in compliance with all of the rules and related
guidance as they currently exist. However, any changes to generally accepted
accounting principles in these areas could impact the Company's accounting for
its operations.
INFLATION AND FOREIGN CURRENCY EXCHANGE RATE LOSSES
To date our results of operations have not been materially affected by the
significant economic downturns in Asia since the middle of 1997. We generate
revenues and incur expenses and liabilities in Chinese renminbi, Hong Kong
dollars, Taiwan dollars and U.S. dollars. For fiscal 2000, approximately 41.6%,
11.6%, 10.4% and 36.4% of our costs incurred and 57.0%, 3.7%, 8.2% and 31.1% of
our revenues derived were in renminbi, Hong Kong dollars, Taiwan dollars and
U.S. dollars, respectively. For fiscal 1999, approximately 60.9%, 2.3%, 8.2% and
28.6% of our costs incurred and 90%, 0%, 4.0% and 6.0% of our revenues derived
were in renminbi, Hong Kong dollars, Taiwan dollars and U.S. dollars,
respectively. We generated most of our revenues for fiscal 1999 in renminbi
since all of our revenues were derived from our China operations until our
acquisition of Sinanet.com in March 1999. Thus, our revenues and operating
results may be impacted by exchange rate fluctuations in the currencies of
China, Taiwan and Hong Kong. See "Risk Factors -- Currency fluctuations and
restrictions on currency exchange may adversely affect our business, including
limiting our ability to convert Chinese renminbi into foreign currencies and, if
renminbi were to decline in value, reducing our revenue in U.S. dollar terms."
We have not tried to reduce our exposure to exchange rate fluctuations by using
hedging transactions. However, we may choose to do so in the future. We may not
be able to do this successfully. Accordingly, we may experience economic losses
and negative impacts on earnings and equity as a result of foreign exchange rate
fluctuations. We are not a party to any financial instruments that expose us to
substantial market risk.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
The Company's investment policy requires the Company to invest its excess
cash in government or quasi-government securities and in high-quality corporate
securities and limits the amount of credit exposure to any one issuer. The
Company protects and preserves its invested funds by limiting default, market
and reinvestment risk. Due to the fact that majority of our investments are in
short-term instruments, we have concluded that there is no material market risk
exposure in this area.
FOREIGN CURRENCY EXCHANGE RATE RISK
The majority of the Company's revenues derived and expenses and liabilities
incurred were in Chinese renminbi, Taiwan dollars and Hong Kong dollars. Thus,
our revenues and operating results may be impacted by exchange rate fluctuations
in the currencies of China, Taiwan and Hong Kong. See "Risk Factors -- Currency
fluctuations and restrictions on currency exchange may adversely affect our
business, including limiting our ability to convert Chinese renminbi into
foreign currencies and, if renminbi were to decline in value, reducing our
revenue in U.S. dollar terms." We have not tried to reduce our exposure to
exchange rate fluctuations by using hedging transactions. However, we may choose
to do so in the future. We may not be able to do this successfully. Accordingly,
we may experience economic losses and negative impacts on earnings and equity as
a result of foreign exchange rate fluctuations.
34
<PAGE> 36
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants........................... 36
Consolidated Balance Sheet at June 30, 2000 and 1999........ 37
Consolidated Statement of Operations for each of the three
years in the period ended June 30, 2000................... 38
Consolidated Statement of Shareholders' Equity (Deficit) for
each of the three years in the period ended June 30,
2000...................................................... 39
Consolidated Statement of Cash Flows for each of the three
years in the period ended June 30, 2000................... 40
Notes to Consolidated Financial Statements.................. 41
FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted because the information
required to be set forth therein is not applicable or is
shown in the Consolidated Financial Statements or Notes
thereto.
</TABLE>
35
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of SINA.com
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity (deficit)
and of cash flows expressed in U.S. dollars present fairly, in all material
respects, the financial position of SINA.com and its subsidiaries at June 30,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
July 17, 2000
36
<PAGE> 38
SINA.COM
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
2000 1999
----------- ----------
(IN U.S. DOLLARS)
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 99,149 $20,571
Short-term investments.................................... 30,484 4,037
Accounts receivable, net.................................. 3,921 1,241
Inventories............................................... 156 171
Prepaid expenses and other current assets................. 1,378 382
-------- -------
Total current assets.............................. 135,088 26,402
Property and equipment, net................................. 7,737 2,194
Intangible assets, net...................................... 11,828 18,635
Investments in joint venture................................ 894 --
Receivable from related parties............................. 268 --
Other assets................................................ 223 351
-------- -------
$156,038 $47,582
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,203 $ 828
Accrued liabilities....................................... 8,018 1,517
-------- -------
Total current liabilities......................... 9,221 2,345
Minority interests.......................................... -- 119
-------- -------
9,221 2,464
-------- -------
Commitments and contingencies (Note 11)
Mandatorily Redeemable Convertible Preference Shares........ -- 37,295
Mandatorily Redeemable Convertible Preference Share
Warrants.................................................. -- 120
-------- -------
-- 37,415
-------- -------
Shareholders' equity:
Preference Shares: $1.00 par value; 3,750 and no shares
authorized; no shares issued or outstanding............ -- --
Ordinary Shares: $0.133 par value; 75,000 and 45,000
shares authorized; 40,764 and 7,102 shares issued and
outstanding............................................ 5,425 947
Additional paid-in capital................................ 221,399 38,055
Notes receivables from shareholders....................... (2,067) --
Deferred stock compensation............................... (15,057) (19,453)
Accumulated deficit....................................... (62,950) (11,883)
Accumulated other comprehensive income:
Cumulative translation adjustment...................... 67 37
-------- -------
Total shareholders' equity........................ 146,817 7,703
-------- -------
$156,038 $47,582
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE> 39
SINA.COM
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
2000 1999 1998
----------- ---------- ---------
(IN U.S. DOLLARS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net revenues:
Advertising............................................... $ 11,013 $ 561 $ --
Software products......................................... 2,943 2,248 2,499
E-commerce................................................ 214 18 --
-------- ------- ------
14,170 2,827 2,499
-------- ------- ------
Cost of revenues:
Advertising(a)............................................ 8,950 1,156 --
Software products(a)...................................... 1,640 1,285 674
E-commerce................................................ 325 32 --
Stock-based compensation.................................. 605 32 --
-------- ------- ------
11,520 2,505 674
-------- ------- ------
Gross profit................................................ 2,650 322 1,825
-------- ------- ------
Operating expenses:
Sales and marketing(a).................................... 17,476 1,405 622
Product development(a).................................... 7,358 1,512 452
General and administrative(a)............................. 6,951 2,085 941
Stock-based compensation.................................. 18,460 3,360 --
Amortization of intangible assets......................... 6,807 1,745 43
-------- ------- ------
Total operating expenses.......................... 57,052 10,107 2,058
-------- ------- ------
Loss from operations........................................ (54,402) (9,785) (233)
Interest income, net........................................ 3,801 442 40
-------- ------- ------
Loss before loss in equity investment and minority
interest.................................................. (50,601) (9,343) (193)
Loss on equity investment................................... (501) -- --
Minority interest in loss................................... 119 47 11
-------- ------- ------
Net loss.................................................... (50,983) (9,296) (182)
Accretion on Mandatorily Redeemable Convertible Preference
Shares.................................................... (84) (98) (71)
-------- ------- ------
Net loss attributable to ordinary shareholders.............. $(51,067) $(9,394) $ (253)
======== ======= ======
Basic and diluted net loss per share attributable to
ordinary shareholders..................................... $ (3.44) $ (1.72) $(0.05)
======== ======= ======
Shares used in computing basic and diluted net loss per
share..................................................... 14,836 5,466 4,962
======== ======= ======
Basic and diluted pro forma net loss per share
(unaudited)............................................... $ (1.58)
========
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)................................ 32,281
========
</TABLE>
---------------
(a) Excludes stock-based compensation. See Note 9.
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE> 40
SINA.COM
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
ORDINARY SHARES ADDITIONAL RECEIVABLES DEFERRED
--------------- PAID-IN FROM STOCK ACCUMULATED
SHARES AMOUNT CAPITAL SHAREHOLDERS COMPENSATION DEFICIT
------ ------ ---------- ------------ ------------ -----------
(IN U.S. DOLLARS, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997........... 4,962 $ 661 $ 1,756 $ -- $ -- $ (2,236)
Accretion on Mandatorily Redeemable
Convertible Preference Shares..... -- -- -- -- -- (71)
Housing provided by the Stone
Group............................. -- -- 42 -- -- --
Comprehensive loss:
Net loss.......................... -- -- -- -- -- (182)
Currency translation adjustment... -- -- -- -- -- --
------ ------ -------- ------- -------- --------
Comprehensive loss..............
Balances at June 30, 1998........... 4,962 661 1,798 -- -- (2,489)
Exercise of stock options for
cash.............................. 13 2 1 -- -- --
Sinanet acquisition................. 2,127 284 13,366 -- -- --
Deferred stock compensation......... -- -- 22,845 -- (22,845) --
Amortization on deferred stock
compensation...................... -- -- -- -- 3,392 --
Accretion on Mandatorily Redeemable
Convertible Preference Shares..... -- -- -- -- -- (98)
Housing provided by the Stone
Group............................. -- -- 45 -- -- --
Comprehensive loss:
Net loss.......................... -- -- -- -- -- (9,296)
Currency translation adjustment... -- -- -- -- -- --
------ ------ -------- ------- -------- --------
Comprehensive loss................
Balances at June 30, 1999........... 7,102 947 38,055 -- (19,453) (11,883)
Exercise of stock options for
cash.............................. 597 79 162 -- -- --
Sale of Ordinary Shares for notes
receivables from shareholders, net
of repurchases.................... 2,957 394 2,235 (2,629) -- --
Repayments of notes receivable from
shareholders...................... -- -- -- 562 -- --
Issuance of Ordinary Shares in
initial public offering........... 4,600 612 72,114 -- -- --
Costs of initial public offering.... -- -- (3,907) -- -- --
Conversion of Preference Shares and
Warrants to Ordinary Shares....... 25,508 3,393 98,026 -- -- --
Deferred stock compensation......... -- -- 14,669 -- (14,669) --
Amortization on deferred stock
compensation...................... -- -- -- -- 19,065 --
Accretion on Mandatorily Redeemable
Convertible Preference Shares..... -- -- -- -- -- (84)
Housing provided by the Stone
Group............................. -- -- 45 -- -- --
Comprehensive loss:
Net loss.......................... -- -- -- -- -- (50,983)
Currency translation adjustment... -- -- -- -- -- --
------ ------ -------- ------- -------- --------
Comprehensive loss..................
Balances at June 30, 2000........... 40,764 $5,425 $221,399 $(2,067) $(15,057) $(62,950)
====== ====== ======== ======= ======== ========
<CAPTION>
CUMULATIVE TOTAL TOTAL
TRANSLATION SHAREHOLDERS' COMPREHENSIVE
EQUITY EQUITY LOSS
----------- ------------- -------------
(IN U.S. DOLLARS, IN THOUSANDS)
<S> <C> <C> <C>
Balances at June 30, 1997........... $22 $ 203
Accretion on Mandatorily Redeemable
Convertible Preference Shares..... -- (71)
Housing provided by the Stone
Group............................. -- 42
Comprehensive loss:
Net loss.......................... -- (182) $ (182)
Currency translation adjustment... 3 3 3
--- -------- --------
Comprehensive loss.............. $ (179)
========
Balances at June 30, 1998........... 25 (5)
Exercise of stock options for
cash.............................. -- 3
Sinanet acquisition................. -- 13,650
Deferred stock compensation......... -- --
Amortization on deferred stock
compensation...................... -- 3,392
Accretion on Mandatorily Redeemable
Convertible Preference Shares..... -- (98)
Housing provided by the Stone
Group............................. -- 45
Comprehensive loss:
Net loss.......................... -- (9,296) $ (9,296)
Currency translation adjustment... 12 12 12
--- -------- --------
Comprehensive loss................ $ (9,284)
========
Balances at June 30, 1999........... 37 7,703
Exercise of stock options for
cash.............................. -- 241
Sale of Ordinary Shares for notes
receivables from shareholders, net
of repurchases.................... -- --
Repayments of notes receivable from
shareholders...................... -- 562
Issuance of Ordinary Shares in
initial public offering........... -- 72,726
Costs of initial public offering.... -- (3,907)
Conversion of Preference Shares and
Warrants to Ordinary Shares....... -- 101,419
Deferred stock compensation......... -- --
Amortization on deferred stock
compensation...................... -- 19,065
Accretion on Mandatorily Redeemable
Convertible Preference Shares..... -- (84)
Housing provided by the Stone
Group............................. -- 45
Comprehensive loss:
Net loss.......................... -- (50,983) $(50,983)
Currency translation adjustment... 30 30 30
--- -------- --------
Comprehensive loss.................. $(50,953)
========
Balances at June 30, 2000........... $67 $146,817
=== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE> 41
SINA.COM
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
2000 1999 1998
--------- -------- -------
(IN U.S. DOLLARS, IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss attributable to ordinary shareholders............ $(51,067) $(9,394) $ (253)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interests in losses of consolidated
subsidiary............................................ (119) (47) (11)
Loss on equity investment............................... 501 -- --
Provisions for doubtful accounts........................ 555 130 12
Depreciation and amortization........................... 1,476 312 124
Stock-based compensation................................ 19,065 3,392 --
Amortization of intangible assets....................... 6,807 1,745 43
Accretion on Mandatorily Redeemable Convertible
Preference Shares..................................... 84 98 71
Changes in assets and liabilities, net of effect of
Sinanet acquisition:
Accounts receivable................................... (3,235) (631) (417)
Inventories........................................... 15 (136) 43
Prepaid expenses and other current Assets............. (996) (91) 128
Receivable from related parties....................... (268) -- --
Other assets.......................................... 128 (9) (261)
Accounts payable...................................... 375 145 47
Accrued liabilities................................... 6,576 812 189
-------- ------- ------
Net cash used in operating Activities.............. (20,103) (3,674) (285)
-------- ------- ------
Cash flows from investing activities:
Cash acquired upon merger with Sinanet.................... -- 289 --
Acquisition of property and equipment..................... (7,019) (1,285) (557)
Investment in joint ventures.............................. (1,395) -- --
Purchase of short-term investments........................ (26,447) (4,037) --
-------- ------- ------
Net cash used in investing Activities.............. (34,861) (5,033) (557)
-------- ------- ------
Cash flows from financing activities:
Proceeds from issuance of Preference Shares, net.......... 63,920 24,185 5,933
Proceeds from initial public offering, net of $3,907
issuance costs.......................................... 68,819 -- --
Proceeds from notes receivables from shareholders......... 562 -- --
Proceeds from exercise of stock options................... 241 3
Repayment of notes payable................................ -- -- (241)
-------- ------- ------
Net cash provided by financing activities.......... 133,542 24,188 5,692
-------- ------- ------
Net increase in cash and cash equivalents................... 78,578 15,481 4,850
Cash and cash equivalents at beginning of year.............. 20,571 5,090 240
-------- ------- ------
Cash and cash equivalents at end of year.................... $ 99,149 $20,571 $5,090
-------- ------- ------
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ -- $ 1 $ 22
-------- ------- ------
Supplemental schedule of noncash investing and financing
activities:
Shares, warrants and options issued for Sinanet
Acquisition............................................. $ -- $17,269 $ --
======== ======= ======
Ordinary Shares issued for notes receivable............... $ 2,629 $ -- $ --
======== ======= ======
Conversion of notes payable to Preference Shares.......... $ -- $ 3,509 $ --
======== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE> 42
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
SINA.com ("SINA" or the "Company") is a leading Internet media and services
company for Chinese communities worldwide, offering a full array of
Chinese-language news, entertainment, e-commerce platforms, financial
information, and lifestyle tips. With separate Web sites in China, Hong Kong,
Taiwan and North America, SINA.com provides global content and services that
speak directly to the audience of each region, enriching the online experience
of its users.
Share split
On November 1, 1999, the Company effected a one and one-half for one share
split of the Company's Preference and Ordinary Shares. All share and per share
amounts have been adjusted to reflect the share split.
Public offering
In April 2000, the Company sold 4,600,000 Ordinary Shares in an
underwritten initial public offering, inclusive of 600,000 Ordinary Shares
through the exercise of the underwriter's over-allotment option for net proceeds
of approximately $72.7 million, before offering expenses. Simultaneously with
the closing of the public offering, all 25,496,000 outstanding Mandatorily
Redeemable Convertible Preference Shares were converted to ordinary shares on a
one for one basis. Additionally, all outstanding warrants to purchase an
aggregate of 12,000 Ordinary Shares were exercised upon closing of the initial
public offering.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation and basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The equity and net income or loss
attributable to the minority shareholder interests which related to the
Company's subsidiaries, are shown separately in the consolidated balance sheets
and consolidated statements of operations, respectively. Investments in entities
in which the Company can exercise significant influence, but less than majority
owned and not otherwise controlled by the Company, are accounted for under the
equity method.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity from date of purchase of three months or less to be cash equivalents.
At June 30, 2000 and 1999, cash equivalents were composed primarily of
investments in commercial paper and money market accounts stated at cost, which
approximated fair value.
Short-term investments
Short-term investments were held as securities available for sale in
accordance with Statement of Financial Accounting Standard ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity
41
<PAGE> 43
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
Securities" and are reported at amortized cost as of the balance sheet date
which approximates fair market value. As of June 30, 2000 and 1999, the amount
of gross unrealized gains and losses were not significant.
Inventories
Inventories are stated at the lower of cost (weighted average method) or
market (net realizable value).
Property and equipment
Property and equipment, including leasehold improvements, are stated at
cost, net of accumulated depreciation and amortization. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
generally three to five years. Leasehold improvements are amortized over the
shorter of the estimated useful lives of the assets or the remaining lease term.
Intangible assets, net
Intangible assets, which include developed technology, trade name, work
force, content technology and goodwill arising from the acquisition of Sinanet
and of the acquisition of additional interest in BSRS, are being amortized using
the straight-line method over a period of three years from the acquisition date.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets. Based on
its most recent analysis, the Company believes that there was no impairment of
its property and equipment and intangible assets as of June 30, 2000.
Revenue recognition
The Company derives its revenues from advertising contracts, proprietary
software products and licenses, and on-line commerce.
Advertising revenues are derived principally from advertising and
sponsorship arrangements. In advertising contracts the Company typically
guarantees a minimum number of impressions or pages to be delivered to users
over a specified period of time for a fixed fee. Advertising revenues are
recognized on the basis of the number of impressions delivered or ratably over
the period in which the advertising is displayed, whichever amount is lower. To
the extent that minimum guaranteed impressions deliveries are not met, the
Company defers recognition of the corresponding revenues until the guaranteed
impressions deliveries are achieved. Sponsorship arrangements typically allow
advertisers to sponsor a particular area on our network in exchange for a fixed
payment over the contract period. Advertising revenues are recognized ratably
over the period of sponsorship. Advertising revenues derived from the design,
coordination and integration of advertising campaigns and sponsorship to be
placed on our web sites are recognized ratably over the term of such programs.
Revenue from barter transactions is recognized during the period in which
the advertisements are displayed in the Company's properties. Barter
transactions are recorded at the lower of the fair value of the goods or
services received or the fair value of the advertisement given, provided the
fair value of the transaction is reliably measurable. Barter revenues
represented 1.3% and less than 1% of the advertising revenues for the years
ended June 30, 2000 and 1999, respectively.
42
<PAGE> 44
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
Revenue from the sale of software products is recognized primarily on the
delivery of software products to end users, resellers, distributors, retail
merchants and original equipment manufacturers. The Company delivers its
software products in the packaged form or under software licenses. Revenues from
sales of software products in the packaged form are recognized upon shipment.
Software license agreements are non-refundable and allow the OEM partners to
reproduce the Company's software products for a specified period of time for a
fixed fee or a specified number of copies for a predetermined unit price.
Revenues from software license agreements are recognized upon delivery of a
master copy when the fixed-fee agreements become effective or based upon
activity reports provided by the OEM partners under the per-copy arrangements.
Provision is made for expected sales returns and allowances when revenue is
recognized. Payments received in advance of revenue recognition are recorded as
deferred revenue. The Company recognizes revenues in accordance with Statement
of Position ("SOP") 97-2, "Software Revenue Recognition", as amended by SOP 98-4
and SOP 98-9. SOP 97-2, as amended, generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair value of the elements. The Company's software
product agreements do not involve multiple elements. The adoption of SOP 97-2,
as amended, did not have a significant impact on the Company's accounting for
revenues.
Revenue from e-commerce is recognized on a net commission basis following
both successful on-line verification of credit cards used by customers and
shipment of products. Product returns have not been significant and are assumed
by vendors.
Product development costs
Product development costs include expenses incurred by the Company to
maintain, monitor and manage the Company's website. The Company recognizes
website development costs in accordance with Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." As such, the Company expenses all costs incurred that relate to
the planning and post implementation phases of development and costs associated
with repair or maintenance of the existing site or the development of website
content. Costs incurred in the development phase are capitalized and amortized
on a straight-line basis over the estimated product life or on the ratio of
current revenues to total projected product revenue, whichever is greater. Since
inception, the amount of costs qualifying for capitalization has been immaterial
and as a result, all product development costs have been expensed as incurred.
Advertising expenses
The Company recognizes advertising expenses in accordance with SOP 93-7
"Reporting on Advertising Costs." As such, the Company expenses the costs of
producing advertisements at the time production occurs, and expenses the cost of
communicating advertising in the period in which the advertising space or
airtime is used. Advertising expenses totaled $8,752,000, $335,000 and $319,000
during the years ended June 30, 2000, 1999 and 1998, respectively.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," ("APB No. 25") and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock -- Based Compensation," ("SFAS No. 123"). Under
APB No. 25, compensation cost is, in general, recognized based on the
difference, if any, on the date of grant between the fair value of the Company's
stock and the amount an employee must pay to acquire the stock. Deferred
compensation is amortized over the vesting period on an accelerated basic using
the model presented in paragraph 24 of FASB Interpretation No. 28. Accordingly,
the percentages of the
43
<PAGE> 45
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
deferred compensation amortized in the first, second, third and fourth years
following the option grant date are approximately 52%, 27%, 15% and 6%,
respectively.
The Company accounts for stock issued to non-employees in accordance with
the provisions of SFAS No. 123 and the Emerging Issues Task Force ("EITF")
consensus in Issue No. 96-18.
Income taxes
Income taxes are accounted for using an asset and liability approach which
requires the recognition of income taxes payable or refundable for the current
year and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's consolidated financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets is based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
Foreign currency transactions
The Company's operations in China, Hong Kong and Taiwan use the local
currencies as their functional currencies. Accordingly, all assets and
liabilities of the entities in China, Hong Kong and Taiwan are translated at the
current exchange rate in effect at the balance sheet date and revenues and
expenses are translated at the average exchange rates in effect during the
reporting period. Gains and losses resulting from foreign currency translation,
if material, are recorded in a separate component of shareholders' equity.
Foreign currency translation gains and losses were not material for the periods
presented.
Certain risks and concentrations
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company limits its exposure to credit loss by
depositing its cash and cash equivalents with financial institutions in the
U.S., China, Hong Kong and Taiwan which management believes are of high credit
quality. The Company believes that the risk associated with accounts receivable
is mitigated, to some extent, by the fact that the Company's customer base is
geographically dispersed. The Company maintains an allowance for potential
credit losses that it believes to be adequate. No individual customer accounted
for more than 10% of net revenues for the year ended June 30, 2000 and 1999. One
customer represented 11% of net revenues for the year ended June 30, 1998. No
individual customer accounted for more than 10% of accounts receivable at June
30, 2000 and 1999. One customer accounted for 16% of accounts receivable at June
30, 1998.
The Company operates in business segments which are characterized by rapid
technological advances, changes in customer requirements and evolving regulatory
requirements and industry standards. Any failure by the Company to anticipate or
to respond adequately to technological changes in its industry segments, changes
in customer requirements or changes in regulatory requirements or industry
standards, could have a material adverse affect on the Company's business and
operating results.
The Company relies on a number of third-party suppliers for various
services, including web hosting, banner advertising delivery software and
Internet traffic measurement software.
Net loss per share
Net loss per share is computed using the weighted average number of the
Ordinary Shares outstanding during the period. Since the Company has a net loss
for all periods presented, net loss per share on a diluted basis is equivalent
to basic net loss per share because the effect of converting stock options,
warrants and
44
<PAGE> 46
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
Mandatorily Redeemable Convertible Preference Shares would be anti-dilutive.
Ordinary Shares that are subject to the Company's right to repurchase are
excluded from the basic and diluted net loss per share calculations. Pro forma
basic and diluted net loss per share is computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
automatic conversion of all outstanding Mandatorily Redeemable Convertible
Preference Shares effective upon the closing of the Company's initial public
offering as if such conversion occurred on July 1, 1999, or at date of original
issuance, if later.
Comprehensive income
Comprehensive income is defined as the change in equity of a company during
a period from transactions and other events and circumstances excluding
transactions resulting from investments from owners and distributions to owners.
For the Company, comprehensive loss did not differ materially from net loss for
the periods presented.
Recent accounting pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. In June
2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting
for Derivatives Instruments and Hedging Activities -- An Amendment of FASB
Statement No. 133". SFAS No. 138 amends the accounting and reporting standards
for certain derivatives and hedging activities such as net settlement contracts,
foreign currency transactions and intercompany derivatives. The Company believes
the adoption of this pronouncement will have no material impact on the Company's
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. The Company has complied with the guidance in SAB 101 for
all periods presented.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
cover specific events that occur either after December 15, 1998, or January 12,
2000. The adoption of certain of the provisions of FIN 44 prior to March 31,
2000 did not have a material impact on the financial statements. Management does
not expect that the adoption of the remaining provisions will have a material
effect on the financial statements.
In various areas, including revenue recognition and stock-based
compensation, accounting standards and practices continue to evolve. The SEC is
preparing to issue interpretative guidance relating to SAB 101, and the FASB
continues to address revenue and other related accounting issues. The management
of the Company believes it is in compliance with all of the rules and related
guidance as they currently exist. However, any changes to generally accepted
accounting principles in these areas could impact the Company's accounting for
its operations.
45
<PAGE> 47
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
2. ACQUISITION OF SINANET
On March 29, 1999, the Company acquired Sinanet.com ("Sinanet"), a company
incorporated in California. Under the terms of the acquisition, the Company
issued approximately 3,859,000 and 2,127,000 shares of Mandatorily Redeemable
Convertible Preference Shares and Ordinary Shares, respectively, for all of the
outstanding stock of Sinanet. In addition, the Company issued warrants and
options to purchase 48,000 and 923,000 shares of the Company's Preference and
Ordinary Shares, respectively, in exchange for all of the outstanding warrants
and options of Sinanet. The stock, warrants and options had an aggregate fair
market value of approximately $17,269,000. Including acquisition costs of
$149,000 and assumed liabilities of $4,296,000, the total purchase price was
$21,714,000. Included in the liabilities were convertible notes totaling
$3,509,000, which were converted into the Company's preference shares in April
1999. The transaction was accounted for as a purchase.
The allocation of the purchase price is as follows: (in thousands)
<TABLE>
<S> <C>
Net current asset........................................... $ 664
Property and equipment and other assets..................... 798
Developed technology........................................ 1,638
Trade name.................................................. 931
Work force.................................................. 762
Content relationship........................................ 1,197
Goodwill.................................................... 15,724
-------
$21,714
=======
</TABLE>
The purchase price was allocated to the identifiable assets acquired based
upon fair market value on the acquisition date. Content relationship represents
the business relationship and contacts Sinanet established with the providers of
Chinese print/visual contents prior to the merger. The estimated fair market
values of the developed technology, the trade name, workforce and the content
relationship are being amortized over a period of three years. The excess amount
of the purchase price over the fair market value of the net identifiable assets
acquired is accounted for as goodwill and is being amortized over its estimated
useful life of three years.
Identifiable intangible assets and goodwill are amortized over three years
because the Company cannot expect to receive benefits over a longer period.
Factors that limit the expected useful lives of the intangible assets include
the history of operating losses of both Sina.com and Sinanet, contingencies
regarding the legal basis of the Company's ability to operate an Internet
business and to advertise in China, intense competition from current competitors
and expected competition from new entrants due to low barriers of entry, the
fact that the Company's ability to generate significant advertising revenues or
revenues from electronic commerce is unproven and the rapidly changing nature of
the Internet market.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the years ended June 30, 1998 and 1999,
as if the acquisition had occurred on July 1, 1997, and after giving effect to
purchase accounting adjustments. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on July 1,
1997, and may not be indicative of future operating results.
46
<PAGE> 48
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1999 1998
--------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenues................................................ $ 3,661 $ 3,459
Loss from operations........................................ (18,141) (8,865)
Net loss attributable to ordinary shareholders.............. (17,826) (8,826)
Basic and diluted net loss per share........................ $ (2.51) $ (1.25)
Shares used in computing basic and diluted per share
amounts................................................... 7,091 7,090
</TABLE>
3. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash...................................................... $10,556 $ 4,568
Commercial paper.......................................... 88,593 16,003
------- -------
$99,149 $20,571
======= =======
SHORT-TERM INVESTMENTS:
Time deposits............................................. $ 3,030 $ --
Corporate notes and bonds................................. 27,454 4,037
------- -------
$30,484 $ 4,037
======= =======
ACCOUNTS RECEIVABLE, NET:
Accounts receivable....................................... $ 4,677 $ 1,442
Less: Allowance for doubtful accounts..................... (756) (201)
------- -------
$ 3,921 $ 1,241
======= =======
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software........................... $ 8,403 $ 2,180
Furniture and fixtures.................................... 478 171
Leasehold improvements.................................... 912 423
------- -------
9,793 2,774
Less: Accumulated depreciation and amortization........... (2,056) (580)
------- -------
$ 7,737 $ 2,194
======= =======
</TABLE>
47
<PAGE> 49
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
INTANGIBLE ASSETS:
Purchased technology...................................... $ 1,638 $ 1,638
Trade name................................................ 931 931
Work force................................................ 762 762
Content relationship...................................... 1,197 1,197
Goodwill.................................................. 15,895 15,895
------- -------
20,423 20,423
Less: Accumulated amortization............................ (8,595) (1,788)
------- -------
$11,828 $18,635
======= =======
ACCRUED LIABILITIES:
Payroll and related expenses.............................. $ 3,458 $ 1,228
Deferred revenue.......................................... 1,536 7
Sales taxes payable....................................... 178 26
Other..................................................... 2,846 256
------- -------
$ 8,018 $ 1,517
======= =======
</TABLE>
4. RELATED PARTY TRANSACTIONS
Transactions with ICP Company and Ad Company. To comply with Chinese
regulations, in April 2000, BSRS, the Company's subsidiary in China, entered
into agreements with two Chinese entities: Beijing SINA Interactive Advertising
Co., Ltd. (the "Ad Company"), a Chinese advertising company that is 75% owned by
Zhidong Wang, SINA.com's president and chief executive officer, and 25% owned by
BSRS, and Beijing SINA Internet Information Services Co., Ltd. (the "ICP
Company"), a Chinese Internet content provider that is 70% owned by Zhidong Wang
and 30% owned by Yan Wang, SINA.com's general manager of China operations. BSRS
has amended its employment agreements with Zhidong Wang and Yan Wang to require
that they transfer their interest in the Ad Company or ICP Company at a price
equal to net book value to BSRS when allowed under Chinese law or to an employee
or group of employees specified by BSRS upon termination of their employment
with BSRS. To address Chinese regulatory concerns, Zhidong Wang transferred his
share ownership in the Ad Company to Yan Wang. The ICP Company is also able to
transact business with third parties not affiliated with BSRS. Both entities are
limited liability companies incorporated in China. In the opinion of SINA.com's
Chinese counsel, the ownership of BSRS and its businesses comply with existing
Chinese laws and regulations.
Pursuant to these agreements, the ICP Company is responsible for operating
www.sina.com.cn in connection with its Internet content company license and
sells advertising space on the China Web site to the Ad Company. The Ad Company,
in turn, places advertisements in this space for third parties under its
advertising license. In addition, BSRS has licensed intellectual property and
transferred equipment to the ICP Company and acts as the ICP Company's provider
of technical services, all in exchange for fees or other payments. BSRS is also
a consultant and service provider to the Ad Company for its domestic Chinese
customers. Substantially all of the income received from sales by the Ad Company
and ICP Company from third parties will be paid to BSRS.
In addition, BSRS has provided interest-free loans of RMB700,000
(equivalent to $84,000 at June 30, 2000) to Zhidong Wang and RMB300,000
(equivalent to $36,000 at June 30, 2000) to Yan Wang for
48
<PAGE> 50
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
purposes of setting up the ICP Company and RMB750,000 (equivalent to $90,000 at
June 30, 2000) to Yan Wang for purposes of setting up the Ad Company.
BSRS does not hold an equity interest in the ICP Company and does not have
a legal agreement to control the ICP Company. Therefore, the financial
statements of the ICP Company are not consolidated with those of SINA.com. The
ICP Company is a related party because the shareholders of the ICP Company are
officers at SINA.com. BSRS is dependent upon the ICP Company in order to fill
advertising contracts in China. BSRS expects that it will need to provide
financial support to the ICP Company. Until the ICP Company demonstrates that it
can support its own operations through its charges to the Ad Company and its
revenues from unrelated customers, BSRS will accrue for the costs and expenses
of the ICP Company in excess of its revenues as the costs are incurred by the
ICP Company. For the year ended June 30, 2000, BSRS accrued $381,000 for the ICP
Company's loss. Under the agreements with the ICP Company, BSRS receives
payments from the ICP Company for technical support and for the license. Such
payments are accounted for as cost reimbursements unless there are corresponding
revenues received by the ICP Company from unrelated parties. The effect of the
accounting is that revenues that BSRS records related to transactions with the
ICP Company will not exceed the revenues that the ICP Company earns from
unrelated parties. During the year ended June 30, 2000, BSRS recorded $95,000 of
revenue from technical support service provided to the ICP Company, which amount
equals to the revenue the ICP Company received from unrelated parties during the
same period. In accordance to the agreements with the Ad Company and the ICP
Company, the Ad Company purchases advertising space from the ICP Company. During
the year ended June 30, 2000, the Ad Company paid the ICP Company $434,000 for
advertising space. As a result of the transactions during the year ended June
30, 2000, BSRS recorded a receivable from the ICP Company of $148,000 at June
30, 2000. This amount plus the loans to Zhidong Wang and Yan Wang for the
purpose of setting up the ICP Company totaled to $268,000, which was reported as
receivable from related parties as of June 30, 2000.
Through a ten-year proxy, BSRS has complete voting control over the Ad
Company despite owning only 25% of the equity. The 75% owner does not have
participating rights as defined in EITF 96-16 with respect to the management of
the Ad Company. Therefore, the financial position and results of operations of
the Ad Company are consolidated with the financial statements of SINA.com and
intercompany transactions and balances are eliminated in the consolidation.
Transactions with the Stone Group. The Company incurred certain
transactions with Stone Electronic Technology Limited ("SETL"), Beijing Stone
Electronic Technology Co., Ltd. and Beijing Stone Finance Company which were
under the control of Stone Group Corporation ("the Stone Group"). The Stone
Group held equity interests of 9.4%, 12.9% and 38.0% in the Company at June 30,
2000, 1999 and 1998, respectively.
49
<PAGE> 51
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The following table summarizes the activities between the Company and the
Stone Group:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
2000 1999 1998
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Receivable (payable) at beginning of period................. $ 340 $343 $(305)
Sales to the Stone Group.................................... 20 86 85
Expenses paid for the Stone Group........................... -- -- 16
Deposits (payment received) in the Stone Group.............. (121) -- 242
Provision provided for deposits in the Stone Group.......... (121) -- --
Repayment to (from) the Stone Group, net.................... (118) (89) 305
----- ---- -----
Receivable (payable) at end of period....................... $ -- $340 $ 343
===== ==== =====
Included in accounts receivable............................. $ -- $ 86 $ 85
===== ==== =====
Included in other assets.................................... $ -- $254 $ 258
===== ==== =====
</TABLE>
Sales transactions with a shareholder. In February 2000, the Company
entered into a definitive agreement and a license agreement with a shareholder
who held approximately 6.2% of the total number of Ordinary shares outstanding
as of June 30, 2000. In accordance to the definitive agreement, the Company will
build a storefront on SinaMall and provide advertising and technical support in
exchange for certain fees. Under the license agreement, the Company licensed its
RichWin software to this shareholder. During the year ended June 30, 2000, the
Company recognized advertising revenue and software license revenue from this
shareholder totaling $806,000 and $181,000 or 5.7% and 1.3% of the total revenue
for the year ended June 30, 2000. No revenue was recognized from this
shareholder for the years ended June 30, 1999 and 1998. The total accounts
receivable from this shareholder as of June 30, 2000 and 1999 was $705,000 and
$0, respectively.
Joint venture investment. In December 1999, the Company contributed $1.4
million in cash for a 35.4% interest in a joint venture with Adforce, Inc. and
Compuserve Consultants, Ltd. The investment in the joint venture is accounted
for under the equity method. The total expenses incurred from service provided
by the joint venture for the year ended June 30, 2000 was $304,000. The total
payable to the joint venture as of June 30, 2000 was $304,000.
Shareholder notes. During the year ended June 30, 2000, 2,957,000 options
were exercised by certain officers of the Company for $2,629,000 in notes
payable to the Company prior to being vested. The Company forgave the notes
receivable from two officers upon their termination. The total notes receivable
forgiven by the Company in the year ended June 30, 2000 was $201,000. These
ordinary shares are subject to rights of repurchase by the Company until such
shares are vested. The notes are full recourse and have a five-year term. They
bear interest ranging from 5.74% to 6.60%.
50
<PAGE> 52
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
5. INCOME TAXES
Income is subject to taxation in the various countries in which the Company
and its subsidiaries operate. The components of losses before income taxes are
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------
2000 1999 1998
-------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Loss subject to U.S. income taxes only................. $(13,566) $(2,049) $ --
Loss subject to foreign income taxes, and in certain
cases, U.S. income taxes............................. (37,501) (7,345) (253)
-------- ------- -----
Loss before taxes.................................... $(51,067) $(9,394) $(253)
======== ======= =====
</TABLE>
The components of the net deferred tax assets as of June 30, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
2000 1999
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 9,527 $ 3,333
Other accruals and liabilities............................ 549 154
Research and development credits.......................... 226 116
Depreciation and amortization............................. -- 3
-------- -------
Total deferred tax assets................................. 10,302 3,606
Less: Valuation allowance................................. (10,302) (3,606)
-------- -------
$ -- $ --
======== =======
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates the recoverability of the deferred tax assets and the level
of the valuation allowance.
As of June 30, 2000, the subsidiary of the Company in the United States had
approximately $21.1 million of Federal and $11.9 million of State net operating
loss carryforwards available to offset future taxable income. The federal net
operating loss carryforwards will expire, if unused, in years 2011 through 2020,
and the State net operating loss carryforwards will expire, if unused, in years
2001 through 2005. The U.S. subsidiary's net operating loss and research and
development tax credit carryforwards are subject to an annual limitation as a
result of an ownership change, as defined by tax laws. Additionally, as of June
30, 2000, the Company's Hong Kong subsidiary had approximately $4.6 million net
operating loss carryforwards which can be carried forward indefinitely to offset
future taxable income. The China subsidiary also had net operating loss
carryforwards of approximately $9.3 million which can be carried forward for 5
years.
51
<PAGE> 53
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
6. NET LOSS PER SHARE
Net loss per share. The following table sets forth the computation of
basic and diluted net loss per share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
2000 1999 1998
----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Net loss.......................................... $(50,983) $(9,296) $ (182)
Accretion of mandatorily redeemable convertible
preference redemption value.................... (84) (98) (71)
-------- ------- ------
Net loss attributable to ordinary shareholders.... $(51,067) $(9,394) $ (253)
======== ======= ======
Denominator:
Shares used in computing basic and diluted net
loss per share................................. 14,836 5,466 4,962
======== ======= ======
Basic and diluted net loss per share attributable to
ordinary shareholders............................. $ (3.44) $ (1.72) $(0.05)
======== ======= ======
Weighted average antidilutive securities including
options, warrants, preference shares and
restricted ordinary shares not included in net
loss per shares calculation....................... 23,859 13,468 3,641
======== ======= ======
</TABLE>
Pro forma net loss per share (unaudited). The following table sets forth
the computation of pro forma basic and diluted net loss per share for the year
ended June 30, 2000:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
JUNE 30, 2000
-------------------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C>
Numerator:
Net loss.................................................. $(50,983)
========
Denominator:
Shares used in computing basic and diluted net loss per
Share.................................................. 14,836
Adjustment to reflect assumed conversion of all preference
shares from date of issuance........................... 17,445
Shares used in computing pro forma basic and diluted net
loss per share......................................... 32,281
========
Basic and diluted pro forma net loss per share.............. $ (1.58)
========
Weighted average antidilutive securities including
restricted ordinary shares, options and warrants not
included in pro forma net loss per share calculation...... 6,414
========
</TABLE>
7. AMENDMENT TO ARTICLE OF ASSOCIATION
The Company amended its Article of Association upon the completion of its
initial public offerings. Upon the adoption of the amended Article of
Association, the Company is authorized to issue 75,000,000 Ordinary Shares,
$0.133 par value per share, and 3,750,000 undesignated Preference Shares.
52
<PAGE> 54
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
8. EMPLOYEE BENEFIT PLANS
410(k) Savings Plan
The Company has a saving plan that qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code (the "401(k)
Plan"). Under the 401(k) Plan, participating employees may defer a percentage
(not to exceed 25%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All employees on the United States payroll
of the Company age 21 years or older are eligible to participate in the 401(k)
Plan. The Company had not been required to contribute to the 401(k) Plan.
China contribution plan and profit appropriation
The Company's subsidiary in China participates in a government-mandated
multi-employer defined contribution plan pursuant to which certain retirement,
medical and other welfare benefits are provided to employees. Chinese labor
regulations require the Company's subsidiary to pay to the local labor bureau a
monthly contribution at a stated contribution rate based on the monthly basic
compensation of qualified employees. The relevant local labor bureau is
responsible for meeting all retirement benefit obligations; the Company has no
further commitments beyond its monthly contribution. During years ended June 30,
2000, 1999 and 1998, the Company contributed a total of $1,603,000, $424,000 and
$157,000, respectively, to these funds.
Pursuant to the laws applicable to China's Foreign Investment Enterprises,
the Company's subsidiary in China must make appropriations from after-tax profit
to non-distributable reserve funds as determined by the Board of Directors.
These reserve funds include a (i) general reserve, (ii) enterprise expansion
fund and (iii) staff bonus and welfare fund. The general reserve fund requires
annual appropriations of 10% of after-tax profit (as determined under PRC GAAP);
the other fund appropriations are at the Company's discretion. Since the
Company's PRC subsidiary is in a loss position, no appropriations have been made
to the general reserve fund.
9. STOCK PLANS
1999 Stock Option Plan
In May 1999, the Company adopted the 1999 Stock Option Plan (the "Plan").
The 1999 Plan provides for the granting of stock options to employees,
consultants and directors of the Company. Options granted under the Plan may be
either incentive stock options or nonqualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. The Company has reserved
10,990,000 ordinary shares for issuance under the Company's stock option plans,
including a previous plan carried over from 1997 and options assumed in the
Sinanet acquisition. The 1999 Stock Option Plan will continue in effect until
May 2009, unless terminated earlier in accordance with the terms of the Plan.
Options under the Company's Stock Option Plan may be granted for a term of
up to ten years and at prices no less than 85% of the estimated fair value of
the shares on the date of grant as determined by the Board of Directors,
provided, however, that the exercise price of an ISO and NSO shall not be less
than 100% and 85% of the estimated fair value of the shares on the date of
grant, respectively. The exercise price of an ISO and NSO granted to a 10%
shareholder should not be less than 110% of the estimated fair value of the
shares on the date of grant. Options granted under the Plan through June 30,
2000 generally vest 25% after the first year and then 2.083% each month
thereafter. Certain grants are exercisable immediately under such terms and
conditions as determined by the Board of Directors. Ordinary Shares issued upon
such early
53
<PAGE> 55
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
exercises are subject to rights of repurchases by the Company until such shares
become fully vested. At June 30, 2000, there were 1,446,000 shares of such
Ordinary Shares issued that were subject to repurchase. At June 30, 1999, there
were no shares of such Ordinary Shares issued that were subject to repurchase.
1999 Executive Stock Option Plan
In October 1999, the Board adopted the 1999 Executive Stock Option Plan
(the "Executive Plan"). An aggregate of 2,250,000 Ordinary Shares have been
reserved for issuance under the Executive Plan. The Executive Plan provides for
the granting of options to purchase Ordinary Shares and Ordinary Share purchase
rights to eligible employees and consultants. As of June 30, 2000, 1,671,000
options had been granted under the Executive Plan. Options under Executive Plan
may be granted for a term of up to ten years and at prices no less than 85% of
the estimated fair value of the shares on the date of grant as determined by the
Board of Directors, provided, however, that the exercise price of an ISO and NSO
shall not be less than 100% and 85% of the estimated fair value of the shares on
the date of grant, respectively. The exercise price of an ISO and NSO granted to
a 10% shareholder should not be less than 110% of the estimated fair value of
the shares on the date of grant. Options granted under the Executive Plan
through June 30, 2000 generally vest 25% after the first year and then 2.083%
each month thereafter. Certain grants are exercisable immediately under such
terms and conditions as determined by the Board of Directors. Ordinary Shares
issued upon such early exercises are subject to rights of repurchases by the
Company until such shares become fully vested. The Executive Plan will continue
in effect until October 2009, unless terminated earlier in accordance with the
terms of the Executive Plan.
Directors' stock option plan
In October 1999, the Board approved the 1999 Directors' Stock Option Plan
(the "Directors' Plan") covering an aggregate of 750,000 ordinary shares. The
Directors' Plan became effective on the effective date of the initial public
offering and provides a non-employee director after the completion of the
offering (1) a nonstatutory stock option to purchase 37,500 ordinary shares on
the date on which he or she first becomes a member of the Board of Directors,
and (2) an additional nonstatutory stock option to purchase 15,000 shares on the
date of each annual shareholders' meeting immediately thereafter, if on such
date he or she has served on the Board for at least six months. All options
granted under the Director's Plan shall not be less than 100% of the estimated
fair value of the shares on the date of grant and shall have a maximum term of
10 years. All options granted under the Directors' Plan vest in full immediately
upon grant. As of June 30, 2000, a total of 188,000 options had been granted
under the Directors' Plan.
54
<PAGE> 56
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The following table summarizes stock option activity under the Company's
stock option plans:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
2000 1999
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
----------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... 5,999 $0.56 504 $1.67
Granted............................... 4,887 7.24 5,109 0.73
Assumed in Sinanet acquisition........ -- -- 923 0.23
Exercised............................. (5,171) 0.77 (13) 0.25
Canceled.............................. (993) 1.55 (524) 1.61
------ -----
Outstanding at period end............... 4,722 7.02 5,999 0.56
====== =====
Weighted average grant date fair value
of options granted during the year.... $6.49 $3.42
</TABLE>
At June 30, 2000, 3,566,000 options were available for grant under the
Plans.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT JUNE 30, 2000 OPTIONS EXERCISABLE AT
----------------------------------------- JUNE 30, 2000
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE
--------------- -------------- ----------- -------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 0.16 -- $ 1.00........ 1,427 8.40 $ 0.49 854 $ 0.46
$ 7.33 -- $ 7.33........ 2,475 9.29 7.33 1,841 7.33
$11.50 -- $26.00........ 775 9.75 16.87 202 16.68
$27.06 -- $27.06........ 45 9.99 27.06 -- --
----- -----
4,722 2,897
===== =====
</TABLE>
Stock-based compensation. Stock options granted in fiscal 1998 had an
original exercise price of $1.67. On October 1, 1998, the exercise price of
these options were adjusted to $0.17 per share and the Company recognized
$923,000 in deferred stock compensation. In compliance with the terms of the
original option agreements, these options were fully vested by March 29, 1999
upon the merger with Sinanet. Therefore, the Company recognized approximately
$923,000 in compensation expense related to these options in the year ended June
30, 1999. The Company did not record any deferred stock compensation or
amortization expense during the year ended June 30, 1998.
In connection with certain stock option grants during the years ended June
30, 2000 and 1999, the Company recorded deferred stock compensation totaling
$14,669,000 and $21,922,000, respectively, which is being amortized over the
vesting periods of the related options, which are generally four years.
Amortization expense recognized during the years ended June 30, 2000 and 1999
totaled approximately $19,065,000 and $2,469,000.
55
<PAGE> 57
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The stock-based compensation has been allocated across the relevant
functional expense categories in the statement of operations as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
2000 1999 1998
------- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cost of revenues:
Advertising............................................. $ 333 $ 16 $--
Software................................................ 272 16 --
------- ------ --
605 32 --
------- ------ --
Operating expenses:
Product development..................................... 5,973 505 --
Sales and marketing..................................... 567 42 --
General and administrative.............................. 11,920 2,813 --
------- ------ --
18,460 3,360 --
------- ------ --
$19,065 $3,392 $--
======= ====== ==
</TABLE>
Fair value disclosures. The Company calculated the fair value of each
option grant on the date of grant using the Black-Scholes pricing method with
the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
---------- ------------------- ----
<S> <C> <C> <C>
Risk-free interest rate...................... 6.00%--6.40% 5.08%--5.75% 6.18%
Expected life (in years)..................... 4 5 5
Expected dividend yield...................... -- -- --
Volatility................................... 84% -- --
</TABLE>
Prior to the Company's initial public offering, the fair value of each
option grant was determined using the minimum value method. Options granted
subsequent to the initial public offering have been valued using the
Black-Scholes model considers the expected volatility of our stock price,
determined in accordance with FAS 123, in arriving at an option valuation. The
minimum value method does not consider stock price volatility. Had compensation
cost for the Company's stock-based compensation plan been determined based on
the fair value at the grant dates for the awards under a method prescribed by
SFAS No. 123, the Company's net loss per share would have been further adjusted
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
2000 1999 1998
--------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net loss
As reported......................................... $(51,067) $(9,394) $ (253)
======== ======= ======
Pro forma........................................... $(53,429) $(9,452) $ (283)
======== ======= ======
Net loss per share, basic and diluted
As reported......................................... $ (3.44) $ (1.72) $(0.05)
======== ======= ======
Pro forma........................................... $ (3.60) $ (1.73) $(0.06)
======== ======= ======
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts. Additional awards in future years are
anticipated.
56
<PAGE> 58
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
Employee stock purchase plan
In October 1999, the Board adopted the 1999 Employee Stock Purchase Plan
(the "Purchase Plan"). An aggregate of 3,750,000 ordinary shares have been
reserved for issuance under the plan, plus annual increases equal to the lesser
of (1) 600,000 shares, (2) 0.5% of the ordinary shares outstanding on the last
day of the immediately preceding fiscal year, or (3) such lesser number of
shares as is determined by the Board. The Purchase Plan is implemented by a
series of overlapping periods of approximately 24 months' duration, with new
offering periods (other than the first offering period which will be
approximately 9 1/2 months) commencing on February 1 and August 1 of each year.
The price at which stock is purchased under the Purchase Plan is equal to the
lower of 85% of the fair market value of the Ordinary Shares at the beginning of
each offering period or at the end of each purchase period. The eligible
employees can have up to 20% of their earnings withheld to be used to purchase
shares of the Company's Ordinary Share. The Purchase Plan offers automatic
withdrawal and reenrollment provision under which the participant in the ongoing
offering period shall automatically be deemed to have withdrawn from the ongoing
offering period and enrolled in such new offering period under the same
subscription agreement in effect for such ongoing offering period if the fair
market value of the shares on the new offering period is lower than the in
progress offering period. The 1999 Employee Stock Purchase Plan became effective
on the effective date of the initial public offering. As of June 30, 2000, total
contributions by employees to the Purchase Plan was $389,000 and no shares had
been issued under the Purchase Plan.
10. OPERATING SEGMENT
Effective July 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
requires enterprises to report information about operating segments in annual
financial statements and selected information about reportable segments in
interim financial reports. It also establishes standards for related disclosures
about products, geographic areas and major customers.
The Company has two reportable segments, Internet and Software, each of
which requires different development, production, and marketing resources. The
Internet segment develops, designs and markets content and services through a
network of SINA.com web sites hosted in the U.S., China, Hong Kong and Taiwan.
The Software segment develops, produces and markets software products and
related services in China. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies. The
Company evaluates performance based on income or loss from operations before
stock compensation, amortization of intangible assets, interest, nonrecurring
gains and losses, foreign exchange gains and losses, and income taxes.
Facilities costs are allocated to the segment's cost of revenues based on usage.
Long-lived assets comprise property and equipment.
57
<PAGE> 59
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The Internet segment did not have material activities prior to June 30,
1998. Accordingly, no comparative segment information for the year ended June
30, 1998 is disclosed. Information about segments for the years ended June 30,
2000 and 1999, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------
2000 1999
-------------------- --------------------
INTERNET SOFTWARE INTERNET SOFTWARE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues..................................... $11,227 $2,943 $ 579 $2,248
Depreciation and amortization................ (1,328) (148) (94) (218)
Segment operating loss....................... (28,440) (90) (2,479) (2,226)
Segment assets............................... 20,983 1,911 6,213 2,677
Expenditures for long-lived assets........... (6,317) (702) (667) (618)
</TABLE>
Reconciliation of segment information to financial statements:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
2000 1999
-------- -------
(IN THOUSANDS)
<S> <C> <C>
LOSS FROM OPERATION:
Total loss for reportable segments.......................... $(28,530) $(4,705)
Unallocated amounts:
Stock based compensation.................................. (19,065) (3,392)
Amortization of intangible assets......................... (6,807) (1,688)
Other corporate expenses, net............................. -- --
-------- -------
Loss from operations before interest, income taxes and
minority interest......................................... $(54,402) $(9,785)
======== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------
2000 1999
-------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Total assets for reportable segments........................ $ 22,894 $ 8,890
Cash and short-term investments............................. 121,316 20,040
Intangible assets........................................... 11,828 18,635
Other unallocated amounts................................... -- 17
-------- -------
$156,038 $47,582
======== =======
</TABLE>
58
<PAGE> 60
SINA.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The following is a summary of the Company's geographic operations:
<TABLE>
<CAPTION>
U.S. CHINA HONG KONG TAIWAN TOTAL
------ ------ --------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED AND AS OF JUNE 30, 2000:
Revenues............................... $4,414 $8,080 $525 $1,151 $14,170
Long-lived assets...................... 1,694 3,690 938 1,415 7,737
YEAR ENDED AND AS OF JUNE 30, 1999:
Revenues............................... $ 122 $2,594 $ -- $ 111 $ 2,827
Long-lived assets...................... 979 885 81 249 2,194
YEAR ENDED AND AS OF JUNE 30, 1998:
Revenues............................... $ -- $2,499 $ $ -- $ 2,499
Long-lived assets...................... -- 486 -- 486
</TABLE>
Revenues are attributed to the countries in which the invoices are issued.
11. COMMITMENTS AND CONTINGENCIES
Leases. The Company leases office space under noncancelable operating
leases with various expiration dates through June 2007. Rent expense for the
years ended June 30, 2000, 1999 and 1998 totaled $778,000, $333,000 and 248,000,
respectively.
At June 30, 2000 future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
YEAR ENDING JUNE 30,
2001...................................................... $ 898
2002...................................................... 703
2003...................................................... 365
2004...................................................... 260
2005 and after............................................ 816
------
$3,042
======
</TABLE>
Contingencies. There are uncertainties regarding the legal basis of the
Company's ability to operate an internet business and to advertise in China.
Although the country has implemented a wide range of market-oriented economic
reforms, the telecommunication, information and media industries remain highly
regulated. Not only are restrictions currently in place, but also regulations
are unclear regarding in what specific segments of these industries companies
with foreign investors, including the Company, may operate. Therefore, the
Company might be required to limit the scope of its operations in China, and
this could have a material adverse effect on the Company's financial position,
results of operations and cash flows.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 61
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth specific information regarding our executive
officers, directors and other key employees and their ages as of September 25,
2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Daniel Chiang.......................... 42 Chairman of the Board
EXECUTIVE OFFICERS
Zhidong Wang........................... 33 President, Chief Executive Officer and
Director
Daniel Mao............................. 36 Chief Operating Officer
Victor K. Lee.......................... 44 Chief Financial Officer
Hurst Lin.............................. 35 Vice President, Business Development
and General Manager of U.S. Operations
Yan Wang............................... 28 General Manager of China Operations
DIRECTORS
Pehong Chen............................ 42 Director
Yongji Duan............................ 54 Director
Lip-Bu Tan............................. 40 Director
Ter Fung Tsao.......................... 54 Director
</TABLE>
DANIEL CHIANG served as the President and Chief Executive Officer of
Sinanet.com, an Internet content and services company, from June 1996 until it
merged into SINA.com in March 1999. Mr. Chiang currently serves as our Chairman
of the Board. Prior to joining Sinanet.com in June 1996, Mr. Chiang was the
President of Trend Micro, Inc., an Internet virus protection and content
security company, from December 1993 to May 1996. Mr. Chiang received a M.A. in
Political Economy from University of Texas, Dallas and a B.A. in Diplomacy from
National Cheng-Chi University in Taiwan.
ZHIDONG WANG has served as both our President and a director since
incorporation of SINA.com in 1997. He has also served as our Chief Executive
Officer since August 1999. Mr. Wang co-founded Beijing Stone Rich Sight
Information Technology Co., Ltd., or BSRS, a software development company and
one of our subsidiaries, in December 1993 and served as its President and Chief
Executive Officer from October 1993 to May 1999. In February 1991, Mr. Wang also
founded and served as the Vice President and Chief Technology Officer of
Suntendy Electronic Information Technology and Research Company, a software
company, until April 1993. Mr. Wang holds a B.S. degree in Electrical
Engineering from Beijing University.
DANIEL MAO served as our director from October 1997 to March 1999. He
served as our Chief Operating Officer from March 1999 to June 1999 and resumed
the position in September 1999. He briefly served as our Acting Chief Financial
Officer from September 1999 to November 1999 and as our Executive Vice President
of Business and Corporate Development from June 1999 to August 1999. Prior to
becoming one of our officers in March 1999, Mr. Mao was Vice President of Walden
International Investment Group, a venture capital firm, from February 1994 to
March 1999. Mr. Mao holds a M.S. in Engineering Economic Systems from Stanford
University and a B.S. in Computer Science from Jiaotong University in Shanghai,
China.
VICTOR K. LEE has served as our Chief Financial Officer since November
1999. Prior to joining us, Mr. Lee served as Acting Chief Financial Officer from
September 1998 to July 1999 and was Vice President, Corporate Controller and
Chief Accounting Officer from August 1997 to September 1998 of VLSI Technology,
Inc., a semiconductor manufacturer. From March 1989 to August 1997, he served as
finance director of Advanced Micro Devices, Inc., a semiconductor manufacturer.
Mr. Lee holds a M.B.A. and a B.S. in Industrial Engineering and Operational
Research from the University of California, Berkeley.
HURST LIN co-founded and served as the Vice President of Business
Development of Sinanet.com from May 1995 until it merged into SINA.com in March
1999. Since the merger, Mr. Lin has served as our Vice
60
<PAGE> 62
President of Business Development. Since September 1999, Mr. Lin has served as
our General Manager of U.S. Operations. Mr. Lin holds a M.B.A. from Stanford
University and a B.A. in Engineering from Dartmouth College.
YAN WANG has served as our General Manager of China Operations since
September 1999 and as our Executive Deputy General Manager for Production and
Business Development in China from April 1999 to August 1999. In April 1996, Mr.
Wang founded the SRSnet.com division of Beijing Stone Rich Sight Limited, our
wholly-owned subsidiary. From April 1996 to April 1999, Mr. Wang served as the
head of our SRS Internet Group. Mr. Wang holds a B.A. in Law from the University
of Paris.
PEHONG CHEN has served as our director since March 1999. Mr. Chen has been
the Chief Executive Officer, President and Chairman of the Board of Broadvision,
Inc., a software applications company, since May 1993. Prior to founding
Broadvision, Mr. Chen was Vice President of MultiMedia Technology at Sybase,
Inc., an enterprise software company, from 1992 to 1993. From 1989 to 1992, Mr.
Chen founded and was president of Gain Technology, a multimedia software tools
company, which was acquired by Sybase. Mr. Chen holds a Ph.D. and a B.S. in
Computer Science from University of California, Berkeley and a M.S. in Computer
Science from Indiana University.
YONGJI DUAN has served as our director since August 1997. Mr. Duan also
served as a director for Rich Sight Investment Limited, one of our subsidiaries,
from May 1993 through May 1999. Mr. Duan has served as the Director of Stone
Group Corporation, a holding company, since February 1991 and is now the
Chairman of Stone Group Corporation. Mr. Duan has also served as President and
Chief Executive Officer of Stone Electronic Technology Limited, a diversified
electronics and consumer products company, since 1990. Mr. Duan holds a M.S. in
Aeronautics Materials from Beijing Aeronautic College and a B.S. from Qinghua
University.
LIP-BU TAN has served as our director since March 1999. Since 1984, Mr. Tan
has been the General Partner of Walden International Investment Group, an
international venture capital firm. Mr. Tan is currently a director of Creative
Technology Ltd., a multimedia technology company, Integrated Silicon Solutions,
Inc., a semiconductor company, MediaRing.com Ltd., an Internet communications
technology company, and several other private companies. He holds a M.S. in
Nuclear Engineering from the Massachusetts Institute of Technology and a M.B.A.
from the University of San Francisco, where he serves on the Board of Trustees.
Mr. Tan received his B.S. from Nanyang University, Singapore.
TER FUNG TSAO has served as our director since March 1999. Mr. Tsao has
served as Chairman of Standard Foods Taiwan Ltd., a packaged food company, since
1986. Before joining Standard Foods Taiwan Ltd., Mr. Tsao worked in several
positions within The Quaker Oats Company, a packaged food company, in the United
States and Taiwan. Mr. Tsao received a B.S. in Civil Engineering from Cheng Kung
University in Taiwan, a M.S. in Sanitary Engineering from Colorado State
University, and a Ph.D. in Food and Chemical Engineering from Colorado State
University.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the captions
"Executive Officer Compensation and Other Matters," "Report of the Compensation
Committee of the Board of Directors on Executive Compensation," "Compensation
Committee Interlocks and Insider Participation," and "Performance Graph" in the
Registrant's Proxy Statement for its 2000 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the captions "Record
Date; Voting Securities" and "Information Regarding Beneficial Ownership of
Principal Shareholders and Management" in the Registrant's Proxy Statement for
its 2000 Annual Meeting of Shareholders.
61
<PAGE> 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information under the captions "Certain
Transactions" and "Compensation Committee Interlocks and Insider Participation"
in the Registrant's Proxy Statement for its 2000 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements: See Index to Consolidated
Financial Statements at Item 8 on page 35 of this report.
(2) Financial Statement Schedules: See Index to Consolidated Financial
Statements at Item 8 on page 35 of this report.
(3) Exhibits are incorporated herein by reference or are filed with
this report as indicated below (numbered in accordance with Item 601 of
Regulation S-K):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1* Agreement and Plan of Reorganization by and among SRS
International Ltd., SINO Acquisition Corporation and
Sinanet.com dated January 19, 1999.
2.2* Sale and Purchase Agreement among SRS International Ltd.,
Stone Electronic Technology Limited, Wang Zhidong, Everbuilt
Investments Limited and Brilliant Future Group Limited dated
August 13, 1997.
3.2* Amended and Restated Articles of Association of SINA.com.
3.4* Amended and Restated Memorandum of Association of SINA.com.
4.2* Amended and Restated Investors' Rights Agreement dated
October 19, 1999 among SINA.com and certain holders of
SINA.com's securities.
10.1* Form of Indemnification Agreement between SINA.com and each
of its officers and directors.
10.2* SRS International Ltd. 1997 Stock Option Plan and form of
incentive stock option agreement.
10.3* Sinanet.com 1997 Stock Plan and form of stock option
agreement.
10.4* Amended SINA.com 1999 Stock Plan and form of share option
agreement.
10.5* 1999 Employee Stock Purchase Plan and form of subscription
agreement.
10.6* 1999 Directors' Stock Option Plan and form of nonstatutory
stock option agreement.
10.7* License Agreement dated May 31, 1999, and subsequent License
Agreement between the parties dated July 30, 1999, between
Regus Business Centre Ltd. and SINA.com for office space
located at 18/F, One International Finance Centre, 1 Harbour
View Street, Central, Hong Kong.
10.8* Sublease Agreement dated December 23, 1998 between
Environmental and Occupational Risk Management, Inc, a
California Partnership, and Sinanet.com for offices at 1313
Geneva Drive, Sunnyvale, CA.
10.9* Lease agreements between Beijing Stone Rich Sight
Information Technology Co. Ltd. (a subsidiary of
Sina.com)and the following entities: a) Beijing Shilihe
Property Management Company Ltd dated October 16, 1997, b)
Beijing Wanquan Hope Technology Development Center dated
April 2, 1998, and c) Wanquan Primary School, Haidian
District, Beijing dated December 15, 1998. All agreements
are for office space located in Beijing Wanquan Primary
School, Haidian District, Beijing.
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10* Lease agreement dated December 1, 1998 between Po-Hu Lee and
SINA.Com Online for offices located at 3F, No. 29, An Ho
Road, Ta An District, Taipei City, Taiwan.
10.11* Employment Agreement dated September 10, 1997 between
Beijing Stone Rich Group and Zhidong Wang.
10.12* Offer Letter dated January 11, 1999 between SINA.com and
Daniel Mao.
10.13* Offer Letter dated January 22, 1999 between SINA.com and
James Sha.
10.14* Termination Agreement dated September 26, 1999 between
SINA.com and James Sha.
10.15*+ Joint Venture Agreement dated August 31, 1999 between
AdForce, Inc., a Delaware Corporation, SINA.com, a Cayman
Islands Corporation and Compuserve Consultants, Ltd. a Hong
Kong company.
10.16*+ Value Added Link Agreement dated June 1, 1999 between Alta
Vista Equipment Corporation and SINA.com.
10.17*+ Service Agreement dated June 16, 1999 between Critical Path,
Inc. and SINA.com.
10.18*+ Web Page Search Service Agreement dated July 30, 1999
between Openfind Information Technology Corporation and
SINA.com.
10.19* 1999 Executive Stock Plan.
10.20* Side letter dated November 12, 1999 between China
International Capital Corporation and SINA.com.
10.21* Side letter dated November 12, 1999 between E*O Investments
and SINA.com.
10.22* Offer letter dated November 18, 1999 between SINA.com and
Victor K. Lee.
10.23* Business Cooperation Agreement dated March 7, 2000 between
Beijing SINA Internet Information Services Co., Ltd. and
BSRS.
10.24* Equipment and Leased Line Transfer Agreement dated March 7,
2000 between Beijing SINA Internet Information Services Co.,
Ltd. and BSRS.
10.25* Agreement on Exercising Voting Right by Proxy dated March 7,
2000 between Wang Zhidong and BSRS.
10.26* Advertising Agency Agreement dated March 7, 2000 between
Beijing SINA Internet Information Services Co., Ltd. and
SINA.com.
10.27* Advertisement Production and Technical Service Agreement
dated March 7, 2000 between Beijing Stone Rich Sight
Information Technology Co., Ltd. and Beijing SINA
Interactive Advertising Co. Ltd.
10.28* Advertising Publication and Cooperation Agreement dated
March 7, 2000 between Beijing SINA Internet Information
Services Co., Ltd. and Beijing SINA Interactive Advertising
Co., Ltd.
10.29* Opinion of Commerce and Finance Law Offices dated March 14,
2000 regarding approval by China Securities Regulatory
Commission.
10.30* Opinion of Commerce and Finance Law Offices dated March 20,
2000.
10.31* Employment Agreement dated September 23, 1999 between
Beijing Store Rich Sight Technology Co. Ltd. and Yan Wang.
10.32* Lease Agreement dated November 18, 1999 between Po-Hu Lee
and SINA.Com Online for offices located at 3F, No. 29, AN Ho
Road, Ta An District, Taipei City, Taiwan.
10.33* Lease Agreement dated November 8, 1999 between Vicwood
International Limited and SINA.com (Hong Kong) Limited for
offices located at Units 01-03, 18th Floor, 199 Des Voeux
Road, Central, Hong Kong.
10.34* Loan agreement dated November 18, 1999 with Zhidong Wang to
provide capital for ICP Company.
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.35* Loan agreement dated October 12, 1999 with Zhidong Wang to
provide capital for Ad Company.
10.36* Loan agreement dated November 18, 1999 with Wang Yan for
purposes of providing capital to the ICP Company.
10.37* Amendment to Advertising Agency Agreement dated April 1,
2000 between Beijing SINA Interactive Advertising Co., Ltd.
and SINA.com.
10.38* Amendment to Advertisement Publication and Cooperation
Agreement dated April 1, 2000 between Beijing SINA
Interactive Advertising Co., Ltd. and Beijing SINA Internet
Information Services Co., Ltd.
10.39* Amendment to Advertising Production and Technical Service
Agreement dated April 1, 2000 between Beijing Stone Rich
Sight Information Technology Co., Ltd. and Beijing SINA
Interactive Advertising Co., Ltd.
10.40* E-Commerce Cooperation Agreement dated April 1, 2000 between
Beijing Stone Rich Sight Information Technology Co., Ltd.
and Beijing SINA Internet Information Services Co., Ltd.
10.41* First Amendment dated April 6, 2000 to Wang Zhidong's
Executive Employment Agreement.
10.42* First Amendment dated April 6, 2000 to Yan Wang's Labor
Contract.
21.1* List of Subsidiaries.
23.1 Consent of Independent Accountants.
24.1* Power of Attorney (appears on the signature page of this
report).
27.1 Financial Data Schedule
</TABLE>
---------------
* Incorporated by reference to the corresponding Exhibit previously filed as an
Exhibit to the Company's Registration Statement on Form F-1 (Registration No.
333-11718) filed with the Commission on March 27, 2000, as amended.
+ Confidential treatment requested as to portions of this exhibit.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by SINA.com during the year ended June
30, 2000.
64
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, SINA.com has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
Date: September 25, 2000
SINA.com
By: /s/ VICTOR K. LEE
------------------------------------
Victor K. Lee
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Daniel Mao and Victor Lee, jointly and
severally, his or her attorneys-in-fact, each with the power of substitution,
for him or her in any and all capacities, to sign any amendments to this Report
on Form 10-K and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ZHIDONG WANG President, Chief Executive September 25, 2000
--------------------------------------------------- Officer and Director
Zhidong Wang (Principal Executive
Officer)
/s/ VICTOR K. LEE Chief Financial Officer September 25, 2000
--------------------------------------------------- (Principal Financial
Victor K. Lee Officer)
/s/ CHARLES CHAO Vice President, Finance September 25, 2000
--------------------------------------------------- (Principal Accounting
Charles Chao Officer)
/s/ DANIEL CHIANG Chairman of the Board September 25, 2000
---------------------------------------------------
Daniel Chiang
/s/ PEHONG CHEN Director September 25, 2000
---------------------------------------------------
Pehong Chen
/s/ YONGJI DUAN Director September 25, 2000
---------------------------------------------------
Yongji Duan
/s/ LIP-BU TAN Director September 25, 2000
---------------------------------------------------
Lip-Bu Tan
/s/ TER-FUNG TSAO Director September 25, 2000
---------------------------------------------------
Ter-Fung Tsao
</TABLE>
65
