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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
 Form 10-K 
 þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2004 OR
 o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
 EXCHANGE ACT OF
1934
 Commission File Number 000-30698 SINA CORPORATION (Exact Name of Registrant as specified in its charter) Cayman Islands(State or other jurisdiction of
Incorporation or organization)
    
    52-2236363(I.R.S. Employer Identification Number)
 Room 1802, United Plaza
1468 Nan Jing Road West
Shanghai 200040, China
(86-21) 6289 5678 (Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
 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
Ordinary Share Purchase Rights 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 þ No o Indicate 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. o Indicate by check mark whether the registrant is an accelerated filer. Yes þ No o The aggregate market value of the voting stock held by non-affiliates of the registrant
was approximately $1,328,900,937 as of June 30, 2004, based upon the closing sale price for our
ordinary shares as quoted by the Nasdaq National Stock Market reported for such date. Ordinary
shares held by each officer and director and by each person known to the registrant (based on
information provided by such persons and/or the most recent schedule 13Gs as filed by such
persons) to beneficially own 5% or more of the outstanding ordinary shares have been excluded
because such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. As of March 10, 2005, there were 51,501,116 shares of the registrants ordinary shares
outstanding, $0.133 par value. DOCUMENTS INCORPORATED BY REFERENCE Part III (Items 10-14) incorporate information by reference from the definitive proxy
statement for the 2005 Annual Meeting of Shareholders to be filed hereafter.




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SINA CORPORATION INDEX Page No.PART I.Item 1.
    
    Business
    
    
    4Item 2.
    
    Properties
    
    
    36Item 3.
    
    Legal Proceedings
    
    
    36Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37PART II.Item 5.
    
    Market for the Registrants Common Equity, Related Shareholders Matters and
Issuer Purchases of Equity Securities
    
    
    38Item 6.
    
    Selected Financial Data
    
    
    40Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    41Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    60Item 8.
    
    Statements and Supplementary Data
    
    
    61Managements
Report on Internal Control over Financial Reporting
    
    
    62Report of
Independent Registered Public Accounting Firm
    
    
    63Consolidated Balance Sheets at December 31, 2004 and 2003
    
    
    65Consolidated Statements of Operations for the years ended December 31, 2004 and 2003, the six monthsended December 31, 2002 and the year ended June 30, 2002
    
    
    66Consolidated Statements of Shareholders Equity for the years ended December 31, 2004 and 2003, the sixmonths ended December 31, 2002 and the year ended June 30, 2002
    
    
    67Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003, the six monthsended December 31, 2002 and the year ended June 30, 2002
    
    
    68Notes to Consolidated Financial Statements
    
    
    70Item 9.
    

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    99Item 9A.
    
    Controls and Procedures
    
    
    99Item 9B.
    
    Other Information
    
    
    99PART III.
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Page No.Item 10.
    
    Directors and Executive Officers of the Registrant
    
    
    99Item 11.
    
    Executive Compensation
    
    
    99Item 12.
    
    Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matter
    
    
    99Item 13.
    
    Certain Relationships and Related Transactions
    
    
    99Item 14.
    
    Principal Accountant Fees and Services
    
    
    99PART IV.Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    100SIGNATURES
    
    
    100POWER OF ATTORNEY
    
    
    101EXHIBIT INDEXEXHIBIT 3.1EXHIBIT 3.2EXHIBIT 10.5EXHIBIT 10.48EXHIBIT 10.49EXHIBIT 10.50EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS This Annual Report onForm 10-Kcontains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as may, will, should, expect, plan,
anticipate, believe, estimate, predict, potential or continue, the negative of such
terms or other comparable terminology. These statements are only predictions. Actual events or
results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness
of the forward-looking statements. We undertake no duty to update any of the forward-looking
statements after the date of this report to conform such statements to actual results or to changes
in our expectations. Readers are also urged to carefully review and consider the various disclosures made by us
which attempt to advise interested parties of the factors which affect our business, including
without limitation the disclosures made under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operations and under the caption Business  Risk Factors
included herein. 
 PART I 
 Item 1.Business Overview SINA Corporation (SINA, we or the Company), is a leading online media company and
value-added information services (VAS) provider in the Peoples Republic of China (the PRC or
China) and for Chinese communities worldwide. The Company offers a network of localized web sites
targeting Greater China and overseas Chinese, and provides an array of services to its users
including region-focused online portals, mobile value-added services (MVAS), search and
directory, interest-based and community-building channels, free and premium email, online games,
virtual ISP, classified listings, fee-based services, e-commerce, and enterprise e-solutions. The
Company generates revenue through advertising, MVAS, e-commerce and enterprise services. As of
December 31, 2004, SINA had approximately 127.0 million registered users worldwide. See Note 14
Segment Information in our Notes to Consolidated Financial Statements for information about
geographic areas. Founded by the merger between Beijing SINA Information Technology Co. Ltd. and
California-based SINANET.com in March 1999, SINA, a Cayman Islands corporation has offices in seven
cities and a network of four web sites around the world. SINA completed its initial public offering
on the Nasdaq National Market in April 2000 and is now headquartered in Shanghai, China. Over the
years, SINA has transformed itself from a pure Internet portal relying almost exclusively on online
advertising to a company with multiple revenue streams. In 2004, the Company made additional acquisitions and established partnerships to expand upon
its network of properties and services. In January 2004, the Company formed a joint venture with
Yahoo! to provide online auctions in the PRC. In February 2004, the Company acquired Bravado
Investments Limited (Bravado) to enter the PRC online travel market. In March 2004, SINA acquired
Crillion Corporation (Crillion) to enhance its MVAS as well as increase its market share in the
PRC MVAS market. In October 2004, SINA completed the acquisition of Davidhill Capital Inc.
(Davidhill) and its instant messaging technology platform. The instant messaging technology
platform allows users to communicate in real-time over the Internet and mobile phone networks.
These new partners and alliances further strengthen SINAs position as a leading portal in China
and bring synergies to its overall business offerings. Market Opportunity Our primary focus is the market in China. The success of our business is tied to the strength
and vitality of the Chinese economic environment. With Gross Domestic Product, or GDP, growth of
9.5% in 2004, China represents the fastest growing country in the world. Similarly, there has been
tremendous growth in the Chinese Internet market. At the end of December 31, 2004, China had 94
million of Internet users according to China Internet Network Information Center, making
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the country with the second-largest Internet user base in the world. The mobile service sector,
the area of focus for SINAs mobile value-added business, continues to exhibit healthy growth. With
335 million mobile phone users at December 31, 2004, China has the largest mobile service market
despite its low penetration rate of only 21%, according to International Telecommunication Union.
The high growth and low penetration rates make China an attractive market for SINA. The adoption of 3G mobile technology and broadband access will allow for new
and greater product applications and additional revenue streams for the Company in the near future. Product Offerings SINA provides services through five major business lines including SINA.com (online news and
content), SINA Mobile (MVAS), SINA Online (community-based services and games), SINA.net (search
and enterprise services) and SINA E-Commerce (online shopping, online auction and travel). We currently operate in two principal business segments globally: advertising and
non-advertising. Please see the Consolidated Financial Statements for information on revenues,
profit or loss and total assets for the last three fiscal years. The following table presents an
overview of the Companys financial reporting structure as well as its vertical properties and
services: Revenue
Classification
    
    

Advertising (online advertising)Non-advertising (MVAS, fee-based services, e-commerce, enterprise e-services)
  Properties and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SINAServices
    
    
    SINA.com
    
    
    SINA Mobile
    
    
    SINA Online
    
    
    SINA.net
    
    
    E-Commerceo News and online content
    
    
    o MVAS
    
    
    o Community-based services
    
    
    o Search
    
    
    o Online shoppingo Online advertising
    
    
    
    
    
    o Online games
    
    
    o Enterprise solutions
    
    
    o Online auctiono Casual games
    
    
    
    
    
    o Travel and hotelo Instant messaging
    
    
    
    
    
    booking services
 Properties and Services SINA.com SINA Portal Network SINAs portal network consists of four destination web sites dedicated to users in Greater
China including mainland China (www.sina.com.cn), Taiwan (www.sina.com.tw), Hong Kong
(www.sina.com.hk), and overseas Chinese in North America (www.sina.com). Each of the destination
sites consists of Chinese-language news and content organized into interest based channels, and
offer extensive community and communication services and sophisticated web navigation capability
through SINA search and directory services. Interest-Based Channels On all of its web sites, SINA offers for free a variety of interest-based channels that
provide region-focused format and content. The most popular channels are: n
    
    SINA News. SINA News aggregates feeds from news providers,
bringing together content from media companies such as China
National Radio, Agence France-Presse (AFP), Associated Press,
Nanfang Daily, Xinhua Net, Beijing Zhongxin Net, and Xinhua News
Agency. Through SINA News, users have access to breaking news
coverage, from multiple sources and points of view.n
    
    SINA Sports. SINA Sports provides access to up-to-the-minute
news, real-time statistics and scores, text broadcast programming,
local and global coverage.
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n
    
    SINA Entertainment. SINA Entertainment contains extensive
coverage of the local and international entertainment news and
events that are of interest to our users, including dining,
movies, television programs, plays, operas as well as popular and
classical music.n
    
    SINA Technology. SINA Technology is a wide-ranging channel for
news and information relating to the technology industry along
with product reviews and software downloads.n
    
    SINA Finance. SINA Finance provides a comprehensive set of
financial resources, from business news to personal finance
columns. SINA Finance also offers stock quotes from the Shanghai
and Shenzhen stock exchanges as well as breaking news from
individual listed companies and market trends analysis.n
    
    SINA Search. SINA Search provides a web directory that allows the
users to search the web by subjects or via a directory tree. It
also features a web page search engine for users to obtain
relevant web content based on the key words they enter.n
    
    SINA Auto. SINA Auto is a comprehensive information source for
car buyers and auto enthusiasts. The Auto channel covers the
latest industry news, car reviews, comparison charts and a
real-time interactive pricing and feature guides for car buyers.n
    
    SINA Real Estate. SINA Real Estate provides the latest news,
pricing and availability on new, used and rental housing. It also
features interactive electronic maps, discussion forums and how-to
guides for buyers, sellers and owners of properties on topics
ranging from home buying, selling, furnishing and repairing.n
    
    SINA Gaming. SINA Gaming, one of the largest gaming information
web sites in China, SINA Gaming provides news and updates on
popular online and PC games as well as game hardware and
accessories in China. SINA Gaming also provides downloads and
entry points for users to popular online games in China.n
    
    SINA Video.SINA Video provides SINA broadband users a range of
entertainment and infotainment choices, including news, digital
video, music TV, movies and more.
 Advertising Services SINA employs a multi-pronged sales strategy that targets both short-term revenue opportunities
such as banner advertising campaigns, as well as longer-term, higher-value contracts such as
integrated marketing and communications packages. The Companys advertising product offerings
consist of banner, button, textlink advertisements that appear on pages within the SINA network,
promotional sponsorships that are typically focused on a particular event, such as the Olympics,
and advertising campaign design and management services. The Companys primary target client base for advertising and sponsorships consists of global
corporations doing business in Greater China and domestic companies in each of the regions SINA
operate in, to which it sells from both its corporate and regional headquarters. Global
corporations are typically Fortune 500 and Fortune 1000 companies with significant operations
worldwide that 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 Chinese Americans or Taiwanese, and smaller companies whose
markets are within a local territory, such as Beijing or Hong Kong. A partial list of advertising
clients includes: China Mobile, China Telecom, Shanghai Volkswagen, Hewlett Packard, BenQ,
Microsoft, Dell, IBM, Johnson and Johnson, Lenovo, LOreal, Motorola, Nokia, Nike, China Merchants
Bank, Samsung, and TCL. SINA derives its competitive advantage in online advertising from its brand prestige, high
user traffic and diversified user demographics. SINA is consistently ranked the most influential
web site by third party media publications, such as China Internet Weekly. The Company has a large
number of unique users and the most desirable user demographics of well-educated, high-income
individuals and the 25-35 age groups. These distinctions set SINA apart from its competitors and
enable the Company to be the leader in the space of online advertising. - 6 -




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SINA Mobile SINA Mobile provides MVAS through the Monternet platform of China Mobile Communication
Corporation (China Mobile) and the UNI-Info platforms of China Unicom Co., Ltd (China Unicom).
SINA also works closely with provincial mobile operators to jointly promote its mobile value-added
service offerings. In 2004, SINA generated $124.0 million in revenues from MVAS, accounting for 62%
of total net revenues. SINAs MVAS allow users to receive news and information, download ring tones and pictures, and
participate in dating and friendship communities. Users can order these services through the web
site or through their mobile phones on a monthly subscription basis or per-message basis. SINA offers MVAS through a wide range of products from content downloading, subscription to
dating and mobile games, covering such platforms as short messaging service (SMS), multimedia
messaging service (MMS), wireless application protocol (WAP), and interactive voice response
system (IVR). SMS revenues made up the majority of 2004 mobile value-added services revenues. For
the year ended December 31, 2004, SMS revenue was $103.3 million, and accounted for 83% of total
MVAS revenues. The year 2004 saw the increasing adoption and growth of non-SMS or 2.5G MVAS, which
include MMS, WAP, and Color Ringback Tone (CRBT). For the year ended December 31, 2004, non-SMS
revenue was $20.7 million, representing an average of 1781% year over year growth. For the months of March (including the users from the acquisition of Crillion on a pro forma
basis, assuming acquisition had occurred on March 1, 2004), June, September and December 2004, SINA
had 12.5 million, 11.7 million, 15.3 million and 15.9 million unique mobile users for its MVAS,
respectively. SINA receives payments from its users via China Mobile and China Unicom, who bill the
users on the Companys behalf and deduct a percentage of the revenue for providing the billing
service. In addition, SINA is charged a per-message transmission fee by China Mobile and China
Unicom, which varies depending on the type of message and volume of messages sent. In 2004, SINA
generally received 77% and 72% of the amounts collected by China Mobile and China Unicom,
respectively, from users of its MVAS. SINAs competitive advantage in MVAS comes from its online and offline marketing channels. As
a leading online media company in China, SINA has a large number of unique users and online
content portfolio. Offline, SINA has a large local sales team that covers 29 out of the 32
provinces and municipalities in China as well as a significant presence in local radio, TV and
print advertising. In January 2003, SINA acquired Memestar Limited, a MVAS provider in China to expand its
customer base and product offerings. In March 2004, SINA acquired Crillion, a leading SMS
valued-added service provider to further expand its customer base and product offerings in China.
The acquisition of Memestar enhanced SINAs existing ground sales force for mobile value-added
business while Crillion brought expertise and a well-developed offline media distribution platform
such as TV, radio and print publications for the mobile value-added business. SINAs
MVAS can be categorized into three main categories  news and information, community,
and multimedia downloads:  News and Information
    
    
    Community
    
    
    Multimedia Downloadso Headline news
    
    
    o Dating and friendship
    
    
    o Ring toneso Financial news
    
    
    o Games and quizzes
    
    
    o Logos and pictureso Technology news
    
    
    o Educational products
    
    
    o Screen saverso Sports newso Weather forecasto Fortune-tellingo Jokes
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SINA provides its mobile data products through its SMS, MMS, WAP, IVR and CRBT services. Short Messaging Service As many mobile phones are able to display and send text in Chinese, SINA developed a suite of
short messaging services that includes user-customized information subscription, personal
greetings, customized mobile phone screen decoration, personalized ring tones, mobile dating
service and mobile games. Multimedia Messaging Service Using general packet radio service (GPRS) technology, MMS enables users to download color
pictures and sophisticated ring tones, as well as to transmit more data per message. SINA currently
provides MMS services in five major categories: MMS downloads, MMS news, MMS love, MMS jokes, and
MMS dating/games. Wireless Application Protocol SINAs WAP services allow users to browse content on their mobile phones similar to accessing
information on Internet web sites. SINAs WAP services use GPRS technology to provide users with
color pictures and graphics, sophisticated ring tones, news, chatting and dating, games and
entertainment. Interactive Voice Response System SINAs IVR service provides mobile phone users with voice content, including chatting and
dating, news information and interactive games. Color Ringback Tone (CRBT) SINAs CRBT service gives mobile phone users the option to customize their ring back tone
based on popular songs and special sound effects. SINA Online SINA Online offers a variety of community-building services designed to encourage registered
users to become active and loyal members, or SINA Netizens. The integrated SINA Mail, SINA UC, SINA
Games, SINA Passport/Pay Point and SINA Dating service enable SINA Netizens to communicate with one
another or with groups of people in the SINA community. SINA Mail Launched in 1999, the free SINA Mail boasts millions of registered users and supports both
POP3 and SMTP servers. The storage capacity of the free email system has been expanded to a maximum
of 2 gigabytes. SINA Mail also provides users with year-round anti-Spam and anti-virus
protections. SINA UC In October 2004, SINA acquired Davidhill and its UC instant messaging technology platform.
Launched in 2002, the UC instant messaging service allows users to communicate in real-time over
the Internet and mobile phone networks. UC also provides community services such as chat rooms,
online games, alumni clubs, online karaoke and other entertainment services. SINA UC is currently
being offered free of charge. SINA Dating SINA Dating provides an online forum for those seeking friends and personal relationships.
Users can meet new friends, chat and play games and enjoy many other personalized dating services. - 8 -




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Premium Mail SOL Mail is a personal paid email service introduced in 2002, providing diversified and
personalized services for users with different needs. SINAs paid email service provides features
such as anti-virus software, junk mail filter, and unlimited attachment size. Internet Access SINA offers dial-up Internet access to users through partners in China, Taiwan and the
U.S. SINA Passport/Pay Point SINA Passport is a one-for-all login system that integrates formerly independent membership
signups for different SINA products into one single step, enabling users to access any of SINAs
membership-only content with just one ID. SINA Pay Point is a payment system for purchasing a wide
variety of SINAs value-added products and services. SINA Games Online Multiplayer Game In January 2003, SINA formed a joint venture with NCsoft, a leading online game provider in
Korea to launch the popular online games Lineage and Lineage II in China. In November 2004, Lineage
II was launched commercially, targeting the high end MMORPG (Massive Multiplayer Online Role
Playing Game) market in China. Users can play the game by purchasing the physical or virtual point
cards available either online or offline at Internet cafes, newsstands, and software outlets. From
its commercialization launch to December 31, 2004, Lineage II had an average-concurrent-users of
roughly 65,000. Casual Game In January 2004, SINA entered into a license agreement with Plenus Inc. to offer game portal
service in China. SINA introduced for free iGame (http://igameport.sina.com.cn) that provides
online casual games, card and board games as well as avatars and community-based services such as
chat rooms and hompeys. At December 31, 2004, iGame had 6.1 million registered accounts, offering a
total of 27 games. SINA.net SINA.net provides enterprise solutions on an integrated platform to government agencies and
small to medium-sized businesses in China. These solutions include search and listings services,
web hosting, corporate email, and proprietary software products. Search and Listings SINAs listing properties include a search engine, a directory and classified information.
SINAs search engine and directory provide an intuitive and user-friendly online guide to web
navigation and a gateway to the vertical offerings on the SINA network. Users can either browse the
directory listings by subject matter, or use SINA Search, a rapid keyword search function that
scans the contents of the entire directory. In addition to any relevant listings from SINAs
directory, the Company provides users with web-wide search results from search engines provided by
its partners. For browser-driven inquiries, SINAs directory results include Sponsored Sites, a
SINA created fee-based program that allows commercial sites to receive enhanced placement in the
directory. For keyword-search-driven inquiries, its search results also include SINA Sponsor
matches, site listings with enhanced placement in search results that are bought by businesses or
organizations. Corporate Email Leveraging its large-scale personal email system, SINA offers a premium email service to small
and medium sized businesses. This email service includes the bundling of a pre-set number of email
boxes with larger storage than SINA Mail as well as customized email addresses for business use. - 9 -




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SINA E-Commerce SINAs e-commerce services are divided into three areas: SINAMall, the online shopping web
site; 1Pai, the online auction joint venture with Yahoo!; and Fortune Trip, the online travel and
hotel booking service. SINAMall SINA currently offers SINAMall, an online shopping web site, on its China and North America
web sites. Its technology platform enables both multinational and local merchants to transact
business online. SINA generates revenue from monthly hosting fees and through receiving a
percentage of online sales from its merchant partners. SINA works with merchants to design
customized marketing campaigns that involve both advertising and sales of their products over
SINAs network. Online Auction In January 2004, SINA established an online auction joint venture with Yahoo! to provide a new
auctions-based ecommerce service for small- and medium-sized businesses and buyers and sellers in
China. The auction site 1Pai provides both a fixed-price and bid-price model for the sale of
consumer goods, and also offers a range of services to facilitate transactions. 1Pai connects
buyers and sellers and is currently available free of charge. Travel and Hotel Booking In February 2004, SINA acquired Bravado which provides online and offline hotel booking
services under the brand name Fortune Trip in China. With over 1,000 hotels in its nationwide hotel
network, Fortune Trip provides leisure travel information and allows consumers to find and book
flights and hotels online. Fortune Trip generates commission-based revenue on hotel booking. Strategic Relationships SINA has developed strategic relationships with a range of content, service, application and
distribution partners in order to serve users more effectively and to extend its brand and services
to a broader audience. Content Partnerships The goal of SINAs content partnerships is to provide its users with the broadest offering of
Chinese-language content available. SINA contracts with content partners to display their content
on one or more of its web sites free of charge or in exchange for a share of revenue, a licensing
fee, and access to SINA content or a combination of these arrangements. Some of SINAs leading
content providers include Xinhua News Agency, China National Radio, AFP,
Associated Press, Nanfang Daily, and Beijing Zhongxin Net. Application and Service Partnerships The goal of SINAs application and service partnerships is to ensure that its users have
access to user-friendly, reliable and scalable communication and search tools. Because many of the
Companys prospective partners have traditionally focused on non-Chinese speaking markets, SINAs
internal engineering and development teams often work closely with them to adapt their solutions to
the Chinese-language market. Technology Infrastructure SINAs operating infrastructure is designed to serve and deliver hundreds of millions of page
views per day to its users. This scalable infrastructure allows SINAs users to access its products
and services quickly and efficiently, regardless of their geographical location. SINAs
infrastructure is also designed to provide high-speed access by forwarding queries to its web
hosting sites with greater resources or lower loads. The Companys 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. SINAs servers run on Linux, FreeBSD, Solaris and Windows platforms using Apache and IIS
servers. These servers are mainly maintained at China Telecom Corporation and China Netcom
Corporation in Beijing, China, APOL in Taipei, - 10 -




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Taiwan, Qwest in Sunnyvale, California, as well as iAdvantage and Wharf T&T in Hong Kong. The Company believes that these hosting partners provide
operating advantages, including an enhanced ability to protect its 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 its
systems. In addition, SINA conducts online monitoring of all its systems for accessibility, load,
system resources, network-server intrusion and timeliness of content. SINAs mobile applications in
China leverage the aforementioned web operation resources by utilizing the wireless infrastructure
of China Mobile Communication Corporation and China Unicom Co., Ltd. to provide MVAS to SINAs
users. Seasonality The Company experiences seasonality in its online advertising business. Traditionally, in the
China market, the September quarter represents the best season for general advertising markets.
This is followed by the June quarter and the December quarter. The March quarter is usually the
worst season in China due to the Chinese New Year. There is little seasonality in the Companys
mobile value added services, online game, ecommerce and its enterprise business offerings. Competition SINA operates in the market of online content and services for the global Chinese community.
The industry can be classified as highly competitive and rapidly changing due to the fast growing
market. Portals Other online content/services companies such as Sohu.com, Netease and Tom.com compete with
SINA for user traffic, advertising revenue, e-commerce transactions, MVAS and other fee-based
services. Industry consolidation, however, may occur as the market for the Internet in China
matures, which could result in increased competition. Vertical Players As SINA expands its vertical product offerings into new areas such as online travel, online
games and e-commerce, it faces increasing competition from companies that focus on these same
verticals. In instant messaging, SINA faces competition from Tencent (QQ) and MSN. In online
travel, Ctrip and eLong have significantly larger user bases than SINA. In online games, SINAs
key competitors include Shanda, Netease and other game operators. In online auction, the leading
competitors are eBay/eachnet and Taobao. Similarly, Yahoo!/3721, Baidu and Huicong focus on the
growing online search market in China. On the mobile side, the Company is seeing competition from
non-portal service providers such as Kongzhong, Hurray and TOM Online that specialize in MVAS,
including MMS, WAP and IVR services. As SINA continues to broaden its range of product offerings,
it expects increasing competition from these vertical players in the coming years. International Players The Company also faces competition from international Internet companies such as Yahoo!,
Microsoft, Ebay and Google. With the gradual opening of the telecommunication sector resulting from
Chinas entry into WTO, the Company expects increasing number of
international portals and Internet companies to enter the
Chinese online media industry. These companies may have greater brand recognition, financial
resources and longer operating history than us. Traditional Media SINA also competes 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. SINAs ability to compete successfully depends on many factors, including the quality of its
content, the breadth, depth and ease of use of its services, its sales and marketing efforts, and
the performance of its technology. See also Risk Factors  The markets for mobile value-added
services and Internet services are highly competitive, and we may be unable to compete successfully
against new entrants and established industry competitors, some of which have greater financial
resources than we do or currently enjoy a superior market position than we do. - 11 -




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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. Government Regulation and Legal Uncertainties The following description of PRC laws and regulations is based upon the opinions of Lawyers from
Jun He Law Offices, our PRC counsel. For a description of legal risks relating to our ownership
structure and business, see Risk Factors. Overview The Chinese government has enacted an extensive regulatory scheme governing the operation of
business with respect to the Internet, such as telecommunications, Internet information services,
international connections to computer information networks, information security and censorship.
Besides the Ministry of Information Industry, or MII, the various services of the PRC Internet
industry are also regulated by various other governmental authorities, such as the State
Administration for Industry and Commerce, or SAIC, the State Council Information Office, or SCIO,
the General Administration for Press and Publication, or GAPP (formerly the State Press and
Publications Administration, or SPPA), the Ministry of Education, or MOE, the Ministry of Culture,
or MCPRC, the Ministry of Health, or MOH, and, the Ministry of Public Security. Among all the regulations, the Telecommunications Regulations of the Peoples Republic of
China, or Telecom Regulations, promulgated on September 25, 2000, is the primary governing law.
Telecom Regulations set out the general framework under which domestic Chinese companies such as
SINAs subsidiaries may engage in various types of telecommunications services in the PRC. They
reiterate the long-standing principle that telecommunications service providers need to obtain
operating licenses as a mandatory precondition to begin operation. The Telecom Regulations
differentiate the telecommunications services into basic telecommunications services and
value-added telecommunications services. Value-added telecommunications services are defined as
telecommunications and information services provided through public networks. The Catalogue of
Telecommunications Business, an attachment to the Telecom Regulations and updated by MIIs Notice
on Adjusting the Catalogue of Telecommunications Business of April 1, 2003, categorizes various
types of telecommunications and telecommunications-related activities into basic or value-added
services. On December 20, 2001, after Chinas formal entry into the WTO, the PRC State Council
promulgated the Regulations for the Administration of Foreign-Invested Telecommunications
Enterprises, or the FITE Regulations, which became effective on January 1, 2002. The FITE
Regulations stipulate that foreign-invested telecommunications enterprises, or FITEs, may undertake
operations in basic telecom services and value-added telecom services. Currently, the foreign
party to a value-added FITE may hold up to 50% of the equity, with no geographic restrictions on
its operations. Before that, foreign investors were prohibited from investing in Internet content
services. The PRC government has not made any further commitment to loosen the regulation on FITEs. According to the Measures for the Administration of Internet Information Services described
below, an enterprise must obtain an ICP license in the first place to conduct Internet content
service businesses. When the Internet content involves areas of news, education, medical care,
health or medicine, which are regulated by the MCPRC, the MOE, the MOH and other governmental
authorities, respectively, the enterprise must also obtain permission from responsible national
authorities. - 12 -




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PRC Corporate Structure SINA is a holding company, which owns the following material wholly owned subsidiaries in
China:  
    Beijing SINA Information Technology Co. Ltd. (BSIT)
    Star-Village.com (Beijing) Internet Technology Limited
    Beijing New Media Information Technology Co. Ltd.
    Beijing SINA Internet Technology Service Co. Ltd.
    Sina.com Technology (China) Co. Ltd.
    Fayco Network Technology Development (Shenzhen) Co. Ltd. In compliance with PRCs foreign investment restrictions on Internet information services
and other laws and regulations, we conduct all our Internet information services, advertising and
MVAS in China via the following significant domestic Variable Interest Entities, or VIEs:  
    Beijing SINA Internet Information Service Co., Ltd. (the ICP
Company), a China company controlled through business agreement. The
ICP Company is responsible for operating www.sina.com.cn in connection
with its Internet content company license and selling advertisements
to advertisers directly under its online advertising license. It is
also responsible for providing MVAS in China via third party mobile
operators to the users. It is 1.5% owned by Yan Wang, our Chief
Executive Officer and director, and 98.5% owned by six other
non-executive PRC employees.  
    Beijing SINA Interactive Advertising Co., Ltd. (the Ad Company), a
China company controlled through business agreement. The Ad Company is
responsible for placing advertisements on www.sina.com.cn for its
third party customers under its advertising license. It is 75% owned
by Yan Wang and 25% owned by Beijing SINA Information Technology Co.
Ltd., one of our subsidiaries in China.  
    Guangdong SINA Internet Information Service Co., Ltd. (the GDICP
Company), a China company controlled through business agreement. The
GDICP Company is responsible for providing MVAS in China via third
party mobile operators to the users under its Internet content company
license. It has been inactive since late 2004. It is 10% owned by Yan
Wang and 90% owned by five other of our non-executive PRC employees.  
    Guangzhou Media Message Technologies, Inc. (Xunlong), a China
company controlled through business agreement. Xunlong is responsible
for providing MVAS in China via third party mobile operators to the
users under its Internet content company license. It is owned by three
of our non-executive PRC employees.  
    Beijing Star-Village.com Cultural Development Co., Ltd. (StarVI), a
China company controlled through business agreement. StarVI is
responsible for providing MVAS in China via third party mobile
operators to the users under its Internet content company license. It
is owned by three of our non-executive PRC employees.  
    Shenzhen Wangxing Technology Co., Ltd. (Wangxing), a China company
controlled through business agreement. Wangxing is responsible for
providing MVAS in China via third party mobile operators to the users.
It is owned by three of our non-executive PRC employees.  
    Beijing SINA Infinity Advertising Co., Ltd. (the IAD Company), a
China company controlled through business agreement. The IAD Company
is responsible for placing advertisements on www.sina.com.cn for its
third party customers. It is owned by five of our non-executive PRC
employees. This entity has an approved business scope including
design, production, agency and issuance of advertisements. The capital investment in these VIEs is funded by SINA and registered as interest-free loans
to these PRC employees. As of December 31, 2004, the total amount of interest-free loans to the
employee shareholders of the VIEs listed above and the other two inactive VIEs was $9.0 million.
Under various contractual agreements, employee shareholders of the VIEs are required to transfer
their ownership in these entities to our subsidiaries in China when permitted by PRC laws and
regulations - 13 -




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or to our designees at any time for the amount of outstanding loans, and all voting
rights of the VIEs are assigned to us. We have the power to appoint all directors and senior
management personnel of the VIEs. Through our wholly-owned subsidiaries in China, we have also
entered into exclusive technical agreements and other service agreements with the VIEs, under which
these subsidiaries provide technical services and other services to the VIEs in exchange for
substantially all net income of the VIEs. In addition, our employee shareholders of the VIEs have
pledged their shares in the VIEs as collateral for non-payment of loans or for fees on technical
and other services due to us. Classified Regulations Internet Information Services The Measures for the Administration of Internet Information Services, or the ICP Measures,
went into effect on September 25, 2000. Under the ICP Measures, any entity that provides
information to online Internet users must obtain an operating license from the MII or its local
branch at the provincial level in accordance with the Telecom Regulations described above. The ICP
Measures further stipulate that entities providing online information services in areas of news,
publishing, education, medicine, health, pharmaceuticals and medical equipment must obtain
permission from responsible national authorities prior to applying for an operating license from
the MII or its local branch at the provincial or municipal level. Moreover, ICPs must display their
operating license numbers in a conspicuous location on their web sites. ICPs must police their web
sites to remove categories of harmful content that are broadly defined. This obligation reiterates
Internet content restrictions set by other ministries over the past few years. On December 29, 2000, the ICP Company obtained an ICP license from the Beijing
Telecommunications Administration, or the BTA (the municipal branch of the MII) for the first time.
It also obtained a permit to operate its bulletin board systems on July 16, 2001 pursuant to
additional ICP Measure regulations issued on October 8, 2000, which requires all companies that
operate bulletin board systems, or BBS, to obtain official permits. Currently, the ICP Company
holds a Value-Added Telecommunication Services Operating License which was issued on June 2, 2004
by the MII with a 5-year validity term subject to annual inspection. StarVI obtained an ICP license issued on April 8, 2003 by the BTA with a validity term up to
December 28, 2005 subject to annual inspection. Star VI currently holds a Value-Added
Telecommunications Services Operating License issued on January 17, 2005 by the MII with a 5-year
validity term subject to annual inspection, authorizing the provision of nationwide business of
information services (excluding fixed line phone call information services). Xunlong obtained an ICP license issued on March 21, 2003 by Guangdong Telecommunications
Administration, or GTA, with a validity term up to June 3, 2007 subject to annual inspection.
Xunlong currently holds a Value-Added Telecommunication Services Operating License issued on
January 17, 2005 by the MII with a validity term of five years subject to annual inspection,
authorizing the provision of nationwide business of information services (excluding fixed line
phone call information services). GDICP Company obtained an ICP license issued on December 8, 2003 by GTA with a 5-year
validity term. GDICP Company currently holds a Value-Added Telecommunication Services Operating
License issued on July 22, 2004 by the GTA with a validity term of four years, authorizing the
provision of business of information services in Guangdong province (excluding fixed line phone
call information services). Wangxing obtained a Value-Added Telecommunication Services Operating License issued by the GTA
on April 15, 2004, authorizing the provision of business of information services (excluding fixed
line phone call information services). Wangxing currently holds a Value-Added Telecommunication
Services Operating License issued on January 17, 2005 by the MII with a validity term of five years
subject to annual inspection, authorizing the provision of business of information services
(excluding fixed line phone call information services). Online News Publishing On November 7, 2000, the Provisional Regulations for the Administration of Web Site Operation
of News Publication Serviceswere jointly promulgated by SCIO and MII. The regulations stipulate
that general web sites set up by non-news organizations may list news released by certain
governmental news agencies, if they satisfy the requirements set forth in Article 9, but may not
publish news items produced by themselves or news sources from elsewhere. - 14 -




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Before commencing news-publishing services, the above regulations also require the general web
sites of non-news organizations to be approved by SCIO after securing permission from SCIO at the
provincial level. In addition, the general web sites intending to publish the news released by the
aforementioned news agencies must enter into agreements with the respective organizations, and
submit copies of such agreements to the relevant administration department. On December 27, 2000, SCIO approved the ICP Company to develop online news publishing
services. Online Transmission of Audio-Visual Programs On July 6, 2004, the State Administration of Radio, Film and Television (SARFT) promulgated
the Measures for the Administration of Publication of Audio-Visual Programs through Internet or
Other Information Network, which apply to the opening, broadcasting, integration, transmission or
download of audio-visual programs via Internet. An applicant who is engaged in the business of
transmitting audio-visual programs shall apply for a license, which is to be issued by SARFT in
accordance with the categories of business, receiving terminals, transmission networks, and other
items. Validity term of the license is two years. Foreign invested enterprises are not allowed to
engage in the above business. Moreover, the audio-visual programs of the news category published to
the public through information network shall be limited to the programs produced and broadcasted by
radio stations, television stations, radio television stations and approved news web sites within
the territory of China. According to the Reply on Approvals for Beijing SINA Internet Information Service Co., Ltd.
Engaging in the Business of Information Services Relating to Online Transmission of Audio-Visual
Programsissued by the SARFT on October 17, 2004, the ICP company has been approved to carry out
the online transmission of audio-visual programs. And, the ICP Company obtained a license with a
validity term of two years from the SARFT on February 3, 2005. MVAS On December 26, 2001, the MII published the Administrative Measures for Telecommunication
Business Operating Licenses, or Telecom License Measures to supplement the FITE Regulations. The
Telecom License Measures confirm that the MII is the competent approval authority for
foreign-invested telecom enterprises. There are two types of telecom operating licenses in China
(including FITEs): license for basic telecom services and license for value-added telecom services.
Furthermore, a distinction is made as to whether a license is granted for intra-provincial or
trans-regional (inter-provincial) activities. An appendix to the license will detail the
permitted activities to be conducted by the enterprise. An approved telecom service operator must
conduct its business (basic or value-added) in accordance with the specifications recorded on its
Telecom Service Operating License. However, there are still ambiguities regarding the
interpretation and application of the FITE Regulations. The ICP Company has obtained a Value-Added Telecommunication Services Operating License issued
by the BTA on August 11, 2003, which authorizes the provision of specialized mobile value-added
telecom services. The ICP Company currently holds a Value-Added Telecommunication Services
Operating License which was issued on June 2, 2004 by the MII with a 5-year validity term subject
to annual inspection, authorizing nationwide provision of nationwide information service in
value-added telecommunications services. Xunlong has obtained a Value-Added Telecommunication Services Operating License issued by the
GTA on September 5, 2003, which authorizes the provision of call center service, mobile value-added
telecom services and internet information services. Xunlong currently holds a Value-Added
Telecommunication Services Operating Licenses issued on January 17, 2005 by the MII with a validity
term of five years subject to annual inspection, authorizing the provision of nationwide mobile
value-added telecom services. Star VI has obtained a Value-Added Telecommunication Services Operating License issued on
January 17, 2004 by the BTA, authorizing the provision of mobile value-added telecom services. Star
VI currently holds a Value-Added Telecommunications Services Operating License issued on January
17, 2005 by the MII with a 5-year validity term subject to annual inspection, authorizing the
provision of trans-regional business of information services. Wangxing has obtained a Value-Added Telecommunication Services Operating License issued by the
GTA with a validity term from April 15, 2004 to June 3, 2007 subject to annual inspection,
authorizing the provision of mobile value-added telecom services. Wangxing currently holds a
Value-Added Telecommunication Services Operating License issued on January 17, 2005 by the MII with
a validity term of five years subject to annual inspection, authorizing the provision of mobile
value-added telecom services. - 15 -




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Short Message Services On April 29, 2004, the MII issued the Notice on Certain Issues Regarding the Regulation of
Short Massage Services(the SMS Notice). The Notice confirms that all mobile communication
companies shall provide SMS in cooperation with information service providers who have obtained
relevant operating license for SMS. In addition, all mobile communication companies and information
service providers shall highlight the fee standards, payment methods and ways of withdrawal in
their advertisements for SMS services. For services based on monthly payment and subscription
services, providers shall confirm with the users in advance. Without such confirmation, it should
be convinced that the user has withdrawn such requirement for services. The mobile communication
companies and information service providers shall strictly comply with the service items as agreed
upon with the users. And, the information service providers shall examine the contents of short
messages. No short message may contain contents forbidden by law. Internet Publishing On June 27, 2002, the SPPA and MII jointly released the Provisional Rules for the
Administration of Internet Publishing, or Internet Publishing Rules, which define Internet
publications as works that are either selected or edited to be published on the Internet or
transmitted to end-users through the Internet for the purposes of browsing, reading, using or
downloading by the general public. Such works mainly include content or articles formally published
by press media such as: (a) books, newspapers, periodicals, audio-visual products and electronic
publications; and (b) literature, art and articles on natural science, social science, engineering
and other topics that have been edited. According to the Internet Publishing Rules, web portals like SINA are required to apply to and
register with the GAPP before distributing Internet publications. In accordance with these rules,
the ICP Company obtained a license from the GAPP to distribute Internet publications on October 30,
2003 with a 10-year validity term subject to annual inspection. Online Games On December 30, 1997, the Rules for the Administration of Electronic Publications, or
Electronic Publication Rules, were published by the SPPA, and went into effect as of January 1,
1998. The Electronic Publication Rules outline a licensing system for business operations involving
electronic publications, which has been interpreted by the GAPP to include online games. Under the
Electronic Publication Rules, if a PRC company is contractually authorized to publish foreign
electronic publications, it must obtain the approval of and register the copyright licensing
contract with the GAPP. On March 4, 2003, the Provisional Regulations for the Administration of Online Culturewere
issued by the MCPRC and went to effect on July 1, 2003 (these regulations were revised by MCPRC on
July 1, 2004). According to these regulations, commercial entities are required to apply to the
relevant local branch of the MCPRC for an Online Culture Operating Permit to engage in online games
services. On September 5, 2003, the MCPRC issued an Online Culture Operating Permit subject to
annual inspection to the ICP Company, which authorizes the ICP Company to provide online games
service. As to imported online games, the GAPP and the State Copyright Bureau jointly promulgated the
Notice on Carrying out the Decision from the State Council Regarding the Approval of Electronic and
Online Games Publications(the Games Notice). Imported online games publication is defined as
the online games publication published and issued within the territory of China by a Chinese
publishing institute via copyright trade with foreign copyright owner of the said online games
publication. Publishing institutes shall apply to local publication authority for the import of
such online games. After pre-approval by the provincial publication authority, the GAPP will
examine contents of the online games and issue a final approval. Pursuant to the Games Notice and
Copyright Law, the applicant, after duly establishment, shall file for record and register the
copyright licensing contract with the GAPP. According to the Circular of the Ministry of Culture on Strengthening the Examination of
Content of Online Games Products, entities engaged in developing and operating domestic online
games products should register with the Ministry of Culture. SINA has duly conducted all relevant examination and record procedures for online games under
its operation, including Lineage, Lineage II (both are imported online games) and iGame. - 16 -




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Internet Medical, Health and Drug Information Services Pursuant to the Measures for the Administration of Internet Medical and Health Information
Servicesissued on January 8, 2001, MOH, is responsible for reviewing the qualifications of web
sites and approving their publication of health-related information. According to the Measures for
the Administration of Internet Drug Information Services, issued by the State Drug Administration,
or SDA, on July 8, 2004, web sites publishing drug-related information must obtain license from the
SDA or its provincial departments. The ICP Company obtained the aforementioned approvals from Beijing Health Bureau and Beijing
Drug Administration (the BDA) on May 27, 2002 and January 17, 2002, respectively, and has
obtained the Qualification Certificate for Internet Drug Information Services issued by the BDA
with a validity term from November 18, 2004 to November 17, 2009. Online Cultural Products The Provisional Regulations for the Administration of Online Cultureas described above apply
to entities engaged in activities related to online cultural products. Online cultural products
are classified as: (1) online cultural products particularly developed for publishing via internet,
which include online music and video files (including VOD and DV etc.), network games, online
performing arts, online artworks, and online animation features and cartoons (including FLASH); and
(2) online cultural products converted from audio and visual products, games, performing arts,
artworks and animation features and cartoons, and published via internet. Pursuant to this
legislation, commercial entities are required to apply to the relevant local branch of the MCPRC
for an Online Culture Operating Permit if they intend to engage in any of the following types of
activities:  
    production, duplication, import, wholesale, retail, leasing or broadcasting of online cultural products;
    publishing of online cultural products on the Internet or transmission
thereof to computers, fixed-line or mobile phones, radios, television
sets or gaming consoles for the purpose of browsing, reading, using or
downloading such products; or
    exhibitions or contests related to online cultural products. On September 5, 2003, the MCPRC issued an Online Culture Operating Permit with a 3-year
validity term subject to annual inspection to the ICP Company. Online Advertising The SAIC promulgated the Notice on Registration Issues for Enterprises Specialized in
Advertising Business(the Ad Notice) on July 19, 2004. Upon the issuance of the Ad Notice, an
enterprise specialized in advertising business as specified in its business scope need not apply
for the Advertising Operation License. As to placing advertisements on internet, such enterprise
should apply for a business scope of Placing Online Advertisements on (name of the web site). SAIC
and its local departments will not issue an Advertising Operation License to enterprises
specialized in online advertising business. The IAd Company has an approved business scope to carry out the design, production, agency and
issuance of advertisements, and has obtained an Advertising Operation License issued by BAIC on
February 12, 2004 with a validity term of one year. According to the Ad notice, the IAd Company, as
an enterprise with an approved business scope specializing in advertising, need not renew the
license. The Ad Company has an approved business scope to carry out the design, production, agency and
issuance of advertisements, and has obtained an Advertising Operation License issued by BAIC
Haidian District Branch on July 5, 2004 with a validity term up to October 24, 2019. The ICP Company obtained an Advertising Operating License on January 1, 2004, which has
expired since December 31, 2004. However, according to the Ad Notice, provided business scope of an
enterprise has included placing online advertisements on web site, such enterprise will be allowed
to carry out the business of placing advertisements on Internet, without an Advertising Operating
License, and the ICP Company will maintain its online advertising business after it changes its
business scope accordingly. - 17 -




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International Connections for Computer Information Networks Regulations governing international connections for PRC computer networks include:  
    Measures for the Administration of International Connections to
Chinas Public Computer Interconnected Networks (1996);
    Provisional Regulations of the Peoples Republic of China for the
Administration of International Connections to Computer Information
Networks (1997) and their Implementing Measures (1998);
    Reply Concerning the Verification and Issuance of Operating Permits
for Business Relating to International Connections for Computer
Information Networks and for Public Multimedia Telecommunications
Business (1998); and
    Administrative Measures for International Communications Gateways (2002). According to the above regulations, any entity wishing to access international network
connections for their computer information networks in the PRC must comply with the following
requirements:  
    be a PRC legal person;
    have the appropriate equipment, facilities and technical and administrative personnel;
    have implemented and registered a system of information security and censorship; and
    effect all international connections through an international
communications gateway established with the approval of the MII. We believe that the companies as described in PRC corporate structure are in proper compliance
with these requirements. Information Security and Censorship Regulations governing information security and censorship include: 
    The Law of the Peoples Republic of China on the Preservation of State
Secrets (1988) and its Implementing Rules (1990);
    The Law of the Peoples Republic of China Regarding State Security (1993) and its Implementing Rules (1994);
    Rules of the Peoples Republic of China for Protecting the Security of Computer Information Systems (1994);
    Notice Concerning Work Relating to the Filing of Computer Information
Systems with International Connections (1996);
    Administrative Regulations for the Protection of Secrecy on Computer
Information Systems Connected to International Networks (1997);
    Regulations for the Protection of State Secrets for Computer Information Systems on the Internet (2000);
    Notice issued by the Ministry of Public Security of the Peoples
Republic of China Regarding Issues Relating to the Implementation of
the Administrative Measure for the Security Protection of
International Connections to Computer Information Networks (2000);
    The Decision of the Standing Committee of the National Peoples
Congress Regarding the Safeguarding of Internet Security (2000); and
    Measures for the Administration of Commercial Web Site Filings for the
Record (2002) and their Implementing Rules (2002).
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These legislations specifically prohibit the use of Internet infrastructure where it may
breach public security, provide content harmful to the stability of the society or disclose state
secrets. According to these legislations, it is mandatory for Internet companies in the PRC to
complete security-filing procedures and regularly update information security and censorship
systems for their web sites with the local public security bureau. According to the Detailed Implementing Rules for the Measures for the Administration of
Commercial Web Site Filings for the Record,promulgated by the BAIC in July 2002, web sites must
comply with the following requirements:  
    file with the BAIC and obtain electronic registration marks;
    place the registration marks on their web sites homepages; and
    register their web site names with the BAIC. The ICP Company successfully registered its web sites with the BAIC on December 23, 2003.
Afterwards, SINAs electronic registration mark is prominently placed on its homepage. In addition, the State Security Bureau (SSB) has issued regulations authorizing the blocking
of access to any site it deems to be leaking State secrets or failing to comply with the relevant
legislation regarding the protection of State secrets during online information distribution.
Specifically, Internet companies in China with bulletin boards, chat rooms or similar services must
apply for the approval of the SSB prior to operating such services. The ICP Company has established
an internal security committee, adopted security maintenance measures, employed full-time BBS
supervisors and has been exchanging information on a regular basis with the local public security
bureau with regard to sensitive or censored information and web sites. Thus, it is in full
compliance with the governing legislation. Encryption Software On October 7, 1999, the State Encryption Administration Commission published the Regulations
for the Administration of Commercial Encryption, followed by the first Notice of the General Office
of the State Encryption Administration Commissionon November 8, 1999. Both of these regulations
address the use of software in China with encryption functions. According to these regulations,
purchase of encryption products must be reported. Violation of the encryption regulations may
result in warning, penalty, confiscation of the encryption product, or criminal liabilities. On March 18, 2000, the Office of the State Commission for the Administration of Cryptography
issued a public announcement regarding the implementation of those regulations. The announcement
clarifies the encryption regulations as below:  
    Only specialized hardware and software, the core functions of which
are encryption and decoding, fall within the administrative scope of
the regulations as encryption products and equipment containing
encryption technology. Other products such as wireless telephone,
Windows software and browsers do not fall within this scope.
    The PRC government has already begun to study the laws in question in
accordance with WTO rules and Chinas external commitments, and will
make revisions wherever necessary. The Administrative Regulations on
Commercial Encryptionwill also be subject to such scrutiny and
revision. We believe that the companies as described in PRC corporate structure are in proper compliance
with these requirements. Online education According to the Measures for the Administration of Educational web sites and Online Education
Schoolreleased on July 5, 2000, to open educational web sites and online education schools,
application must be made to the administrative department overseeing education. Operation may begin
only when it is inspected and approved by the administrative department. Educational web sites and
online education schools shall not operate without the approval of the administrative department
overseeing education. - 19 -




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In compliance with the above regulation, the ICP Company obtained the aforementioned approvals
from Beijing Education Committee on March 26, 2002. For a description of how the unsettled nature of Chinese regulations may affect our business,
please see Risk Factors  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 content that it deems as inappropriate and we may be liable for such content. Employees As of December 31, 2004, we had approximately 1,760 full-time employees, approximately 1700 of
whom were employed in China, and the remaining employed in the United States of America, Hong Kong
and Taiwan. 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. Web Site Access to Our Periodic SEC Reports Our corporate Internet address is http://corp.sina.com. We make available free of
charge on or through our web site our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We may from time to time provide important disclosures to investors by posting them in the investor
relations section of our web site, as allowed by SEC rules. Information contained on SINAs web
site is not part of this report or any other report filed with the SEC. You may read and copy any
public reports we filed with the SEC at the SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
http://www.sec.gov that contains reports, proxy and information statements, and other
information that we filed electronically. 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. We believe that our future success depends on our ability to significantly increase revenue
from our operations, of which we have a limited 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:  
    offer new and innovative products;
    attract buyers for our MVAS;
    attract advertisers;
    attract a larger audience to our network;
    derive revenue from our users from fee-based Internet services;
    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 our brand and continue to build user loyalty;
    attract and retain qualified management and employees;
    upgrade our technology to support increasing traffic and
expanding services; and
    expand the content and services on our network. - 20 -




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Until recently, we had incurred net losses since inception and we may incur future losses. We recorded a net income of approximately $66.0 million for the year ended December 31, 2004.
However, as of December 31, 2004, we had an accumulated deficit of approximately $17.1 million. We
cannot be certain we will sustain profitability. If we do not 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. For the years ended December 31, 2004 and 2003, advertising revenue constituted 33% and 36%,
respectively, of our total net revenue and our advertising revenue grew from approximately $41.2
million for the year ended December 31, 2003 to $65.4 million for the year ended December 31, 2004.
Our revenue growth is dependent on increased revenue from the sale of advertising space on our
network. 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. Our ability to generate
and maintain significant advertising revenue will 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;
    increased competition and potential 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 could be negatively affected. Our growth in advertising revenues, to a certain extent, will also depend on our ability to
increase the advertising space on our network. If we fail to increase our advertising space at a
sufficient rate, our growth in advertising revenues could be hampered. Further, the expansion of
Internet advertising blocking software may result in a decrease of our advertising revenues as the
advertisers may choose not to advertise on the Internet if the third parties Internet advertising
blocking software is widely used. We are relying on MVAS for a significant portion of our future revenue, and we rely on China
Mobile and China Unicom for service delivery and fee collection. The majority of our recent revenue growth was from the development of our MVAS. Our revenues
from MVAS accounted for 92% and 88% of our total non-advertising revenues for the years ended
December 31, 2004 and 2003, and we are deriving an increasing portion of our revenues from these
services. If users do not adopt our MVAS, at a sufficient rate, our revenue growth could be
negatively affected. Our product offerings for MVAS mainly include SMS, MMS, WAP and IVR. Our MVAS offerings depend
mainly on the cooperation of China Mobile Communication Corporation and its subsidiaries and to a
lesser extent China Unicom Co., Ltd. and its subsidiaries. We have established cooperation
arrangements with China Mobile and China Unicom and their subsidiaries. As of January 31, 2005, we
offered our MVAS pursuant to relationships with 29 provincial and local subsidiaries of China
Mobile and 8 provincial subsidiaries of China Unicom. MVAS revenues via China Mobile and its
subsidiaries were 87% and 95%, respectively, of our total MVAS revenues for the year 2004 and 2003.
MVAS revenues via China Unicom and its subsidiaries were 13% and 5%,
respectively, of our total MVAS
revenues for the year 2004 and 2003. We rely on China Mobile and China Unicom in the following ways: utilizing their network and
gateway to provide MVAS to subscribers; utilizing their billing systems to charge the fees to our
subscribers through the subscribers mobile phone bill; utilizing their collection services to
collect payments from subscribers; and relying on their infrastructure development to further
develop our new products and services. - 21 -




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Under the agreements with China Mobile and its subsidiaries, China Mobile generally retains
15% of the fee for content value-added services we provide to our users via their platform for fee
collection. In addition, China Mobile deducts transmission fees from our portion of the service
fees. The amount of such transmission fee is charged on a per message basis and varies among
products and the message volume. For the years ended December 31, 2004 and 2003, on average we
received 77% and 78%, respectively, of the amount we charged to our users from the China Mobile
platform after China Mobile deducted the fees for collection and transmission. Under the agreements
with China Unicom and its subsidiaries, China Unicom typically retains 12% of the fee for content
value-added services we provide to our users via their platform if they charge us for transmission
cost or between 21% and 29% if they do not charge us for transmission cost. For the years ended
December 31, 2004 and 2003, on average we received 72% and 73%, respectively, of the amount we
charged to our users from the China Unicom platform after China Unicom deducted the fees for
collection and transmission. China Mobile and China Unicom may choose to increase the fees charged for providing their
services in the future. If either China Mobile or China Unicom chooses to increase such fees, our
gross margin for MVAS and our operating profitability could be negatively affected significantly. China Mobile and China Unicom could change their operating policy at any time, which might
result in negative impact on some of our MVAS, which in turn, could result in material reduction of
our revenues derived from MVAS. In the past, China Mobile and China
Unicom have made sudden and unexpected changes in their systems and
processes, which harmed our business. They are likely to continue to
make such changes in the future. We cannot assure you that they will
not take actions in the future that are unpredictable and that may
negatively impact our business results. For the year ended December 31, 2004, approximately 72% of our MVAS revenues are derived from
services charged on a monthly subscription basis. If China Mobile or China Unicom restricts or
disallows some or all MVAS to be charged on a monthly subscription basis, our revenues from MVAS
could be severely impacted. We currently charge our users who have registered to be billed on a
monthly basis even if they do not use the service in a particular month. If China Mobile or China
Unicom does not allow us to charge monthly fees for users who do not use our service in a
particular month, our MVAS revenues could be negatively impacted. - 22 -




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A portion of our MVAS revenues is currently estimated based on our internal records of
billings and transmissions for the month, adjusted for prior period confirmation rates from mobile
operators and prior period discrepancies between internally estimates and confirmed amounts from
mobile operators. Historically, there have been no significant true up adjustments to our
estimates. If there were no consistent confirmation rates trend or there were continuous
significant true up adjustments to our estimates under the new billing platforms, we will need to
rely on the billing statements from the mobile operators to record revenues. Due to the time lag of
receiving the billing statements, our MVAS revenues may fluctuate with the collection of billing
statements if we were to record the MVAS revenues when we receive the billing statements. For the three
months ending December 31, 2004, 28% of our MVAS revenues were estimated at period end. In the past, China Mobile and China Unicom have imposed penalties on MVAS providers for
violating certain operating policies relating to MVAS. In some cases, they stopped making payments
to certain service providers for severe violations. To date, the penalties we have received have
been insignificant in dollar amounts and have been accrued for. In the future, if China Mobile or
China Unicom imposes more severe penalties on us for policy violations, our revenues from MVAS may
be negatively impacted for the period when such penalties are imposed. We are subject to potential liability and penalty for delivering inappropriate content through
our MVAS. One of the violations cited in the notice for temporary termination of our IVR service at
the end of July 2004 was that we had provided inappropriate content to our mobile subscribers through
our IVR service. The definition and interpretation of inappropriate content in many cases is vague
and subjective. We are not sure whether mobile operators including China Mobile and China Unicom or
Chinese government will find our other mobile content inappropriate and therefore prevent us from
operating the MVAS relating to such content in the future. If they prevent us from offering such
services, our revenue from MVAS will suffer significantly. If China Mobiles or China Unicoms systems encounter technical problems or they refuse to
cooperate with us, our MVAS offerings may cease or be severely disrupted, which could have a
significant and adverse impact on our operating results. In addition to mobile operators, the Chinese Ministry of Information Industry, the
governing body of Chinas mobile industry from time to time issues policies that regulate the
business practices relating to MVAS. We cannot predict the timing or
substance of such regulations. Such regulations may have a negative
impact on our business. - 23 -




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We
are relying on new MVAS such as MMS, IVR and WAP to be a significant part of future revenue
growth for MVAS, but we are not certain that these services will continue to increase our total MVAS
revenues. Our MVAS offerings include SMS, MMS, IVR and WAP. In the year ended December 31, 2004, we saw
a significant increase in revenues from MMS, IVR and WAP services. These services accounted for
approximately 17% of our total MVAS revenues for the year ended December 31, 2004, as compared to
2% for the year ended December 31, 2003. We are relying on the growth of these services as a
significant part of our revenue growth in MVAS for future periods. However, the current market size
is relatively small and adoption rates are still relatively low for these services compared to SMS
services. If revenues from these services do not continue to grow
significantly, our financial position, results of operations and cash flows
could be materially adversely affected, and the price of our ordinary shares could decline and you
could lose part or all of your investment. Our investment in online game, travel, online auctions and instant messaging may not be
successful. Online game, travel, online auctions and instant messaging are currently some of the fastest
growing online services in the PRC. We have invested and intend to expand in these areas. For
example, we have formed a joint venture in the PRC with NCSoft to pursue online game, we have
acquired Bravado to enter into the online travel business in the PRC, we have formed a joint
venture with Yahoo! to provide online auctions in the PRC, and we have acquired Davidhill and its
instant messaging platform. Some of our competitors have entered these markets ahead of us and
have achieved significant market positions. Our main competitors in online game, travel, online
auctions and instant messaging include Shanda, Ctrip, eLong, eBay/Eachnet, Taobao and Tencents QQ.
Our competitors in these areas tend to be more specialized in these specific markets, which may
give them a competitive advantage over us. We cannot assure you that we will succeed in these
markets despite our investments of time and funds to address these markets. If we fail to achieve
a significant position in these markets, we will fail to realize our intended returns in these
investments. Moreover, our competitors who succeed may enjoy increased revenues and profits, and
our results and share price could suffer as a result. If we fail to successfully develop and introduce new products and services, our competitive
position and ability to generate revenues could 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. If our efforts to develop, market and sell new products and services
to the market are not successful, our financial position, results of operations and cash flows
could be materially adversely affected, and the price of our ordinary shares could decline and you
could lose part or all of your investment. The markets for MVAS and Internet services are highly competitive, and we may be unable to
compete successfully against new entrants and established industry competitors, some of which have
greater financial resources than we do or currently enjoy a superior market position than we do. Approximately 62% and 56% of our net revenues for years ended December 31, 2004 and 2003,
respectively, were from our MVAS. The competition among providers of these services is highly
competitive. A large number of independent mobile value-added service providers compete against
us. We may be unable to continue to grow our revenues from these services in this competitive
environment. In addition, the major mobile operators in China, China Mobile and China Unicom, may
potentially enter the business of content development. Any of our present or future competitors
may offer MVAS which provide significant technology, performance, price, creativity or other
advantages, over those offered by us, and therefore achieve greater market acceptance than ours.
In addition, in March 2004, we acquired Crillion to enhance our products and our market share in
the mobile value-added service market in the PRC. If our acquisition
of Crillion
is not successful and we are unable to compete and grow our mobile
value-added service business, our failed investments in this area could adversely affect our results of
operations and profitability. The Chinese 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, fee-based services and email and electronic commerce - 24 -




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services in the Greater China market that may be competitive with our offerings. 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. 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 provide an initial point of entry for Internet users, such as ISPs,
including large, well-capitalized entities such as Microsoft (MSN), Yahoo!, eBay, Google and AOL,
currently offer and could further develop or acquire content and services that compete with those
that we offer. Companies such as these may have greater financial resources and assets, better
brand recognition, more developed sales and other internal organizations, more customers and more
extensive operating histories. As a result, such companies may be able to quickly provide
competitive services and obtain a significant number of customers. 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 the areas of online game, travel, online auctions and instant messaging, our other areas of
focus for future business growth, there is intense competition from domestic and international
companies. These include domestic companies each focusing on one sector and large, international
companies that want to extend their businesses in the China market. The online game industry, for
example, is dominated by domestic online game operators such as Shanda, Netease and The9. In
travel, our leading competitors are Ctrip and eLong. In online auctions, our leading competitors
are Eachnet, which is wholly-owned by eBay, and Taobao. The main competitors for our instant
messaging service are Tencents QQ and Microsofts MSN Messenger. Many of our competitors have a
longer history of providing these online services and currently offer a greater breadth of products
which may be more popular than our online offerings. Many of these companies are
focused solely on one area of our business and are able to devote all of
their resources to this business area and to more quickly adapt to changing technology or market
conditions. These companies may therefore have a competitive advantage against us with respect to
these business areas. A number of our current and potential future competitors have 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. Increased competition could result in reduced page views, loss of market share and revenues,
and lower profit margins from reduced pricing for Internet-based services. Our strategy of acquiring complementary assets, technologies and businesses and entering into
joint ventures may fail and may result in equity or earnings dilution. As part of our business strategy, we have acquired and intend to
continue to identify and acquire assets,
technologies and businesses that are complementary to our existing business. In January 2003 we
acquired Memestar, a MVAS company, in January 2004 we entered into a joint venture agreement with
Yahoo! to start an online auction business in China, in February 2004 we acquired Bravado, an
online and offline hotel booking service company, in March 2004 we acquired Crillion, a MVAS
company, and in October 2004, we acquired Davidhill, an instant messaging technology platform.
We have significant potential ongoing financial obligations with respect to certain of these
transactions. Acquired businesses or assets may not yield the results we expected. In addition,
acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances
of equity securities, significant amortization expenses related to goodwill and other intangible
assets and exposure to potential unknown liabilities of acquired business. Moreover, the costs of
identifying and consummating acquisitions, and integrating the acquired business into ours, may be
significant. In addition, we may have to obtain approval from the relevant PRC governmental
authorities for the acquisitions and have to comply with any applicable PRC rules and regulations,
which may be costly. In the event our acquisitions are not
successful, our financial conditions and results of operation may be
materially adversely affected. You should not place undue reliance on our financial guidance, nor should you 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 of 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; significant news events that increase
traffic to our web - 25 -




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sites; technical difficulties, system downtime or Internet failures; demand for
advertising space from advertisers; seasonality of advertising market; 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 place undue reliance on our financial guidance, nor should you
rely on quarter-to-quarter comparisons of our operating results as indicators of likely future
performance. Our quarterly revenue and earnings per share guidance is our best estimate at the
time we provide guidance. Our operating results may be below our expectations or the 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. We may be adversely affected by complexity, uncertainties and changes in PRC regulation of
Internet business and companies, including limitations on our ability to own key assets such as our
web site. The Chinese government heavily regulates its Internet sector including the legality of foreign
investment in the Chinese Internet sector, the existence and enforcement of content restrictions on
the Internet and the licensing and permit requirements for companies in the Internet industry.
Because these laws, regulations and legal requirements with regard to the Internet are relatively
new and evolving, their interpretation and enforcement involve significant uncertainty. In
addition, the Chinese legal system is a civil law system in which decided legal cases may be cited
for reference but have little precedent value. As a result, in many cases it is difficult to
determine what actions or omissions may result in liability. Issues, risks and uncertainties
relating to China government regulation of the Chinese Internet sector include the following:  
    We only have contractual control over our web site in China; we do not own it due to the
restriction of foreign investment in businesses providing value-added telecommunication
services, including computer information services, MVAS or electronic mail box services.
    Uncertainties relating to the regulation of the Internet business in China,
including evolving licensing practices, give rise to the risk that permits, licenses or
operations of some of our companies may be subject to challenge, which may be disruptive to
our business, or subject us to sanctions, requirements for additional capital or other
conditions or enforcement, or compromise enforceability of related contractual arrangements,
or have other harmful effects on us.
    On December 11, 2001, the day China formally joined the WTO, the PRC State Council
promulgated the Regulations for the Administration of Foreign-Invested Telecommunications
Enterprises, or the FI Telecom Regulations, which became effective on January 1, 2002. The
FI Telecom Regulations stipulate that the foreign party to a foreign-invested
telecommunications enterprise that provides either basic telecom services or value-added telecom
services can hold no more than 49% or 50%, respectively, of such
enterprises. The Administrative Measures
for Telecommunications Business Operating License were promulgated by Chinese Ministry of
Information Industry on January 4, 2002 to supplement the FI Telecom Regulations. However,
there are still uncertainties regarding the interpretation and application of the FI Telecom
Regulations.
    The numerous and often vague restrictions on acceptable content in China subject us to
potential civil and criminal liability, temporary blockage of our web site or complete
cessation of our web site. For example, the State Secrecy Bureau, which is directly
responsible for the protection of state secrets of all Chinese government and Chinese
Communist Party organizations, is authorized to block any web site it deems to be leaking
state secrets or failing to meet the relevant regulations relating to the protection of
state secrets in the distribution of online information. - 26 -




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
    Certain Chinese governmental authorities have stated publicly that they are in the
process of preparing new laws and regulations that will govern Internet activities. The
areas of regulation currently include online advertising, online news reporting, online
publishing, and the provision of industry-specific (e.g., drug-related) information over the
Internet. Other aspects of our online operations may be subject to regulation in the
future. Our operations may not be consistent with these new regulations when put into
effect and, as a result, we could be subject to severe penalties as discussed above. The interpretation and application of existing Chinese laws, regulations and policies, the
stated positions of the MII and possible new laws, regulations or policies have created substantial
uncertainties regarding the legality of existing and future foreign investments in, and the
businesses and activities of, Internet businesses in China, including our business. In order to comply with PRC regulatory requirements, we operate our main businesses through
companies with which we have contractual relationships but in which we do not have controlling ownership. If the PRC government determines that
our agreements with these companies are not in compliance with applicable regulations, our business in the PRC could
be adversely affected. The Chinese government restricts foreign investment in Internet-related, MVAS and advertising
businesses, including Internet access, distribution of content over the Internet and MVAS, and
advertising via the Internet. Accordingly, we operate our
Internet-related and MVAS businesses in China through several variable interest entities, or VIEs, that are owned principally
or completely by certain of our PRC employees or PRC employees of our subsidiaries. We control
these companies and operate these businesses through contractual arrangements with the respective
companies and their individual owners but we have no equity control over these companies. Such
restrictions and arrangements are prevalent in other PRC companies we acquired. Although we believe we are in compliance with current PRC regulations, we cannot be sure that
the PRC government would view these operating arrangements to be in compliance with PRC licensing,
registration or other regulatory requirements, with existing policies or with requirements or
policies that may be adopted in the future. If we are determined not to be in compliance, the PRC
government could revoke our business and operating licenses, require us to discontinue or restrict
our operations, restrict our right to collect revenues, block our web site, require us to
restructure our operations, impose additional conditions or requirements with which we may not be
able to comply, impose restrictions on our business operations or on our customers, or take other
regulatory or enforcement actions against us that could be harmful to our business. We may also
encounter difficulties in obtaining performance under or enforcement of related contracts. We
rely on contractual arrangements with our VIEs for our China
operations, which may not be as effective in providing control over these entities as direct
ownership. Because PRC regulations restrict our ability to provide Internet content, MVAS and advertising
services directly in China, we are dependent on our VIEs in which we have
little or no equity ownership interest and must rely on contractual arrangements to control and
operate these businesses. These contractual arrangements may not be as effective in providing
control over these entities as direct ownership. For example, the VIEs could
fail to take actions required for our business or fail to maintain our China web sites despite
their contractual obligation to do so. These companies are able to transact business with parties
not affiliated with us. If these companies fail to perform under their agreements with us, we may
have to rely on legal remedies under Chinese law, which we cannot be sure would be effective. In
addition, we cannot be certain that the individual equity owners of the VIEs
would always act in the best interests of SINA, especially if they leave SINA. Substantially all profits generated from our VIEs are paid to the
subsidiaries of ours in China through related party transactions under contractual agreements. We
believe that the terms under these contractual agreements are in compliance with the laws in China.
The tax authorities in China have examined some of these contractual agreements in the past and
have not raised any comment. However, due to the uncertainties surrounding the interpretation of
the transfer pricing rules relating to related party transactions in China, it is possible that tax
authorities in China may challenge the transfer prices that we have used for related party
transactions among our entities in China in the future. In the event
the tax authorities challenge our VIE structure, we may be forced to
restructure our business operation, which could have a material
adverse effect on our business. Restrictions on paying dividends or making other payments to us bind our subsidiaries and
VIEs in China. We are a holding company and do not have any assets or conduct any business operations in
China other than our investments in our subsidiaries in China, including BSIT, Star-Village.com
(Beijing) Internet Technology Ltd., Beijing - 27 -




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New Media Information Technology Co. Ltd., Beijing SINA Internet Technology Service Co. Ltd. and others; and our VIEs.
As a result, we depend on dividend payments from our subsidiaries in China for our revenues after
they receive payments from our VIEs in China under various services and other arrangements. We
cannot make any assurance that our subsidiaries in China can continue to receive the payments as
arranged under our contracts with those VIEs. To the extent that these VIEs have undistributed
after tax net income, we have to pay tax on behalf of the employees when we try to distribute the
dividend from these local entities in the future. The dividend tax rate is 20%. In addition, under
Chinese law, our subsidiaries are only allowed to pay dividends to us out of their accumulated
profits, if any, as determined in accordance with Chinese accounting standards and regulations.
Moreover, our Chinese subsidiaries are required to set aside at least 10% of their respective
accumulated profits, if any, up to 50% of their registered capital to fund certain mandated reserve
funds that are not payable or distributable as cash dividends. The Chinese government also imposes controls on the convertibility of renminbi into foreign
currencies and, in certain cases, the remittance of currency out of China. We may experience
difficulties in completing the administrative procedures necessary to obtain and remit foreign
currency. See 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.If we or any of
our subsidiaries are unable to receive all of the revenues from our operations through these
contractual or dividend arrangements, we may be unable to effectively finance our operations or pay
dividends on our ordinary shares. Even if we are in compliance with Chinese governmental regulations relating to licensing and
foreign investment prohibitions, the Chinese government may prevent us from advertising or
distributing content that it believes is inappropriate and we may be liable for such content or we
may have to stop profiting from such content. 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 or through MVAS that it believes to violate Chinese law, including content that it
believes 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 via our MVAS, or to limit or regulate any current or future content or services
available to users on our network, our business could be significantly harmed. In
January 2005, the Chinese State Administration of Radio, Film
and Television (SARFT), which
regulates radio and television stations in China, issued a notice prohibiting commercials for MVAS
related to fortune-telling from airing on radio and television stations effective in February
2005. This
notice could also lead to further actions by other Chinese government authorities to prohibit the
sale of such fortune-telling related SMS which could have a material
adverse effect on our financial position, results of operations, or cash flows. SARFT or other Chinese
government authorities may prohibit the marketing of other MVAS via a channel we depend on to generate
revenues, which could have a material adverse effect on our financial position, results of operations
or cash flows. 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.
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 are also subject to potential liability and penalty for delivering inappropriate content
through our MVAS. At the end of July 2004, our IVR service was temporarily terminated by China
Mobile for violating certain operating procedures. One of the violations cited in the notice for
temporary termination was that we had provided inappropriate content to our mobile subscribers
through our IVR service. The definition and interpretation of inappropriate content in many cases
is vague and subjective. We are not sure whether mobile operators including China Mobile and China
Unicom or the Chinese government will find our other mobile content inappropriate and therefore prevent
us from operating the MVAS relating to such content in the future. If they prevent us from offering
such services, our profit from MVAS will suffer. - 28 -




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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. We have recently experienced fee increases from some of our content providers. If this
trend continues, our gross profit from online advertising may be adversely affected. In addition,
the Chinese government has the ability to restrict or prevent state-owned media from cooperating
with us in providing certain content to us which will result in a significant decrease of the
amount of content we can publish on our web site. We may lose users if Chinese government chooses
to restrict or prevent state-owned media from cooperating with us and in which case our revenues
will be impacted negatively. In the area of web-based services, we have contracted with Google for integrated web search
technology to complement our directory and navigational guide, and with various 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. A substantial part of our non-advertising revenues is generated through MVAS where we depend
on mobile network operators for services delivery and payment collection. If we were unable to
continue these arrangements, our MVAS could be severely disrupted or discontinued. Furthermore, we
are highly dependent on these mobile service providers for our profitability in that they can
choose to increase their service fees at will. 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 could 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 stock price has been historically volatile and may continue to be volatile, which may make it more difficult for you to
resell shares when you want at prices you find attractive. The trading price of our ordinary shares has been and may continue to be subject to wide
fluctuations. During the twelve months ended December 31, 2004, the closing sale prices of our
ordinary shares on the Nasdaq Stock Market ranged from $19.78 to $48.25 and the sale price of our
ordinary shares closed at $31.15 on March 10, 2005. Our stock price has been subject to
considerable daily fluctuations. For example, following an earnings announcement in February
2005 regarding the results of the fourth quarter and full year of 2004 and projections for the
first quarter of 2005, our stock price declined from $27.35 to $24.39. Our stock price may
continue to fluctuate in response to a number of events and factors, such as quarterly variations
in operating results, announcements of technological innovations or new products and media
properties by us or our competitors, changes in financial estimates and recommendations by
securities analysts, the operating and stock price performance of other companies that investors
may deem comparable, new governmental restrictions or regulations and news reports relating to trends in our markets. In addition, the stock
market in general, and the market prices for China-related and Internet-related companies in
particular, have experienced extreme volatility that often has been unrelated to the operating
performance of such companies. These broad market and industry fluctuations may adversely affect
the price of our stock, regardless of our operating performance. - 29 -




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Anti-takeover provisions in our charter documents and SINAs shareholder rights plan may
discourage our acquisition by a third party, which could limit our shareholders opportunity to
sell their shares at a premium. Our Memorandum and Articles of Association include provisions that could limit the ability of
others to acquire control of us, modify our structure or cause us to engage in change in control
transactions. These provisions could have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices by discouraging third parties from
seeking to obtain control of us in a tender offer or from otherwise engaging in a merger or similar
transaction with us. For example, our Board of Directors has the authority, without further action by our
shareholders, to issue up to 3,750,000 preference shares in one or more series and to fix the
powers and rights of these shares, including dividend rights, conversion rights, voting rights,
terms of redemption and liquidation preferences, any or all of which may be greater than the rights
associated with our ordinary shares. Preference shares could thus be issued quickly with terms
calculated to delay or prevent a change in control or make removal of management more difficult. In
addition, if the Board of Directors issues preference shares, the market price of our ordinary
shares may fall and the voting and other rights of the holders of our ordinary shares may be
adversely affected. Similarly, the Board of Directors may approve the
issuance of ordinary shares of debentures convertible into voting
shares, which may limit the ability of the others to acquire control
of us. In addition, we have adopted a shareholder rights plan pursuant to which our existing
shareholders would have the right to purchase ordinary shares from the company at half the market
price then prevailing in the event a person or group acquires more than 10% of our outstanding
ordinary shares (or an additional 0.5% in the case of certain shareholders holding more than 10% at
the time of the plan adoption, including Shanda Interactive
Entertainment Limited (Shanda and its affiliates) on terms our Board of Directors does not approve. As a result, such
rights could cause substantial dilution to the holdings of the person or group which acquires more
than 10% (or an additional 0.5%, as the case may be). Accordingly, the
shareholder rights plan may inhibit a change in control or acquisition and could adversely affect a
shareholders ability to realize a premium over the then prevailing market price for the ordinary
shares in connection with such a transaction. We have a single shareholder who can substantially influence the outcome of all matters voted
upon by our shareholders and whose interests may not be aligned with yours. In February 2005, Shanda and several of its affiliates reported that they beneficially
acquired approximately 19.5% of our outstanding ordinary shares. As a result, Shanda is able to
substantially influence all matters requiring the approval of our shareholders, including the
election of directors and the approval of significant corporate transactions such as acquisitions.
This concentration of ownership could delay, defer or prevent a change in control or otherwise
impede a merger or other business combination that the Board of Directors or other shareholders may
view favorably. Additionally, in the event Shanda obtains Board
representation, it may have influence over certain of the
Companys Business activities otherwise not subject to a
shareholder vote. If tax benefits currently available to us in China were no longer available, our effective
income tax rates for our China operations could increase to 33%. We are incorporated in Cayman Islands where no income taxes are imposed. We have operations in
four tax jurisdictions including China, the U.S., Hong Kong and Taiwan. For
the U.S., Hong Kong and Taiwan, we have incurred net accumulated operating
losses for income tax purposes. We believe that it is more likely than not that these net
accumulated operating losses will not be utilized in the future and hence we have not recorded
income tax provisions or benefits for these locations. We do not expect that we will record any
income tax provisions for our operations in the U.S., Hong Kong and Taiwan in the
foreseeable future. We generated substantially all our net income from our China operations for years ended
December 31, 2004 and 2003. Our China operations are conducted through various subsidiaries and
VIEs. Pursuant to the PRC Income Tax Laws, our subsidiaries and VIEs are generally subject to
Enterprise Income Taxes (EIT) at a statutory rate of 33%, consisting of a 30% national income tax
and a 3% local income tax. However, some of our subsidiaries and VIEs are qualified new technology
enterprises, and under PRC Income Tax Laws, they are subject to a preferential tax rate of 15%. In
addition, some of our subsidiaries are Foreign Investment Enterprises, and under PRC Income Tax
Laws, they are entitled to either a three- - 30 -




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year tax exemption followed by three years with a 50% reduction in the tax rate, commencing
the first operating year, or a two-year tax exemption followed by three years with a 50% reduction
in the tax rate, commencing the first profitable year. To the extent that our VIEs have
undistributed after tax net income, we have to pay tax on behalf of the employees when we try to
distribute the dividend from these local entities in the future. The dividend tax rate is 20%. We
expect that based on our current operating structure and preferential tax treatments available to
us in China, our effective income tax rates will be approximately 5% to 10% for fiscal 2005 and
2006. Such expected effective rates are subject to change at any time if Chinese tax authorities
challenge us on our current tax arrangements between our subsidiaries and VIEs. We are in the
process of applying for new preferential tax treatments for certain of our subsidiaries and VIEs in
China and our projected effective tax rates will be reduced further if these applications are
approved. There is no assurance that such tax treatments will be approved. Over the longer term, if
the Chinese government phases out preferential tax treatment for foreign investment enterprises or
for new technology enterprises, our effective tax rates for the PRC operation can be increased to
as high as 33%. 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 and China Netcom under the
administrative control and regulatory supervision of MII. 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 could 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 could 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 and China Netcom to provide data communications capacity primarily through local
telecommunications lines. Although the Chinese government has announced plans to aggressively
develop 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 could be hindered. 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 could 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. Wireless technology changes rapidly, and we may not be successful in working with new
technology standards. Wireless technology undergoes rapid changes. Our current MVAS business consists principally of
text messaging. As the technology evolves to accommodate multi-media messaging services, wireless
e-commerce and music download, and other applications, we would need to adapt to and support these
services in order to be successful. If we fail to anticipate and adapt to these and other
technological changes, our market share and our profitability could suffer. -31-




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Our business and growth could 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 recent changes to our executive
management team. Our future success will also depend on our ability to attract and retain highly
skilled technical, managerial, editorial, marketing, sales and customer service personnel,
especially qualified personnel for our international operations in Greater China. Qualified
individuals are in high demand, and we may not be able to successfully attract, assimilate or
retain the personnel we need to succeed. We may not be able to manage our expanding operations effectively, which could harm our
business. We expanded rapidly in 2003 and 2004 by acquiring two new MVAS providers, one online and
offline hotel booking company, one instant messaging company and entering into two new joint
ventures. These new businesses and joint ventures provide various services such as MVAS, online and
offline hotel booking, instant messaging, online games and online auctions. We anticipate
continuous expansion in our business, both through further acquisitions and internal growth, as we
address growth in our customer base and market opportunities. In addition, the geographic
dispersion of our operations as a result of acquisitions and overall internal growth 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 and implement operational and financial systems, procedures and controls, and
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. If we are not successful in establishing,
maintaining and managing our personnel, systems, procedures and
controls, our business will be materially, adversely affected. 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 better understand 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 could 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. -32-




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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 a 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. We may be classified as a Passive Foreign Investment Company which could result in adverse
U.S. tax consequences to U.S. investors. Based upon the nature of our income and assets, we may be classified as a passive foreign
investment company, or PFIC, 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. The determination of whether or not we are a PFIC is made on an annual basis, and
those determinations depend on the composition of our income and assets, including goodwill, 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 treatment, you should be aware that certain
factors that could affect our classification as PFIC are out of our control. For example, the
calculation of assets for purposes 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. In addition, the
relevant authorities in this area are not clear and so we operate with less than clear guidance in
our effort to minimize the risk of PFIC treatment. Therefore, we cannot be sure whether we are not
and will not be a PFIC for the current or any future taxable year. In
the event we are determined to be a PFIC, our stock may become less
attractive to U.S. investors, thus negatively impacting the
price of our stock. Future outbreaks of Severe Acute Respiratory Syndrome (SARS) and other widespread public
health problems could adversely affect our business. Future outbreaks of SARS and other widespread public health problems in China and surrounding
areas, where most of our employees work, could negatively impact our business in ways that are hard
to predict. Prior experience with the SARS virus suggests that a future outbreak of SARS may lead
public health authorities to enforce SARS quarantines, which could result in closures of some of
our offices and other disruptions of our operations. A future SARS outbreak or other widespread
public health problems could result in reduction of our advertising and fee-based revenues. 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, -33-




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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, new tax regulations may
subject us or our customers to additional 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. 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 and is not adequate to indemnify us against all potential
liabilities. We issued $100 million of zero coupon convertible subordinated notes due 2023, or possibly
earlier upon a change of control, which we may not be able to repay in cash and could result in
dilution of our basic earnings per share. In July 2003, we issued $100 million of zero coupon convertible subordinated notes due July
15, 2023, first putable to us on July 15, 2007. Each $1,000 principal amount of the notes is
convertible into 38.7741 shares of our ordinary shares prior to July 15, 2023 if the sale price of
our ordinary shares issuable upon conversion of the notes reaches a specified threshold or
specified corporate transactions have occurred. One of the conditions for conversion of the notes
to SINA ordinary shares is conversion upon satisfaction of market price condition, when the sale
price (defined as closing per share sales price) of SINA ordinary shares reaches a specified
threshold for a defined period of time. The specified thresholds are (i) during the period from
issuance to July 15, 2022, if the sale price of SINA ordinary shares, for each of any five
consecutive trading days in the immediately preceding fiscal quarter, exceeds 115% of the
conversion price per ordinary share, and (ii) during the period from July 15, 2022 to July 15,
2023, if the sale price of SINA ordinary shares on the previous trading day is more than 115% of
the conversion price per ordinary share. For the quarter ended December 31, 2004, the sale price
of SINA ordinary shares exceeded the threshold set forth in item (i) above for the required period
of time; therefore, the Notes are convertible into SINA ordinary shares pursuant to the threshold
set forth in item (i) above during the quarter ending March 31, 2005. On July 15 annually from 2007
to 2013, and on July 15, 2018, or upon a change of control, holders of the notes may require us to
repurchase all or a portion of the notes for cash. Upon a conversion, we may choose to pay the
purchase price of the notes in cash, ordinary shares, or a combination of cash and ordinary shares.
We may not have enough cash on hand or have the ability to access cash to pay the notes if holders
ask for repayment on the various put dates, or upon a change of control, or at maturity. In
addition, the purchase of our notes with our ordinary shares or the conversion of the notes into
our ordinary shares could result in dilution of our basic earnings per share. 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. Majority of our revenues derived and expenses incurred are in Chinese renminbi with a
relatively small amount are in Taiwan dollars, Hong Kong dollars and U.S. dollars. Our cash, cash
equivalents and short-term investment balance denominated in Chinese renminbi was approximately
$123.3 million, which accounted for approximately 45% of our total -34-




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cash, cash equivalents and short-term investment balance as of December 31, 2004. Our accounts
receivable balance denominated in Chinese renminbi was approximately $38.9 million, which accounted
for approximately 98% of our total accounts receivable balance as of December 31, 2004. Our
liabilities balance denominated in Chinese renminbi was approximately $42.2 million, which
accounted for approximately 24% of our total liabilities balance as of December 31, 2004. 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 Chinese government
policies and 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, 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 securities, 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 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 could limit our ability to utilize revenue generated in renminbi
to fund our business activities outside China, or to repay foreign currency obligations, including
our debt obligations, which would have a material adverse effect on
our financial conditions and results of operation. The Chinese legal system has inherent uncertainties that could limit the legal protections
available to you. Our contractual arrangements with our variable interest entities in China are governed by the
laws of the Peoples Republic of China. Chinas legal system is based upon written statutes.
Prior court decisions may be cited for reference but are not binding on subsequent cases and have
limited value as precedents. Since 1979, the Chinese legislative bodies have promulgated laws and
regulations dealing with such economic matters such as foreign investment, corporate organization
and governance, commerce, taxation and trade. However, because these laws and regulations are
relatively new, and because of the limited volume of published decisions and their non-binding
nature, the interpretation and enforcement of these laws and regulations involve uncertainties and
therefore you may not have legal protections for certain matters in China. You may experience difficulties in effecting service of legal process, enforcing foreign
judgments or bringing original actions in China based on United States or other foreign laws
against us. We conduct our operations in China and a significant portion of our assets is located in
China. In addition, some of our directors and executive officers reside within China, and
substantially all of the assets of these persons are located within China. As a result, it may not
be possible to effect service of process within the United States or elsewhere outside China upon
those directors or executive officers, including with respect to matters arising under U.S. federal
securities laws or applicable state securities laws. Moreover, our Chinese counsel has advised us
that China does not have treaties with the U.S. or many other countries providing for the
reciprocal recognition and enforcement of judgment of courts. As a result, recognition and
enforcement in China of judgments of a court of the U.S. or any other jurisdiction in
relation to any matter may be difficult or impossible. Political and economic conditions in Greater China and the rest of Asia 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 will be able to
effectively maintain 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 GDP growth for the entire region as a result of higher interest rates and
currency fluctuations. If declining economic growth rates persist in these countries, expenditures
for Internet access, infrastructure improvements and advertising could decrease, which could
negatively affect our business and our profitability over time. -35-




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Economic reforms in the region could also 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 reform 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. While we believe that we currently have adequate internal control procedures in place, we are
still exposed to potential risks from recent legislation requiring companies to evaluate controls
under Section 404 of the Sarbanes-Oxley Act of 2002. While we believe that we currently have adequate internal control procedures in place, we are
still exposed to potential risks from recent legislation requiring companies to evaluate controls
under Section 404 of the Sarbanes-Oxley Act of 2002. Under the supervision and with the
participation of our management, we have evaluated our internal controls systems in order to allow
management to report on, and our registered independent public accounting firm to attest to, our
internal controls, as required by Section 404 of the Sarbanes-Oxley Act. We have performed the
system and process evaluation and testing required in an effort to comply with the management
certification and auditor attestation requirements of Section 404. As a result, we have incurred
additional expenses and a diversion of managements time. If we are not able to continue to meet
the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject
to sanctions or investigation by regulatory authorities, such as the SEC or the Nasdaq National
Market. Any such action could adversely affect our financial results and the market price of our
ordinary shares. Changes to existing accounting pronouncements, including SFAS 123R, or taxation rules or
practices may cause adverse revenue fluctuations, affect our reported results of operations or how
we conduct our business. A change in accounting pronouncements or taxation rules or
practices can have a significant effect on our reported results and may even affect our reporting
of transactions completed before the change is effective. On
December 16, 2004, the Financial Accounting Standards Board adopted Statement 123R, Share Based Payment, which will require
us, starting in the third quarter of the year ending December 31, 2005, to measure compensation
costs for all stock based compensation (including stock options and our employee stock purchase
plan, as currently constructed) at fair value and take a compensation charge equal to that value.
The various methods for determining the fair value of stock options are based upon, among other
things, the volatility of the underlying stock. The price of our ordinary shares has historically
been volatile. Therefore, the adoption of the accounting standard requiring companies to expense
stock options could negatively affect our profitability and the trading price of our ordinary
shares. Such adoption could also limit our ability to continue to use stock options as an
incentive and retention tool, which could, in turn, hurt our ability to recruit employees and
retain existing employees. Other new accounting pronouncements or
taxation rules and varying interpretations of accounting pronouncements or taxation practice have
occurred and may occur in the future. This change to existing rules, future changes, if any, or the
questioning of current practices may adversely affect our reported financial results or the way we
conduct our business. 
 Item 2:Properties We carry out our advertising, mobile value-added and other services in China, U.S., Hong Kong
and Taiwan, and a majority of our operations are in China and we have offices in Beijing, Shanghai,
Guangzhou and Shenzhen. We also have some sales and marketing spaces in some provinces of China.
In Beijing, we have offices under lease agreements that expiring from 2005 through 2008. In
Shanghai, we have an office under a lease agreement that expires in
August 2005. In Guangzhou, we have an
office under a lease agreement that expires in September 2006. In Shenzhen, we have an office under
lease agreements that expiring through August 2005. In San Mateo, California, we have an office
under a sublease agreement that expires in September 2005. In Hong Kong, we have an office under a
lease agreement that expires in December 2006. In Taipei, we have office under a lease agreement
that expires in December 2006. We believe that our existing facilities are adequate to meet our
current requirements, and that future growth can be accommodated by leasing additional or
alternative space. 
 Item 3:Legal Proceedings In
February 2005, multiple purported securities class action complaints were filed against the Company and certain
officers and directors, in the United States District Court for the Southern District of New York,
following the Companys announcement of anticipated financial results for the first quarter of 2005
ending on March 31, 2005. -36-




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##### Table of Contents



The complaints seek
unspecified damages on alleged violations of federal securities laws during the period from October 26, 2004 to
February 7, 2005. The complaints allege violations of the
federal securities laws through the issuance of false or misleading
statements during the class period covered. Consolidation and the
appointment of lead plaintiff are currently pending in these
purported class actions. The Company intends to take all appropriate
action in response to these lawsuits. From
time to time, the Company may also be subject to legal proceedings and claims in the ordinary
course of business, including claims of alleged infringement of copyrights and other intellectual
property rights in connection with the content published on our web sites. 
 Item 4:Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the quarter ended December 31,
2004. -37-




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##### Table of Contents



PART II 
 Item 5:Market for the Registrants Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities Market Information SINA Corporations ordinary shares have been 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 shares for each period indicated as reported on the Nasdaq Stock
Market: High
    
    
    LowYear Ended December 31, 2003First Quarter
    
    
    10.38
    
    
    
    5.63Second Quarter
    
    
    20.25
    
    
    
    8.42Third Quarter
    
    
    43.30
    
    
    
    21.60Fourth Quarter
    
    
    43.57
    
    
    
    30.97Year Ended December 31, 2004First Quarter
    
    
    48.25
    
    
    
    35.96Second Quarter
    
    
    41.19
    
    
    
    25.97Third Quarter
    
    
    31.54
    
    
    
    19.78Fourth Quarter
    
    
    38.85
    
    
    
    26.18
 The closing price of the Companys ordinary share on the Nasdaq National Market on March 10,
2005 was $31.15. As of March 10, 2005, the Company had approximately 131 shareholders of record, although the
Company believes there is a significantly larger number of beneficial owners of its ordinary
shares. The Company has not declared or paid any cash dividends on its Ordinary Shares at any time and
has no present plans to do so in the future. Securities authorized for issuance under equity compensation plans The following table sets forth information for our equity compensation plans as of December
31, 2004: Number ofsecuritiesremaining availablefor future issuanceunder equityWeighted average
    
    
    
    compensation plansNumber of securities to
    
    
    
    exercise price of
    
    
    
    (excludingbe issued upon exercise
    
    
    
    outstanding
    
    
    
    securitiesof outstanding options,
    
    
    
    options, warrants
    
    
    
    reflected in columnPlan Category
    
    
    warrants and rights
    
    
    
    and rights
    
    
    
    (a))(a)
    
    
    
    (b)
    
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    
    5,417,588
    (1)
    
    
    $
    11.62
    
    
    
    
    4,843,794
    (2) (3)Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    N/A
    
    
    
    
    Total
    
    
    
    5,417,588
    
    
    
    $
    11.62
    
    
    
    
    4,843,794
    -38-




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##### Table of Contents



(2) Includes shares available for future issuance under the Purchase Plan. The Purchase Plan,
designed to comply with Internal Revenue Code Section 423, includes an evergreen feature, which
provides for an automatic annual increase in the number of shares available under the plan equal to
the lesser of 600,000 shares, 0.5 % of the ordinary shares outstanding on the last day of the
immediately preceding fiscal year, or such lesser number of shares as is determined by the Board of
Directors. (3) Includes shares available for future issuance under the 1999 Stock Plan (the 1999 Plan).
The 1999 Plan includes an evergreen feature, which provides for an automatic annual increase in
the number of ordinary shares available under the plan on the first day of each of the fiscal years
through 2005, equal to the lesser of 750,000 shares, 3% of our outstanding ordinary shares on the
last day of the immediately preceding fiscal year, or a lesser number of shares determined by the
Board of Directors. Issuer Purchases of Equity Securities We do not have a stock repurchase program and did not repurchase any of our equity securities
during the quarter ended December 31, 2004. -39-




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##### Table of Contents



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. In November 2002, we changed our fiscal year-end from June 30 to December 31. The
consolidated statement of operations presents the twelve month results for the two years ended
December 31, 2004 and 2003, the six month results for the six months ended December 31, 2002, as
well as the twelve month results for the years ended June 30, 2002, 2001, and 2000. The unaudited
consolidated statement of operations of the twelve months results for the year ended December 31,
2002 is also presented. Years Ended
    
    
    Six Months Ended
    
    
    Years EndedDecember 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002
    
    
    2002
    
    
    2001
    
    
    2000(unaudited)(In thousands)Consolidated Statement of Operations Data:Net revenues:Advertising
    
    $
    65,417
    
    
    $
    41,173
    
    
    $
    24,703
    
    
    $
    13,869
    
    
    $
    21,105
    
    
    $
    23,393
    
    
    $
    11,013Non-advertising
    
    
    134,570
    
    
    
    73,112
    
    
    
    14,191
    
    
    
    9,347
    
    
    
    7,403
    
    
    
    3,290
    
    
    
    3,157199,987
    
    
    
    114,285
    
    
    
    38,894
    
    
    
    23,216
    
    
    
    28,508
    
    
    
    26,683
    
    
    
    14,170Cost of revenues:Advertising
    
    
    22,187
    
    
    
    14,001
    
    
    
    11,267
    
    
    
    5,824
    
    
    
    11,537
    
    
    
    13,771
    
    
    
    8,950Non-advertising
    
    
    39,424
    
    
    
    20,405
    
    
    
    4,140
    
    
    
    2,676
    
    
    
    1,938
    
    
    
    1,169
    
    
    
    1,965Stock-based compensation
    
    
    
    
    
    
    31
    
    
    
    102
    
    
    
    42
    
    
    
    133
    
    
    
    414
    
    
    
    60561,611
    
    
    
    34,437
    
    
    
    15,509
    
    
    
    8,542
    
    
    
    13,608
    
    
    
    15,354
    
    
    
    11,520Gross profit
    
    
    138,376
    
    
    
    79,848
    
    
    
    23,385
    
    
    
    14,674
    
    
    
    14,900
    
    
    
    11,329
    
    
    
    2,650Operating expensesSales and marketing
    
    
    39,585
    
    
    
    21,741
    
    
    
    12,419
    
    
    
    6,457
    
    
    
    12,468
    
    
    
    21,694
    
    
    
    17,476Product development
    
    
    10,355
    
    
    
    6,340
    
    
    
    5,916
    
    
    
    2,755
    
    
    
    6,666
    
    
    
    9,648
    
    
    
    7,358General and administrative
    
    
    15,619
    
    
    
    11,551
    
    
    
    8,896
    
    
    
    4,480
    
    
    
    8,237
    
    
    
    8,918
    
    
    
    6,951Stock-based compensation
    
    
    
    
    
    
    523
    
    
    
    1,692
    
    
    
    699
    
    
    
    2,208
    
    
    
    7,097
    
    
    
    18,460Amortization of intangible assets
    
    
    3,492
    
    
    
    1,749
    
    
    
    1,777
    
    
    
    90
    
    
    
    5,063
    
    
    
    6,765
    
    
    
    6,807Write-off of intangible assets
    
    
    
    
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,051
    
    
    
    42,807
    
    
    
    30,700
    
    
    
    14,481
    
    
    
    34,642
    
    
    
    54,122
    
    
    
    57,052Income (loss) from operations
    
    
    69,325
    
    
    
    37,041
    
    
    
    (7,315
    )
    
    
    193
    
    
    
    (19,742
    )
    
    
    (42,793
    )
    
    
    (54,402
    )Interest income
    
    
    5,139
    
    
    
    2,757
    
    
    
    2,819
    
    
    
    1,034
    
    
    
    4,212
    
    
    
    7,336
    
    
    
    3,801Other expenses
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of convertible debt issuance
cost
    
    
    (685
    )
    
    
    (341
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on investments, net
    
    
    (1,390
    )
    
    
    (6,063
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on equity investments
    
    
    (3,165
    )
    
    
    (914
    )
    
    
    (453
    )
    
    
    (311
    )
    
    
    (562
    )
    
    
    (894
    )
    
    
    (501
    )Income (loss) before income taxes
    
    
    69,224
    
    
    
    32,318
    
    
    
    (4,949
    )
    
    
    916
    
    
    
    (16,092
    )
    
    
    (36,351
    )
    
    
    (51,102
    )Provision for income taxes
    
    
    (3,228
    )
    
    
    (895
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before minority interest
    
    
    65,996
    
    
    
    31,423
    
    
    
    (4,949
    )
    
    
    916
    
    
    
    (16,092
    )
    
    
    (36,351
    )
    
    
    (51,102
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119Net income (loss)
    
    
    65,996
    
    
    
    31,423
    
    
    
    (4,949
    )
    
    
    916
    
    
    
    (16,092
    )
    
    
    (36,351
    )
    
    
    (50,983
    )Accretion on Mandatorily Redeemable
Convertible Preference Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84
    )Net income (loss) attributable to ordinary
shareholders
    
    $
    65,996
    
    
    $
    31,423
    
    
    $
    (4,949
    )
    
    $
    916
    
    
    $
    (16,092
    )
    
    $
    (36,351
    )
    
    $
    (51,067
    )Basic net income (loss) per share
    
    $
    1.33
    
    
    $
    0.66
    
    
    $
    (0.11
    )
    
    $
    0.02
    
    
    $
    (0.36
    )
    
    $
    (0.91
    )
    
    $
    (3.44
    )Shares used in computing basic net income
(loss) per share
    
    
    50,274
    
    
    
    47,840
    
    
    
    45,629
    
    
    
    45,725
    
    
    
    44,315
    
    
    
    40,110
    
    
    
    14,836Diluted net income (loss) per share
    
    $
    1.15
    
    
    $
    0.58
    
    
    $
    (0.11
    )
    
    $
    0.02
    
    
    $
    (0.36
    )
    
    $
    (0.91
    )
    
    $
    (3.44
    )Shares used in computing diluted net income
(loss) per share
    
    
    58,204
    
    
    
    54,794
    
    
    
    45,629
    
    
    
    48,030
    
    
    
    44,315
    
    
    
    40,110
    
    
    
    14,836
 -40-




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##### Table of Contents



As of December 31,
    
    
    As of June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002
    
    
    2001
    
    
    2000(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    153,768
    
    
    $
    158,148
    
    
    $
    53,262
    
    
    $
    31,095
    
    
    $
    52,505
    
    
    $
    99,149Working capital
    
    
    252,027
    
    
    
    219,866
    
    
    
    91,814
    
    
    
    89,914
    
    
    
    102,246
    
    
    
    125,867Total assets
    
    
    430,425
    
    
    
    289,897
    
    
    
    130,479
    
    
    
    121,355
    
    
    
    133,122
    
    
    
    156,038Convertible debt
    
    
    100,000
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    253,345
    
    
    
    159,507
    
    
    
    117,387
    
    
    
    111,690
    
    
    
    119,967
    
    
    
    146,817
 
 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 Exchange Act, including, without limitation,
statements regarding our expectations, beliefs, intentions or future strategies that are signified
by the words expect, anticipate, intend, believe, the negative of such terms or other
comparable terminology. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we undertake 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 Business  Risk Factors set forth herein. We
caution you that our businesses and financial performance are subject to substantial risks and
uncertainties, including the factors identified in Business  Risk Factors, that could cause
actual results to differ materially from those in the forward-looking statements. Overview We are a leading online media company and value-added information services provider in the
Peoples Republic of China (the PRC or China) and the global Chinese communities. With a
branded network of localized web sites targeting Greater China and overseas Chinese, we provide
services through five major business lines including SINA.com (online news and content), SINA
Mobile (mobile value-added services or MVAS), SINA Online (community-based services and games),
SINA.net (search and enterprise services) and SINA E-Commerce (online shopping and travel).
Together these provide an array of services including region-focused online portals, MVAS, search
and directory, interest-based and community-building channels, free and premium email, online
games, virtual ISP, classified listings, fee-based services, e-commerce and enterprise e-solutions.
In turn, we generate revenues through advertising, MVAS, fee-based services, e-commerce and
enterprise services. The primary focus of our operations is in China, where we derive the majority of our revenues.
From 1999 to 2001, our growth was mainly driven by online advertising business and revenues from
online advertising accounted for a majority of our total revenues. We began offering MVAS under
arrangements with third-party mobile operators in the PRC in late 2001 and have since experienced
significant growth in MVAS revenues. Advertising and MVAS are currently the major sources of our
revenues and we expect this trend to continue in the near future periods. Our revenues We derive our revenues from advertising and non-advertising sources. Advertising Advertising revenues are derived principally from online advertising arrangements, sponsorship
arrangements, or a combination of them. Online advertising arrangements allow advertisers to place
advertisements on particular areas of our web sites, in particular formats and over particular
periods of time. Sponsorship arrangements allow advertisers to sponsor a particular area on our web
sites in exchange for a fixed payment over the contract period. We sell online advertisements
through our advertising agencies or through our direct sales force. For fiscal 2004 and 2003,
advertising revenues accounted for 33% and 36% of our total net revenues, respectively. -41-




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##### Table of Contents



Non-advertising Non-advertising revenues are derived primarily from MVAS, fee based services, e-commerce and
enterprise services. For fiscal 2004 and 2003, non-advertising revenues accounted for 67% and 64%
of our total net revenues, respectively. MVAS.MVAS revenues are derived principally from providing mobile phone users with short
messaging service (SMS), multimedia messaging service (MMS), wireless application protocol
(WAP) services and interactive voice response system (IVR) services. These services include
news and other content subscriptions, mobile dating service, picture and logo download, ring tones,
ring back tones, mobile games, chat rooms and access to music files. Such services are charged on
a monthly subscription or on a per message basis. We began offering MVAS in China in late 2001. We expanded our market share in China by
acquiring Memestar Limited in January 2003 and Crillion Corporation in March 2004. We diversified
our product offerings and launched our WAP services in December 2002, MMS in April 2003 and IVR
services in December 2003. For fiscal 2004 and 2003, revenues from MVAS accounted for 62% and 56%
of our total net revenues, respectively. We
have established cooperation arrangements with third-party mobile operators China Mobile
Communication Corporation (China Mobile) and China Unicom Co., Ltd. (China Unicom) and their
subsidiaries. As of December 31, 2004, we offered our MVAS pursuant to relationships with 29
provincial and local subsidiaries of China Mobile and 8 provincial subsidiaries of China Unicom.
MVAS revenues via China Mobile and its subsidiaries were 87% and 95%, respectively, of our total
MVAS revenues for the year 2004 and 2003. MVAS revenues via China Unicom and its subsidiaries were
13% and 5%, respectively, of our total MVAS revenues for the year 2004 and 2003. We rely on China Mobile and China Unicom in the following ways: utilizing their network and
gateway to provide MVAS to subscribers; utilizing their billing systems to charge the fees to our
subscribers through the subscribers mobile phone bill; utilizing their collection services to
collect payments from subscribers; and relying on their infrastructure development to further
develop our new products and services. Based on the arrangements with China Mobile and its subsidiaries, China Mobile generally
retains 15% of the fee for content value-added services we provide to our users via their platform
for fee collection. In addition, China Mobile deducts transmission fees from our portion of the
service fees. The amount of such transmission fee is charged on a per message basis and varies for
different products and the message volume. For fiscal 2004 and 2003, we received on average 77% and
78%, respectively, of the amount we charged to our users from China Mobile platform after China
Mobile deducted the fees for collection and transmission. Based on the arrangements with China
Unicom and its subsidiaries, China Unicom typically retains 12% of the fee for content value-added
services we provide to our users via their platform if they charge us for transmission cost or
between 21% and 29% if they do not charge us for transmission cost. For fiscal 2004 and 2003, we
received on average 72% and 73%, respectively, of the amount we charged to our users from China
Unicom platform after China Unicom deducted the fees for collection and transmission. China Mobile
and China Unicom may choose to increase the fees charged for
providing their services in the future,
and if they choose to increase such fees, our gross margin for MVAS and our operating profitability
may be negatively impacted. Fee-based service revenues.Fee-based service revenues mainly include services fees received
from offering information subscriptions on our web sites, online games, virtual ISP and paid email
services. E-commerce revenues.E-commerce revenues include transaction and slotting fees paid by
merchants for selective positioning and promoting their goods or services within our online mall,
SinaMall. Our transaction-based, e-commerce revenues have been minimal. Enterprise service revenues.Enterprise service revenues mainly include paid search and
directory listings, corporate emails, classified listings, e-learning and enterprise e-solutions.
The majority of enterprise service revenues are generated from paid search and directory listing
and for fiscal 2004, 2003 and 2002, revenues from paid search and directory listing amounted to
$5.5 million, $3.7 million and $0.5 million, respectively, or 4%, 5% and 4%, respectively, of our
total non-advertising revenues. -42-




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##### Table of Contents



Material acquisitions In January 2003, we completed the acquisition of Memestar Limited, a British Virgin Islands
limited liability corporation (Memestar), through a purchase of all of the outstanding shares of
Memestar. As a result of such acquisition, Memestar became one of our wholly-owned subsidiaries.
Memestar, through its various subsidiaries and exclusive contractual arrangements with two local
entities in the PRC, is engaged in the business of providing MVAS in the PRC. The primary purposes
of the acquisition were to enhance our MVAS as well as increase our market share in the PRC MVAS
market. The aggregate purchase price of $24,255,113 is comprised of five elements: (a) $10,277,675
in cash paid at the closing of the acquisition; (b) 560,369 newly issued SINA ordinary shares,
valued at $4,281,219 at the time of signing the definitive agreement, delivered at the closing of
the acquisition; (c) $5,250,000 in cash paid in four equal installments after the closing date of
the acquisition; (d) 560,369 newly issued SINA ordinary shares, valued at $4,281,219 at the time of
signing the definitive agreement, to be delivered on the first anniversary of the closing date of
the acquisition, 383,733 of which were issued in August 2003, prior to the first anniversary of the
closing, as a result of an amendment to the share purchase agreement; and (e) approximately
$165,000 in legal and professional fees related to the acquisition. As a result of the
acquisition, we recorded intangible assets relating to customer lists and non-competition clauses
in the amount of $2.2 million, which were amortized over periods ranging from fourteen to eighteen
months. Amortization expense for fiscal 2004 and 2003 amounted to $0.5 million and $1.7 million,
respectively. In addition, we recorded goodwill in the amount of $18.1 million representing the
excess of the purchase price over the fair value of the net tangible and identifiable intangible
assets acquired. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142
Goodwill and Other Intangible Assets (SFAS 142), goodwill is not amortized but is tested for
impairment annually. We performed an impairment test relating to goodwill arising from Memestar
acquisition and concluded there was no impairment as to the carrying value of the goodwill as of
December 31, 2004. The purchase allocation for Memestar acquisition is based on an appraisal
performed by an independent appraisal firm in the United States. Immediately after the signing of
the definitive agreement, we obtained effective control over Memestar; accordingly, the operating
results of Memestar have been consolidated with our results starting January 6, 2003. In March 2004, we completed the acquisition of Crillion Corporation, a British Virgin Islands
limited liability corporation (Crillion), through a purchase of all of the outstanding shares of
Crillion. As a result of such acquisition, Crillion became a wholly-owned subsidiary of SINA.
Crillion, through its subsidiary and exclusive contractual arrangement with a local entity in the
PRC, is engaged in the business of providing MVAS in the PRC. The primary purposes of the
acquisition were to enhance our MVAS as well as increase our market share in the PRC MVAS market.
The aggregate purchase price is comprised of an initial consideration and two contingent
considerations on achieving specified earnings in future periods. The initial consideration of
$18,958,486 is comprised of three elements: (a) $9,898,785 in cash; (b) 195,593 newly issued SINA
ordinary shares, valued at $8,534,701 at the time of closing, delivered at the closing of the
acquisition; and (c) approximately $525,000 in legal and professional fees related to the
acquisition. The two contingent considerations are based on Crillions financial performances in
2004 and 2005. The contingent considerations would be roughly 1.5 to 2.0 times of 2004 and 2005
earnings, provided that Crillions pretax net income for 2004 and 2005 is over $6.7 million and
$13.3 million, respectively. The total consideration is subject to a cap of $125.0 million and will
be 60% in cash and 40% in SINA ordinary shares. As of December 31, 2004, we estimated that the
additional consideration related to the achievement of the 2004 performance target was
approximately $28.1 million, which was recorded as additional goodwill in the fourth quarter of
fiscal 2004. As a result of the acquisition, we recorded intangible assets relating to the customer
lists, content provider contracts and non-competition arrangements clauses in the amount of $4.5
million, which were amortized over periods ranging from sixteen to thirty-six months. Amortization
expense related to intangible assets for fiscal 2004 amounted to $2.0 million. As of December 31,
2004, total goodwill recorded for the Crillion acquisition was $38.0 million, which included an
initial $9.9 million, representing the excess of the initial purchase price over the fair value of
the net tangible and identifiable intangible assets acquired, and the $28.1 million for the
achievement of the 2004 performance target. In accordance with SFAS 142, goodwill is not amortized
but is subject to annual impairment assessment. We performed an impairment test relating to
goodwill arising from Crillion acquisition and concluded there was no impairment as to the carrying
value of the goodwill as of December 31, 2004. The purchase price allocation for the Crillion
acquisition was based on an appraisal performed by an independent appraisal firm in the United
States. Immediately after the closing of the acquisition, the operating results of Crillion were
consolidated with our operating results starting March 25, 2004. On July 1, 2004, we entered into an agreement to acquire Davidhill Capital Inc., a British
Virgin Islands limited liability corporation (Davidhill), and its UC instant messaging technology
platform. The closing of the acquisition occurred on October 19, 2004, but the operating results
of Davidhill have been consolidated with those of SINA starting July 1, 2004, when we took over the
effective control of Davidhill. The primary purpose of the acquisition was to leverage UC instant
messaging technology platform to SINAs long-term web and wireless strategy. Davidhill owns the UC
instant messaging -43-




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technology platform and certain fixed assets (the asset group) via its wholly-owned
subsidiary in the PRC. We acquired the asset group through a purchase of all of the outstanding
shares of Davidhill. We considered EITF 98-3, Determining Whether a Nonmonetary Transaction
Involves Receipt of Productive Assets or of a Business, and concluded that the asset group
constitutes a business. We therefore applied SFAS No. 141, Business Combinations, to account for
the acquisition of Davidhill. As a result of such acquisition, Davidhill became one of our
wholly-owned subsidiaries. The aggregate purchase price is comprised of an initial consideration
and a contingent consideration on achieving specified performances in future periods. The initial
consideration of $15,250,000 is comprised of three elements: (a) $12,600,000 in cash; (b) 63,828
newly issued SINA ordinary shares, valued at $2,400,000 in accordance with the average of per share
closing prices of SINA ordinary shares on the NASDAQ National Market during the thirty (30)
calendar days immediately preceding July 1, 2004, delivered at the closing of the acquisition; and
(b) approximately $250,000 in legal and professional fees related to the acquisition. The
contingent consideration of the Davidhill acquisition is based on certain simultaneous online user
targets being reached by Davidhill in the 15 months after the agreement date. The contingent
consideration is subject to a cap of $21.0 million and will be 84% in cash and 16% in SINA ordinary
shares. As a result of the acquisition, we recorded intangible assets relating to technology and
non-competition arrangements in the amount of $10.8 million, which were amortized over periods
ranging from twenty-seven months to ten years months. Amortization expense of related intangible
assets for fiscal 2004 amounted to $0.6 million. Goodwill of $4.3 million was recorded
representing the excess of the initial purchase price over the fair value of the net tangible and
identifiable intangible assets acquired. The contingent consideration, if any, will be recorded as
additional goodwill. In accordance with SFAS 142, goodwill is not amortized but is tested for
impairment at initial valuation and annually thereafter. The purchase price allocation and initial
valuation of goodwill for the Davidhill acquisition was based on an appraisal performed by an
independent appraisal firm in the United States in September 2004. Davidhill and its subsidiary
have not commenced generating any revenue from the UC instant messaging services. See further discussion on the acquisitions of Memestar, Crillion and Davidhill in Note 2 in
Notes to Consolidated Financial Statements in Item 8. Financing We had incurred net losses through September 30, 2002. We had an accumulated deficit of
approximately $17.1 million as of December 31, 2004. We have funded our operations and capital
expenditures primarily using the net proceeds raised through the sale
of preference shares prior to our initial public offering and the
sale of our ordinary shares in the initial public offering. Since we became profitable, we have
also financed our operations using our net income from operations. We
raised additional financing by issuing zero coupon
convertible subordinated notes in July 2003. We will continue our investment in the development
and enhancement of our products, content and services, as well as investment in sales and
marketing. If we are unable to generate sufficient net income from our operations in the future,
we may have to finance our operations from the current funds available. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those related to customer
programs and incentives, bad debts, investments, intangible assets, income taxes, financing
operations, restructuring, employee benefits, and contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our financial statements. -44-




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Revenue recognition policies Advertising Advertising revenues are derived principally from online advertising and sponsorship
arrangements. Online advertising arrangements allow advertisers to place advertisements on
particular areas of our web sites, in particular formats and over particular periods of time.
Advertising revenues from online advertising arrangements are recognized ratably over the displayed
period of the contract when the collectibility is reasonably assured. Sponsorship arrangements
allow advertisers to sponsor a particular area on our web sites 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 online
advertising and sponsorship arrangements to be placed on our web sites are recognized ratably over
the term of such programs. In accordance with EITF 00-21 Accounting for Revenue Arrangements with Multiple
Deliverables, advertising arrangements involving multiple deliverables are broken down into
single-element arrangements based on relative fair value for revenue recognition purpose. We
recognize revenue on the elements delivered and defer the recognition of revenue for the fair value
of the undelivered elements until the remaining obligations have been satisfied. Revenues from barter transactions are recognized during the period in which the advertisements
are displayed on our properties. Barter transactions are recorded at the lower of the fair value
of the goods and services received or the fair value of the advertisement given, provided the fair
value of the transaction is reliably measurable. Revenues from barter transactions were minimal
for all periods presented. Non-advertising Non-advertising revenues are mainly derived from MVAS, fee-based services, e-commerce and
enterprise services. MVAS.MVAS revenues are derived principally from providing mobile phone users with SMS, MMS,
WAP and IVR services. These services include news and other content subscriptions, mobile dating
service, picture and logo download, ring tones, ring back tones, mobile games, chat rooms and
access to music files. Revenues from MVAS are charged on a monthly or per-usage basis. Such
revenues are recognized in the period in which the service is performed, provided that no
significant company obligations remain, collection of the receivables is reasonably assured and the
amounts can be accurately estimated. We contract with third-party mobile operators for billing and transmission services related to
the MVAS transmitted to our users. In accordance with EITF 99-19, revenues are recorded on a gross
basis when we are considered the primary obligor to the MVAS users. Under the gross method, the
amount billed to MVAS users are recognized as revenues and the fees charged or retained by the
third party mobile operators are recognized as cost of revenues. Revenues on MVAS where we are not
considered the primary obligor to the user are recorded on a net basis. Under the net method,
revenues are recorded net of fees charged or retained by the third party mobile operators. Due to the time lag of receiving billing statements from third-party mobile operators, MVAS
revenues are estimated based on our internal records of billings and transmissions for the month,
adjusting for prior period confirmation rates with mobile operators and prior period discrepancies
between internally estimated revenues and actual revenues confirmed by mobile operators. Prior
period confirmation rate applies to the estimation of revenue is determined at the lower of the
latest confirmation rate available and the average of six months historical rates available, given
that we have obtained six months of confirmation rates. Historically, there have been no
significant true up adjustments to the estimates. To the extent that such revenues cannot be
accurately estimated, we rely on the billing statements from the mobile operators to record
revenues. Historically, due to the time lag of mobile operator billing statements and lack of adequate
information to make estimates, we adopted the one-month lag reporting policy for our MVAS revenues
described above. This policy has been applied on a consistent basis but does not apply to MVAS
revenues from acquired entities Memestar and Crillion. For the years ended December 31, 2004, 2003
and 2002, we recorded $124.0 million, $64.4 million and $9.1 million of revenues from our MVAS,
respectively. If we had not used the one-month lag reporting policy, our revenues from MVAS for
those periods would have been $124.7 million, $68.3 million and $9.7 million, respectively. -45-




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We purchase certain content from third party content providers for our MVAS. Most of these
arrangements state that the fees payable to the third party content providers are calculated based
on certain percentages of the revenue earned by their content after deducting the fees paid to
third party mobile operators. Our MVAS revenue is inclusive of such fees since we act as the
principal in these arrangements by having the ability to determine the fees charged to end users
and being the primary obligor to the end users with respect to providing such services. Fee based services. Fee-based services allow our users to subscribe for services on our web
sites including online games, virtual ISP and paid email services. Revenues from these services are
recognized in the period in which the service is performed, provided that no significant company
obligations remain, collection of the receivables is reasonably assured and the amounts can be
accurately estimated. E-commerce.E-commerce revenues are derived principally from slotting fees charged to
merchants for selective positioning and promoting their goods or services within our online mall,
SinaMall, and from commissions calculated as a percentage of the online sales transaction value of
the merchants. Slotting fee revenue is recognized ratably over the period the products are shown on
our web site while the commission revenue is recognized on a net basis after both successful online
verification of customers credit cards and shipment of products. Product returns have not been
significant and are assumed by vendors. Enterprise services. Enterprise services mainly include paid search and directory listings,
corporate emails, classified listings and enterprise e-solutions. Revenues are recognized in the
period in which the service is performed, provided that no significant company obligations remain,
collection of the receivables is reasonably assured and the amounts can be accurately estimated. In accordance with generally accepted accounting principles in the United States of America,
the recognition of these revenues is partly based on our assessment of the probability of
collection of the resulting accounts receivable balance. As a result, the timing or amount of
revenue recognition may have been different if different assessments of the probability of
collection of accounts receivable had been made at the time the transactions were recorded in
revenue. Allowances for doubtful accounts We determine the allowance for doubtful accounts based on actual bad debt rate in the prior
year and other factors. We also provide specific provisions for bad debts when facts and
circumstances indicate that the receivable is unlikely to be collected, including an assessment of
all receivables over 180 days. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be
required. Consolidation of Variable Interest Entities We have adopted FASB Interpretation No. 46R (FIN 46R) Consolidation of Variable Interest
Entities (VIEs), an Interpretation of ARB No. 51. FIN 46R requires a VIE to be consolidated by a
company if that company is subject to a majority of the risk of loss for the variable interest
entitys activities or is entitled to receive a majority of the entitys residual returns. To comply with PRC laws and regulations, we provide substantially all our Internet content
provision, MVAS and advertising services in China via our VIEs. These VIEs are wholly or partially
owned by certain of our PRC employees. The capital is funded by us and recorded as interest-free
loans to these PRC employees. These loans were eliminated with the capital of the VIEs during
consolidation. Under various contractual agreements, employee shareholders of the VIEs are required to
transfer their ownership in these entities to our subsidiaries in China when permitted by PRC laws
and regulations or to our designees at any time for the amount of loans outstanding. All voting
rights of the VIEs are assigned to us and we have the right to appoint all directors and senior
management personnel of the VIEs. We have also entered into exclusive technical service agreements
with the VIEs under which we provide technical and other services to the VIEs in exchange for
substantially all net income of the VIEs. In addition, employee shareholders of the VIEs have
pledged their shares in the VIEs as collateral for the non-payment of loans or for the fees for
technical and other services due to us. As of December 31, 2004, the total amount of interest-free
loans to the employee shareholders of VIEs listed below and the two other inactive VIEs was $9.0
million. -46-




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The following is a summary of our VIEs:
    Beijing SINA Internet Information Service Co., Ltd. (the ICP Company), a China
company controlled through business agreement. The ICP Company is responsible for operating
www.sina.com.cn in connection with its Internet content company license and selling the
related advertising space to the Ad Company or to advertisers directly. It is also
responsible for providing MVAS in China via third party mobile operators to the users. It is
1.5% owned by Yan Wang, our Chief Executive Officer and director, and 98.5% owned by six
other of our non-executive PRC employees. The registered capital of the ICP Company is $2.4
million.
    Beijing SINA Interactive Advertising Co., Ltd. (the Ad Company), a China company
controlled through business agreement. The Ad Company was responsible for placing
advertisements on www.sina.com.cn for its third party customers under its advertising
license. It is 75% owned by Yan Wang and 25% owned by Beijing SINA Information Technology
Co. Ltd., one of our subsidiaries in China. The registered capital of the Ad Company is $0.1
million.
    Guangdong SINA Internet Information Service Co., Ltd. (the GDICP Company), a China
company controlled through business agreement. The GDICP Company is responsible for
providing MVAS in China via third party mobile operators to the users under its Internet
content company license. It has been inactive since late 2004. It is 10% owned by Yan Wang and 90% owned by six other of our
non-executive PRC employees. The registered capital of the GDICP Company is $0.4 million.
    Guangzhou Media Message Technologies, Inc. (Xunlong), a China company controlled
through business agreement. Xunlong is responsible for providing MVAS in China via third
party mobile operators to the users under its Internet content company license. It is owned
by three of our non-executive PRC employees. The registered capital of the Xunlong is $1.2
million.
    Beijing Star-Village.com Cultural Development Co., Ltd. (StarVI), a China company
controlled through business agreement. StarVI is responsible for providing MVAS in China via
third party mobile operators to the users under its Internet content company license. It is
owned by three of our non-executive PRC employees. The registered capital of the StarVI is
$1.2 million.
    Shenzhen Wang Xing Technology Co., Ltd. (Wangxing), a China company controlled
through business agreement. Wangxing is responsible for providing MVAS in China via
third-party mobile operators to the users under its Internet content company license. It is
owned by three of our non-executive PRC employees. The registered capital of Wangxing is
$1.2 million.
    Beijing SINA Infinity Advertising Co., Ltd. (the IAD Company), a China company
controlled through business agreement. The IAD Company is responsible for placing
advertisements on www.sina.com.cn for its third party customers. It is owned by five of our
non-executive PRC employees. This entity has an approved business scope including design,
production, agency and issuance of advertisements. The registered capital of the IAD Company
is $0.1 million. We began to consolidate the Ad Company in April 2000 and the ICP Company in October 2001 (see
Item 8, Note 7-Related Party Transactions). The GDICP Company was established in 2002 but did not
begin activities until 2003. Operating results for the GDICP Company were consolidated for the year
ended December 31, 2003. Xunlong and Star VI were acquired from the Memestar acquisition (see Item
8, Note 2-Acquisition  Memestar) in January 2003 and the operating results for these two companies
were consolidated in our consolidated statement of operations since January 6, 2003. Wangxing was
acquired from the Crillion acquisition (see Note 2  Acquisition  Crillion) in March 2004 and the
operating results for Wangxing were consolidated in our consolidated statement of operations since
March 24, 2004. The operating results for IAD have been consolidated into our consolidated
statement of operations since its establishment in the fiscal 2004. As of December 31, 2004, the aggregate accumulated losses of all VIEs were approximately $2.4
million and have been included in the consolidated financial statements. Available for sale securities investments Investments classified as available for sale securities are reported at fair value with
unrealized gains (losses), if any, recorded as accumulated other comprehensive income in
shareholders equity. Realized gains or losses are charged to income -47-




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statement during the period in which the gain or loss is realized. If we determine a decline in fair value is other-than-
temporary, the cost basis of the individual security shall be written down to fair value as a
new cost basis and the amount of the write-down will be accounted for a realized loss. The new cost
basis will not be changed for subsequent recoveries in fair value. Determination of whether
declines in value are other-than-temporary requires significant judgment. Subsequent increases and
decreases in the fair value of available for sale securities will be included in comprehensive
income through a credit or charge to shareholders equity, except for an other-than-temporary
impairment which will be charged to income statement. Investments classified as available for sales securities include marketable equity securities
of Sun Media Group and marketable debt securities. We invest in marketable debt securities with the
intent to make such funds readily available for operating or acquisition purposes and, accordingly,
classify them as short-term investments. Business combinations We account for our business combinations using the purchase method of accounting. This method
requires that the acquisition cost to be allocated to the assets and liabilities we acquired based
on their fair values. We make estimates and judgments in determining the fair value of the acquired
assets and liabilities, based on independent appraisal reports, for material purchases, as well as
our experience with similar assets and liabilities in the similar industries. If different
judgments or assumptions were used, the amounts assigned to the individual acquired assets or
liabilities could be materially different. We apply the criteria specified in EITF 98-3
Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a
Business. to determine whether acquired asset groups constitute a business. Goodwill and intangible assets, net Goodwill represents the excess of the purchase price over the fair value of the identifiable
assets and liabilities acquired as a result of our acquisitions of interests in its subsidiaries
and variable interest entities. We adopted SFAS No. 142 Goodwill and Other Intangible Assets
(SFAS142) on January 1, 2002. Under SFAS 142, goodwill is no longer amortized, but tested for
impairment upon first adoption and annually thereafter, or more frequently if events or changes in
circumstances indicate that it might be impaired. We assess goodwill for impairment in accordance
with SFAS 142. We apply the criteria specified in SFAS No. 141, Business Combinations, (SFAS 141) to
determine whether an intangible asset should be recognized separately from goodwill. Intangible
assets acquired through business acquisitions are recognized as assets separate from goodwill if
they satisfy either the contractual-legal or separability criterion. Per SFAS 142, intangible
assets with definite lives are amortized over their estimated useful life and reviewed for
impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-lived Assets, (SFAS 144). Intangible assets, such as
purchased technology, trademark, customer list, user base and non-compete agreements, arising from
the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair
value upon acquisition. Intangible assets are amortized over their estimated useful lives from one
to ten years. We review the amortization methods and estimated useful lives of intangible assets
regularly. The recoverability of an intangible to be held and used is evaluated by comparing the
carrying amount of the intangible to its future net undiscounted cash flows. If the intangible is
considered to be impaired, the impairment loss is measured as the amount by which the carrying
amount of the intangible exceeds the fair value of the intangible calculated using a discounted
future cash flow analysis. We use estimates and judgments in its impairment tests and if different estimates or judgments
had been utilized, the timing or the amount of the impairment charges could be different. Deferred tax assets We record a valuation allowance for deferred tax assets, if any, based on our estimates of our
future taxable income as well as our tax planning strategies when it is more likely than not that a
portion or all of our deferred tax assets will not be realized. If we are able to utilize more of
our deferred tax assets than the net amount previously recorded when unanticipated events occur, an
adjustment to deferred tax assets would increase our net income when those events occur. -48-




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Results of Operations Years ended December 31, 2004, 2003 and 2002 Net revenues Years ended December 31,2004
    
    
    2003
    
    
    2002 (unaudited)
    
    
    % of Change(in thousands, except percentages)YOY
    
    
    YOY04&03
    
    
    03&02Net RevenuesAdvertising
    
    $
    65,417
    
    
    
    33
    %
    
    $
    41,173
    
    
    
    36
    %
    
    $
    24,703
    
    
    
    64
    %
    
    
    59
    %
    
    
    67
    %Non-advertisingMVAS
    
    
    123,954
    
    
    
    62
    %
    
    
    64,377
    
    
    
    56
    %
    
    
    9,079
    
    
    
    23
    %
    
    
    93
    %
    
    
    609
    %Other
    
    
    10,616
    
    
    
    5
    %
    
    
    8,735
    
    
    
    8
    %
    
    
    5,112
    
    
    
    13
    %
    
    
    22
    %
    
    
    71
    %Non-advertising
    
    
    134,570
    
    
    
    67
    %
    
    
    73,112
    
    
    
    64
    %
    
    
    14,191
    
    
    
    36
    %
    
    
    84
    %
    
    
    415
    %Total net revenues
    
    $
    199,987
    
    
    
    100
    %
    
    $
    114,285
    
    
    
    100
    %
    
    $
    38,894
    
    
    
    100
    %
    
    
    75
    %
    
    
    194
    %
 Total net revenues increased 75% from fiscal 2003 to fiscal 2004 and 194% from fiscal
2002 to fiscal 2003 primarily due to growth in MVAS. MVAS contributed to 62%, 56% and 23% of
fiscal 2004, 2003 and 2002 of total net revenues, respectively. The increases in revenues from
MVAS were primarily driven by the growth of MVAS market in China and our acquisitions of Memestar
in January 2003 and Crillion in March 2004. Advertising.Advertising revenues grew 59% from fiscal 2003 to fiscal 2004. The increase was
primarily due to the growth of online advertising spending in the PRC market, as more advertisers
began to accept the Internet as a medium for advertisement. For fiscal 2004, advertising revenues
from China accounted for 94% of our total advertising revenues, compared to 90% and 79% of our
total advertising revenues for fiscal 2003 and 2002, respectively. The number of advertising
customers in China was approximately 763 for the year ended December 31, 2004, as compared to 582
and 503 for the years ended December 31, 2003 and 2002, respectively. Average revenues per
advertising customer in China were $81,000 for fiscal 2004, as compared to $63,000 and $39,000 for
fiscal 2003 and 2002, respectively. Non-advertising.Non-advertising grew 84% from fiscal 2003 to fiscal 2004 and 415% from
fiscal 2002 to fiscal 2003. The increases were primarily driven by the growth of our MVAS revenues
in China, which represent 92% of our total non-advertising revenues in fiscal 2004, as compared to
88% and 64% in fiscal 2003 and 2002, respectively. MVAS MVAS revenues grew 93% from fiscal 2003 to fiscal 2004 and 609% from fiscal 2002 to 2003. The
growth came primarily from our China market from the introduction of new products and the
acquisitions of Memestar in January 2003 and Crillion in March 2004. MVAS revenues generated by
Memestar were $30.6 million for both fiscal 2004 and 2003. MVAS revenues generated by Crillion in
fiscal 2004 were approximately $30.2 million. Years Ended December 31,2004
    
    
    2003
    
    
    2002 (unaudited)
    
    
    % of Change(in thousands, except percentages)YOY
    
    
    YOY04&03
    
    
    03&02SMS
    
    $
    103,275
    
    
    
    
    
    
    
    83
    %
    
    $
    63,277
    
    
    
    
    
    
    
    98
    %
    
    $
    8,892
    
    
    
    98
    %
    
    
    63
    %
    
    
    612
    %MMS, WAP and others
    
    
    16,004
    
    
    
    
    
    
    
    13
    %
    
    
    1,097
    
    
    
    
    
    
    
    2
    %
    
    
    187
    
    
    
    2
    %
    
    
    1,359
    %
    
    
    487
    %IVR
    
    
    4,675
    
    
    
    
    
    
    
    4
    %
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,733
    %
    
    
    Total
    
    $
    123,954
    
    
    
    
    
    
    
    100
    %
    
    $
    64,377
    
    
    
    
    
    
    
    100
    %
    
    $
    9,079
    
    
    
    100
    %
    
    
    93
    %
    
    
    609
    %
 Our SMS revenues increased 63% from fiscal 2003 to fiscal 2004, primarily driven by market
growth, the Crillion acquisition, as well as increase in promotional efforts for usage-based SMS
products. SMS revenues grew 612% from fiscal 2002 to fiscal 2003, mostly due to market growth and
the Memestar acquisition. SMS accounted for 83% of MVAS revenues in fiscal 2004 and 98% in fiscal
2003. Changes in the regulatory environment and mobile operators policies including the
transition onto a new SMS billing platform by China Mobile, have been impacting our SMS revenues
since the third quarter -49-




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of fiscal 2004. During the middle of 2004, mobile operators started transitioning SMS
providers to a new billing platform. As of December
31, 2004, fourteen provinces have been moved onto China Mobiles new billing platform. In the
first half of 2005, we will be required to switch the remaining provinces to the new billing
platform. Starting in March 2005, China Mobile is expected to transition MMS to the new billing
platform and our MMS will be subject to this change. We have been monitoring the extent of the
impact of the new billing platforms to our business and to our current revenue recognition policy.
These new billing platforms have resulted in added operational controls and procedures in areas
such as customer subscription and customer billing, and correspondingly, increased the difficulties
for new user recruitment and failure rate for fee collection from our users. In general, the new
billing platforms have had significant negative impact on our SMS revenues although we were not
able to quantify such impact. In the past, China Mobile allowed MVAS
providers to sign service agreement with any one of its provincial subsidiaries for providing nation wide service and
for bill collection. Starting January 2005, China Mobile requires service agreement to be signed
with and new product application to be approved by each individual province. This increases the difficulty and length of time to launch new products
which may adversely impact our MVAS revenue growth. Also, certain provincial operators who historically have
acted as an agent in advancing payments for other provincial operators instituted a new procedure that requires the
fees to be reconciled with the respective provinces before payments are made. This new procedure may delay our receivables collection from
mobile operators in the future. In
January 2005, the Chinese State Administration of Radio, Film
and Television (SARFT), which
regulates radio and television stations in China, issued a notice prohibiting commercials for MVAS
related to fortune-telling from airing on radio and television stations effective in February
2005. This
notice could also lead to further actions by other Chinese government authorities to prohibit the
sale of such fortune-telling related SMS which could have a material
adverse effect on our financial position, results of operations, or cash flows. SARFT or other Chinese
government authorities may prohibit the marketing of other MVAS via a channel we depend on to generate
revenues, which could have a material adverse effect on our financial position, results of operations
or cash flows. Revenues from 2.5G (MMS and WAP) and other products grew 1,359% from fiscal 2003 to fiscal
2004 and 487% from fiscal 2002 to fiscal 2003. Starting in January 2005, China Mobile stopped its
MMS Album service. MMS Album allows users to receive their subscribed MMS messages from China
Mobiles website when the subscribed MMS messages could not be successfully delivered to their
mobile phones. With the termination of such service, we are no longer able to collect fees from
users when the MMS messages could not be delivered to the users mobile phones. As a result, our
MMS revenue suffered significant decline in January 2005 and we will
have to grow our MMS revenue from a lower base going forward. MMS revenues accounted for approximately 13% of our total
MVAS revenues for the three months ended December 31, 2004. In addition, in March 2005 China Mobile will start to migrate MMS onto a new billing platform and our MMS revenue
may decline further due to such migration. We
contract with third-party mobile operators for billing and
transmission services related to the MVAS transmitted to our users.
In accordance with EITF 99-19, revenues are recorded on a gross
basis when we are considered the primary obligor to the MVAS users.
Under the gross method, the amount billed to MVAS users are recognized
as revenues and the fees charged or retained by the third party
mobile operators are recognized as cost of revenues. Revenues on MVAS
where we are not considered the primary obligor to the user are
recorded on a net basis. Under the net method, revenues are recorded
net of fees charged or retained by the third party mobile operators.
If we were to enter into new arrangements with mobile operators or
mobile operators were to request us to change the existing
arrangements that cause us to no longer be the primary obligor to the
users, we would have to record our MVAS revenues on a net basis.
Consequently, this would cause a significant decline in our net
revenues, but should not have significant impact on our gross margin.
For the year 2004, 96% of our MVAS revenues were recorded on a gross
basis. Substantially all of our revenue growth from MVAS in the second half of fiscal 2004 came from
the growth in SMS and MMS. With the developments described above, we may experience
significant decline in MVAS revenues in 2005. During the third quarter of fiscal 2004, our IVR service was temporarily suspended by China
Mobile due to the violation of certain operating procedures. On October 15, 2004, our IVR service
was resumed by China Mobile. However, we do not expect to generate significant revenues from IVR
service in near future, as resumed services usually take times to ramp up. For the month of December 2004, we had approximately 15.9 million unique paid users for our
MVAS. This compared to 15.3 million unique paid users for the month of September 2004, 11.7 million
unique paid users for the month of June 2004 and 12.5 million unique paid users for the month of
March 2004, including the users from the acquisition of Crillion on a pro forma basis, assuming
acquisition had occurred on March 1, 2004. Other non-advertising revenues Other non-advertising revenues include fee-based services such as virtual ISP and paid email
services, online hotel booking commission income, e-commerce and other enterprise services such as
paid search and directory listings. For fiscal 2004, revenues from paid search and directory
listings were $5.5 million, as compared to $3.7 million and $0.5 million for fiscal 2003 and 2002,
respectively. Such revenues accounted for 52%, 42% and 10% of our other non-advertising revenues
for fiscal 2004, 2003 and 2002, respectively. Online hotel booking commission income became a new
income stream subsequent to our acquisition of Bravado in February 2004. It contributed $1.5
million or 14% of our other non-advertising revenues in fiscal 2004. -50-




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Cost of revenues Years Ended December 31,2004
    
    
    2003
    
    
    2002 (unaudited)
    
    
    % of Change
    
    
    % of ChangeYOY 04&03
    
    
    YOY 03&02(In thousands, except percentages)Cost of revenues:Advertising
    
    $
    22,187
    
    
    $
    14,001
    
    
    $
    11,267
    
    
    
    59
    %
    
    
    24
    %Non-advertisingMVAS
    
    
    38,277
    
    
    
    19,455
    
    
    
    3,267
    
    
    
    97
    %
    
    
    496
    %Other
    
    
    1,147
    
    
    
    950
    
    
    
    873
    
    
    
    21
    %
    
    
    9
    %Non-advertising
    
    
    39,424
    
    
    
    20,405
    
    
    
    4,140
    
    
    
    93
    %
    
    
    393
    %Total cost of revenues
    
    $
    61,611
    
    
    $
    34,406
    
    
    $
    15,407
    
    
    
    79
    %
    
    
    123
    %
 Cost of revenues increased 79% from fiscal 2003 to fiscal 2004 and 123% from fiscal 2002 to
fiscal 2003. The increases were primarily driven by the increase in MVAS revenues in the last two
years. Advertising.Cost of advertising revenues consists mainly of expenses associated with the
production of our web sites, which include fees paid to third parties for Internet connection,
content and services, personnel related costs and equipment depreciation expenses associated with
our web site production. Cost of advertising revenues also includes the business taxes on
advertising sales in the PRC. Business taxes levied on advertising sales are approximately 8.5% of
the advertising revenues. The year-over-year increases of 59% and 24% in cost of advertising
revenues from fiscal 2003 to fiscal 2004 and from fiscal 2002 to fiscal 2003, respectively, were
due to the increase in web production costs driven by an increase in web production personnel and
content fees, an increase in Internet connection costs associated with the additional bandwidth as
well as an increase in business taxes associated with higher advertising revenues. Content fees for
fiscal 2004 included $1.1 million paid to an exclusive Olympic content partner and $0.1 million
paid for other one-time content purchases relating to Olympic coverage. Non-advertising.Cost of non-advertising revenues consists mainly of fees paid to third party
mobile operators for their services relating to the collection of our MVAS revenues and for using
their transmission gateways, and fees or royalties paid to third party content providers for
services and content associated with our MVAS, and costs for providing our enterprise services. Cost
of non-advertising revenues also includes business taxes levied on non-advertising sales in the
PRC. Business taxes levied on MVAS are at 3% of mobile related revenues and at 5% for other
non-advertising revenues. The year-over-year increases of 93% and 393% in cost of non-advertising
revenues from fiscal 2003 to fiscal 2004 and from fiscal 2002 to
fiscal 2003, respectively, were mainly due to the
increase in fees to mobile operators and third party mobile content providers as well as an
increase in business taxes associated with higher non-advertising revenues in the PRC. Fees
retained by or paid to mobile operators for fiscal 2004, 2003 and 2002 were $28.9 million, $14.3
million and $2.4 million, respectively, or 23%, 22% and 26%, respectively, of our MVAS revenues.
Fees paid to third party content providers for fiscal 2004, 2003 and 2002 were $6.6 million, $3.6
million and $0.6 million, respectively, or 5%, 6% and 7%, respectively, of our MVAS revenues. Gross profit margins Years ended December 31,2004
    
    
    2003
    
    
    2002 (unaudited)Gross profit margins:Advertising
    
    
    66
    %
    
    
    66
    %
    
    
    54
    %Non-advertisingMVAS
    
    
    69
    %
    
    
    70
    %
    
    
    64
    %Other
    
    
    89
    %
    
    
    89
    %
    
    
    83
    %Non-advertising
    
    
    71
    %
    
    
    72
    %
    
    
    71
    %Overall
    
    
    69
    %
    
    
    70
    %
    
    
    60
    %
 -51-




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Overall gross margin declined 1% to 69% from fiscal 2003 to fiscal 2004 and grew from 60% in
fiscal 2002 to 70% in fiscal 2003. Advertising.For fiscal 2004, we paid $1.1 million in revenue-share expenses to an exclusive
Olympic content partner and incurred an additional $0.1 million of other one-time content purchases
relating to the Olympic coverage. Excluding these one-time content purchases, gross profit margin
for advertising revenues for fiscal 2004 would have been 68%. The year-to-year increases in
advertising gross profit margins from fiscal 2003 to fiscal 2004 and from fiscal 2002 to fiscal
2003 were primarily due to the increase in advertising revenues without proportionally increasing
the costs of web site production. Although certain web site production expenses have stayed
relatively flat in proportion to the growth of advertising revenues, we may have to increase our
investments in these areas to maintain our competitiveness, causing future results to be materially
different from historical trends. Non-advertising.Gross profit margin for non-advertising revenues for fiscal 2004 was
relatively flat compared to that for fiscal 2003, as the majority of the costs associated with
non-advertising revenues are variable costs. The increase of our gross margins for
non-advertising revenues from fiscal 2002 to fiscal 2003 was primarily due to the increase in
revenues from monthly subscription services of our self-developed products, which have higher gross
margins. To a lesser extent, the improvement was due to a decrease in business tax rate levied on
MVAS revenues from 5% to 3% in China. Operating expenses Years Ended December 31,2004
    
    
    2003
    
    
    2002 (unaudited)% of net
    
    
    
    
    
    % of net
    
    
    
    
    
    % of netrevenues
    
    
    
    
    
    revenues
    
    
    
    
    
    revenues(in thousands, except percentages)Sales and marketing expenses
    
    $
    39,585
    
    
    
    20
    %
    
    $
    21,741
    
    
    
    19
    %
    
    $
    12,419
    
    
    
    32
    %Product development expenses
    
    $
    10,355
    
    
    
    5
    %
    
    $
    6,340
    
    
    
    6
    %
    
    $
    5,916
    
    
    
    15
    %General and administrative expenses
    
    $
    15,619
    
    
    
    8
    %
    
    $
    11,551
    
    
    
    10
    %
    
    $
    8,896
    
    
    
    23
    %
 Sales and marketing expenses Sales and marketing expenses consist primarily of compensation expenses, sales commissions,
advertising and promotion expenditures and travel expenses. The year-to-year increase in the
absolute dollar from fiscal 2003 to fiscal 2004 was due to an increase in sales compensation
expenses and an increase in promotion expenditures for MVAS, as well as approximately $1 million of
marketing expenses relating to the Olympics. Marketing expenses for MVAS products were $13.2
million and $2.6 million for fiscal 2004 and 2003, respectively. Excluding marketing expenses
relating to the Olympics, sales and marketing expenses would have been 19% of total net revenues
for fiscal 2004. The year-to-year increase in the absolute dollar amount from fiscal 2002 to
fiscal 2003 was due to an increase in sales compensation expenses and an increase in promotion
expenditures for MVAS. The year-to-year decrease in sales and marketing expenses as a percentage of
total net revenues from fiscal 2002 to fiscal 2003 was primarily due to the rapid growth of
revenues. As a result of factors such as the ban on promoting certain SMS products via direct
advertising on radio and television, the uncertainty of marketing new SMS products via direct
advertising on radio and television and the potential introduction of new MVAS business models with
mobile operators discussed above, historical sales and marketing expense trends may not be
representative of actual results in the future. Product development expenses Product development expenses consist primarily of personnel related expenses incurred for
enhancement to and maintenance of our web sites as well as costs associated with new product
development such as email, search, instant messaging, casual games and new MVAS products. The
year-to-year increase in product development expenses in the absolute dollar amount from fiscal
2003 to fiscal 2004 was primarily due to an increase in headcount and investments in new -52-




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products, especially in instant messaging and search engine development in fiscal 2004. The year-to-year
decreases in product development expenses as a percentage of total net revenues from fiscal 2003 to
fiscal 2004 and from fiscal 2002 to fiscal
2003 were primarily due to an increase of labor productivity as well as the rapid growth of
revenues. We expect that our product development expenses will continue to increase in absolute
dollar amount in the near future. General and administrative expenses General and administrative expenses consist primarily of compensation for personnel, fees for
professional services, and provisions for doubtful accounts. Our general and administrative
expenses also include expenses relating to the transfer of the economic benefits generated from our
VIEs in the PRC to our subsidiaries. The year-to-year increase in the absolute dollar amount from
fiscal 2003 to fiscal 2004 was mainly due to an increase in professional service fees relating to
compliance with the regulations under the Sarbanes-Oxley Act of 2002
and related rules and an increase in expenses paid for transferring
economic benefits generated from our VIEs in the PRC to our subsidiaries. We incurred approximately
$1 million in related expenses for compliance with the regulations under the Sarbanes-Oxley Act of 2002
and related rules in fiscal 2004. The
year-to-year increase in the absolute dollar amount from fiscal 2002 to fiscal 2003 was mainly due
to the severance expense of $0.6 million, an increase in professional service fees relating to our
merger and acquisition activities and an increase in expenses paid for transferring economic
benefits generated from our VIEs in China to our subsidiaries. Expenses paid for transferring
economic benefits generated from our VIEs in China to our subsidiaries were $4.7 million, $1.7
million and nil for fiscal 2004, 2003 and 2002, respectively. The year-to-year decreases from
fiscal 2003 to fiscal 2004 and from fiscal 2002 to fiscal 2003 as a percentage of total net
revenues were primarily due to the growth of revenues. We expect that our general and
administrative expenses will continue to increase in absolute dollar amount in the near future.
However, we do not expect the expenses as a percentage of total net revenues to vary significantly
in the near future. Stock-based compensation expenses Deferred stock compensation represents the difference between the exercise price of options
granted 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 $0.6 million
and $1.8 million for fiscal 2003 and 2002, respectively. As of December 31, 2003, deferred stock
compensation had been fully amortized. Amortization and write-off of intangible assets The following table summarizes the amortization expenses of intangibles for the periods
presented: Years ended December 31,2004
    
    
    2003
    
    
    2002(unaudited)(In thousands)Amortization expensesSinanet
    
    $
    
    
    
    $
    
    
    
    $
    1,687Techur
    
    
    
    
    
    
    90
    
    
    
    90Memestar
    
    
    569
    
    
    
    1,659
    
    
    
    Bravado
    
    
    341
    
    
    
    
    
    
    
    Crillion
    
    
    1,960
    
    
    
    
    
    
    
    Davidhill
    
    
    622
    
    
    
    
    
    
    
    Total Amortization expenses
    
    $
    3,492
    
    
    $
    1,749
    
    
    $
    1,777
 As of December 31, 2004, the net carrying amount of our intangible assets mainly includes
technology, content provision contracts, hotel reservation contracts,
customer lists, and
non-competition arrangements. These intangible assets are amortized over their respective useful
lives. Based on the current amount of intangible assets subject to amortization, the estimated
amortization expense for each of the succeeding five years ending December 31, 2005, 2006, 2007,
2008 and 2009 is $3.4 million, $2.0 million, $1.0 million, $1.0 million and $1.0 million,
respectively. -53-




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As a result of the acquisition of Techur in November 2002, we recorded intangible assets
relating to customer relationships of approximately $1.1 million, which were being amortized over a
period of three years. Because the revenue and the gross margin of Techur did not grow as expected,
our management reassessed the carrying value of the intangible assets and concluded that there
would not be significant future income generated from these customer relationships. The
carrying value of the intangible assets of $0.9 million was therefore written off during the
second quarter of fiscal 2003 due to the permanent impairment of value. Interest income Interest income was $5.1 million, $2.8 million and $2.8 million for fiscal 2004, 2003 and
2002, respectively. The increase in interest income from fiscal 2003 to fiscal 2004 was due to
higher balance of cash and cash equivalent and short-term investments generated from our operation
and the issuance of convertible notes in July 2003. Despite higher balance of cash and cash
equivalent and short-term investments from fiscal 2002 to fiscal 2003, interest income did not
increase due to lower interest rate. See Item 7A Quantitative and Qualitative Disclosures about
Market Risk for a description of our investment policy. Amortization of convertible debt issuance cost As a result of our sale of zero coupon convertible subordinated notes in July 2003, we
recorded convertible debt issuance cost of approximately $2.7 million, which are being amortized
over four years. The amortization expense was $0.7 million and $0.3 million for fiscal 2004 and
2003, respectively. Loss on investment, net In September 2001, we completed the acquisition of an approximately 27.6% equity interest in
Sun Media Group (Sun Media), a Hong Kong Stock Exchange listed company, from Ms. Lan Yang, the
chairperson and a major shareholder of Sun Media for consideration of $7.9 million in cash and
approximately 4.6 million of SINA newly issued ordinary shares and transaction costs of $731,000
for a total purchase price of $13.7 million. The above investment was accounted for using the equity method of accounting until September
30, 2002 when our equity interest in Sun Media dropped to below 20% and we ceased to maintain
significant influence over its operations. Commencing October 1, 2002, such investment was
accounted for as an investment in marketable equity securities under the provisions of SFAS 115 and
was classified as available for sale and reported at fair value with unrealized gains (losses), if
any, recorded as a component of comprehensive income (loss) included in shareholders equity. We
had recorded $0.9 million of equity loss from this investment through September 30, 2002 and the
carrying value of this investment was $12.9 million at the time when the accounting method changed.
For the three months ended December 31, 2002, we recorded $3.8 million of unrealized gains on the
Sun Media investment as a component of comprehensive income in shareholders equity. The fair
market value of such investment was $16.7 million as of December 31, 2002. The fair market value of this investment began to drop below the carrying value starting May
2003. At December 31, 2003, the fair market value of this investment was $6.8 million. We
considered the decline in the value of this investment to be other-than-temporary and recognized
$6.1 million as impairment of investment during the three months ended December 31, 2003. During
the three months ended March 31, 2004, we sold $0.2 million of this investment and obtained a gain
of $59,000. The realized gain was recorded as gain on investment in Sun Media Group for the three
months ended March 31, 2004. At September 30, 2004, the fair market value of this investment was
$4.0 million as compared to its carrying value of $6.6 million. We considered the decline in the
value of this investment to be other-than-temporary and recognized $2.6 million as impairment of
investment during the three months ended September 30, 2004. The fair market value of this
investment was $5.5 million on December 31, 2004. We recorded an unrealized gain of $1.5 million as
a component of comprehensive income for the year ended December 31, 2004. At March 10 2005, the
fair market value of this investment was $5.2 million. We will continue to monitor the investment
and if there is a decline in fair value, we may have to recognize additional impairment charges in
future periods. Lost on investment for fiscal 2004, net, also includes a gain of $1.2 million from the sale of
a minority interest investment. Loss on equity investments In January 2003, we formed a joint venture named Shanghai NC-Sina Information Technology Co.
Ltd. (Shanghai NC-SINA) in China with NC Soft, a Korean online game company. We invested $3.3
million in cash for 51% of the equity interest in the joint venture. We accounted for the
investment in the joint venture using the equity method of accounting as NC Soft has certain
participating rights as defined in EITF 96-16. As of December 31, 2004, the carry value of this
investment was $1.4 million. -54-




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In January 2004, we formed a joint venture named China Online Auction Limited (COAL) in
China with Yahoo!. According to the agreement, we will contribute certain services, advertising
spaces and cash in exchange for 33% equity interest in the joint venture. We accounted for this
investment using the equity method of accounting. As of December 31, 2004, the carry value of this
investment was $1.9 million. The following summarizes the gain (loss) on our equity investments for the periods presented: Years Ended December 31,2004
    
    
    2003
    
    
    2002(unaudited)(In thousands)Shanghai NC-SINA
    
    $
    (964
    )
    
    $
    (967
    )
    
    $
    COAL
    
    
    (2,168
    )
    
    
    
    
    
    
    Others
    
    
    (33
    )
    
    
    53
    
    
    
    (453
    )Total
    
    $
    (3,165
    )
    
    $
    (914
    )
    
    $
    (453
    )
 Provision for income taxes We generated substantially all of our net income from our PRC operations for fiscal 2004 and
2003. We recorded a current income tax provision in the amount of $3.4 million and $1.8 million,
net of an income tax benefit of $0.2 million and $0.9 million, relating to the recognition of net
deferred tax assets, for fiscal 2004 and 2003, respectively, relating to our China operations. Our
PRC operations are conducted through various subsidiaries and VIEs. Pursuant to the PRC Income Tax
Laws, our subsidiaries and VIEs are generally subject to Enterprise Income Taxes (EIT) at a
statutory rate of 33%, consisting of a 30% national income tax and a 3% local income tax. However,
some of our subsidiaries and VIEs qualify as new technology enterprises and, under PRC Income Tax
Laws, are subject to a preferential tax rate of 15%. In addition, some of our subsidiaries are
Foreign Investment Enterprises, and under PRC Income Tax Laws, they are entitled to either a
three-year tax exemption followed by three years with a 50% reduction in the tax rate, commencing
from the first operating year; or a two-year tax exemption followed by three years with a 50%
reduction in the tax rate, commencing from the first profitable year. To the extent that our VIEs
have undistributed after tax net income, we have to pay tax on behalf of the employees when we try
to distribute the dividend from these local entities in the future. The dividend tax rate is 20%.
We expect that based on our current operating and tax structure in the PRC, our overall effective
income tax rates will be approximately 5% to 10% for fiscal 2005 and 2006, respectively. Such
expected effectives rates are subject to change at any time if Chinese tax authorities challenge us
on our tax arrangements between our subsidiaries and VIEs. We are in the process of applying for
new preferential tax treatments for certain subsidiaries and VIEs in the PRC. If these
applications are approved, our projected effective tax rates will be further reduced. There is no
assurance that such tax treatments will be approved. Over the longer term, if the Chinese
government phases out preferential tax treatment for foreign investment enterprises or for new
technology enterprises, our effective tax rates can be increased to as high as 33%. Due to our operating and tax structures in the PRC, we have entered into technical and other
service agreements between our subsidiaries and our VIEs in the PRC, pursuant to which our
subsidiaries provide technical and other services to our VIEs in exchange for substantially all net
income of these VIEs. We incur a 5% business tax when our subsidiaries receive the fees from the
VIEs, which we include in our operating expenses as cost of transferring economic benefit generated
from these VIEs. We believe that the terms of such service agreements are in compliance with the
laws in the PRC. Some of these agreements were reviewed by the tax authorities in the PRC in the
past and no comments were raised. However, due to the uncertainties surrounding the interpretation
of the tax transfer pricing rules relating to related party transactions in the PRC, it
is possible that tax authorities in the PRC might challenge the transfer prices that we used
for the related party transactions among our entities in the PRC in the future. Liquidity and Capital Resources We have funded our recent operations and capital expenditures primarily using the net proceeds
of $97.5 million raised through the sale of preference shares, $68.8 million raised from the sale
of ordinary shares in the initial public offering and $97.3 million raised from the sale of zero
coupon convertible subordinated notes in July 2003, as well as net income from our operations. -55-




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On July 7, 2003, we sold $100 million aggregate amount of zero coupon convertible subordinated
notes (the Notes) due 2023 in a private offering, which resulted in net proceeds to us of
approximately $97.3 million. The Notes were issued at par and bear no interest. The Notes will be
convertible into our ordinary shares, upon satisfaction of certain conditions, at an initial
conversion price of $25.79 per share, subject to adjustments for certain events. Upon conversion,
we have the right to deliver cash in lieu of ordinary shares, or a combination of cash and ordinary
shares. We may redeem for cash all or part of the Notes on or after July 15, 2012, at a price equal
to 100% of the principal amount of the Notes. The purchasers may require us to repurchase all or
part of the Notes for cash on July 15 annually from 2007 through 2013, and on July 15, 2018, and
upon a change of control, at a price equal to 100% of the principal amount of the Notes. We filed a
Registration Statement on Form S-3 for the resale of the Notes and the ordinary shares issuable
upon conversion of the Notes. The SEC has declared the Registration Statement to be effective. One of the conditions for conversion of the Notes to SINA ordinary shares is that the sale
price (defined as closing per share sales price) of SINA ordinary shares reaches a specified
threshold for a defined period of time. The specified thresholds are i) during the period from
issuance to July 15, 2022, if the sale price of SINA ordinary shares, for each of any five
consecutive trading days in the immediately preceding fiscal quarter, exceeds 115% of the
conversion price per ordinary share, and ii) during the period from July 15, 2022 to July 15, 2023,
if the sale price of SINA ordinary shares on the previous trading day is more than 115% of the
conversion price per ordinary share. For the quarter ended December 31, 2004, the sale price of
SINA ordinary shares exceeded 115% of the conversion price per ordinary share for five consecutive
trading days. The Notes are therefore convertible into SINA ordinary shares according to the
threshold (i) described above. As of December 31, 2004, we did not receive any request for
conversion of the Notes to SINA ordinary shares. Upon a purchasers election to convert the Notes
in the future periods, we have the right to deliver cash in lieu of ordinary shares, or a
combination of cash and ordinary shares. We have also entered into various lease agreements for our office premises in China, the
United States of America, Hong Kong and Taiwan. The obligations for the rental expenses under
these operating leases were totaling $7.2 million as of December 31, 2004, or $3.1 million, $2.6
million, $1.5 million and $0.01 million for fiscal 2005, 2006, 2007 and 2008, respectively. We are obligated to pay additional consideration on our acquisition of Crillion. Total
consideration related to 2004 performance achievement was estimated at $28.1 million, as of
December 31, 2004, 60% payable in cash and the other 40% in SINA ordinary shares. As of December 31, 2004, we had $275.6 million in cash and cash equivalents and short-term
investments to meet the future requirements of our operating activities. 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 or to increase our cash reserve for future acquisitions. The sale of additional equity
would 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. The following tables set forth the movements of our cash and cash equivalents for the periods
presented. Years Ended December 31,2004
    
    
    2003
    
    
    2002(unaudited)(In thousands)Net cash provided by operating activities
    
    $
    74,858
    
    
    $
    47,246
    
    
    $
    4,551Net cash provided by (used in) investing activities
    
    
    (95,007
    )
    
    
    (46,700
    )
    
    
    25,450Net cash provided by financing activities
    
    
    15,769
    
    
    
    104,340
    
    
    
    74Net increase (decrease) in cash and cash equivalents
    
    
    (4,380
    )
    
    
    104,886
    
    
    
    30,075Cash and cash equivalents at beginning of period
    
    
    158,148
    
    
    
    53,262
    
    
    
    23,187Cash and cash equivalents at end of period
    
    $
    153,768
    
    
    $
    158,148
    
    
    $
    53,262
 -56-




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Operating activities Fiscal 2004, 2003 and 2002 Net cash provided by operating activities for fiscal 2004 was $74.9 million. This was
primarily attributable to our net income of $66.0 million, adjusted by non-cash related expenses
including loss on investments of $1.4 million comprising an impairment charge of investments in Sun
Media Group of $2.6 million, offset by a gain from the sale of a minority interest investment of
$1.2 million, depreciation of $5.8 million, amortization of intangible assets of $3.5 million, loss
on equity investments of $3.2 million and amortization of convertible debt issuance cost of $0.7
million; an increase in accrued liabilities of $13.0 million, an increase in accounts payable of
$0.7 million and an increase in income taxes payable of $1.5 million. The increases to cash and
cash equivalents were partially offset by an increase in account receivables of $18.4 million and
an increase in prepaid expenses and other current assets of $2.6 million. The increase in accrued
liabilities was primarily due to the increase in accrual for services fees or royalties paid to
third party content providers for services and content associated with our web sites production and
MVAS of $1.7 million, accrual for marketing expenses of $1.4 million, customer advances of $5.5
million and sales rebates of $4.0 million. The increase in account receivables was resulted from
the significant increase in our net revenues, especially our MVAS during fiscal 2004. The increase
in prepaid expenses and other current assets was mainly related to prepayments for our office lease
and renovation work of our new office premises in Beijing. Net cash provided by operating activities for fiscal 2003 was $47.3 millions. This was
primarily attributable to our net income of $31.4 million, adjusted by non-cash related expenses
including impairment of investments in Sun Media Group of $6.1 million, depreciation of $5.1
million, amortization of intangible assets of $1.8 million, loss on equity investments of $0.9
million, stock-based compensation of $0.6 million, amortization of convertible debt issuance cost
of $0.3 million and write-off of intangible assets of $0.9 million; an increase in accrued
liabilities of $11.8 million and an increase in income taxes payable of $1.8 million. The increases
to cash and cash equivalents were partially offset by an increase in account receivables of $8.8
million, an increase in prepaid expenses and other current assets of $2.2 million, an increase in
deferred tax assets of $0.9 million, an increase in other assets of $0.9 million and a decrease in
accounts payable of $0.8 million. The increase in accrued liabilities was primarily due to the
increase in accrual for services fees or royalties paid to third party content providers for
services and content associated with our web sites production and our MVAS of $1.5 million, accrual
for payroll and related expenses of $3.5 million, customer advances of $0.9 million, business taxes
payable of $1.8 million, sales rebates of $1.9 million and increase in withholding tax from
employees for stock options exercised of $1.6 million. The increase in account receivables was
resulted from the significant increase in our net revenues, especially our MVAS during fiscal 2003.
The increase in prepaid expenses and other current assets was mainly related to prepayments for the
rental of our office lease in Beijing. Net cash provided by operating activities for fiscal 2002 was $4.6 million. This was primarily
attributable to our net loss of $4.9 million, adjusted by non-cash related expenses including
depreciation of $5.1 million, amortization of intangible assets of $1.8 million, loss on equity
investments of $0.5 million and stock-based compensation of $1.8 million; and an increase in
accrued liabilities of $3.1 million. The net increase to cash and cash equivalents were partially
offset by an increase in accounts receivables of $2.2 million and an increase in prepaid expenses
and other current assets of $1.0 million. Investing activities Fiscal 2004, 2003 and 2002 Net cash used in investing activities for fiscal 2004 was $95.0 million. This was primarily
due to the purchase of equipment of $13.0 million, acquisition of Bravado, Crillion and Davidhill
(net of cash acquired) of $27.6 million, investment in joint ventures of $2.7 million and purchase
of short-term investments of $53.0 million. The decrease in cash and cash equivalents was offset by
the proceeds of $1.2 million from the sale of a minority interest investment. Cash used in business
acquisitions (net of cash acquired) included the last two installments of our acquisition of
Memestar of $2.6 million, acquisition of Bravado of $0.9 million, acquisition of Crillion of $8.5
million, acquisition of Davidhill of $15.0 million and direct costs associated with the
acquisitions of $0.6 million. Net cash used in investing activities for fiscal 2003 was $46.7 million. This was primarily
due to the purchase of equipment of $6.1 million, acquisition of Memestar (net of cash acquired) of
$10.5 million, investment in joint ventures of $2.8 million and purchase of short-term investments
of $27.3 million. -57-




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Net cash provided by investing activities for fiscal 2002 was $25.5 million. This was
primarily due to the proceeds from the sale of our short-term investments of $29.5 million,
partially offset by the purchase of equipment of $2.6 million, acquisition of Techur (net of cash
acquired) of $1.1 million and investment in joint ventures of $0.2 million. Financing activities Fiscal 2004, 2003 and 2002 Net cash provided by financing activities for fiscal 2004 was $15.8 million representing the
proceeds from the exercise of stock options and the issuance of ordinary shares pursuant to the
Employee Stock Purchase Plan. Net cash provided by financing activities for fiscal 2003 was $104.3 million. This was
primarily attributable to the net proceeds of $97.3 from the issuance of Notes in fiscal 2003, the
proceeds from the exercise of stock options and the issuance of ordinary shares pursuant to the
Employee Stock Purchase Plan totaling $6.0 million and the proceeds from the repayment of
shareholders notes of $1.0 million. Net cash provided by financing activities for fiscal 2002 was $74,000 representing the
proceeds from the exercise of stock options and the issuance of ordinary shares pursuant to the
Employee Stock Purchase Plan. Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2004: Payments due by periodTotal
    
    
    Less than one
    
    
    One to
    
    
    Three to
    
    
    More thanyear
    
    
    three years
    
    
    five years
    
    
    five years( In thousands)Contractual obligations:Long-term debt obligations
    
    $
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    Operating lease obligations
    
    
    7,165
    
    
    
    3,062
    
    
    
    4,089
    
    
    
    14
    
    
    
    Purchase obligations
    
    
    25,708
    
    
    
    24,325
    
    
    
    1,383
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    2,142
    
    
    
    
    
    
    
    2,142
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    135,015
    
    
    $
    27,387
    
    
    $
    7,614
    
    
    $
    100,014
    
    
    $
    
 Long-term debt obligations represent the Notes issued on July 7, 2003. Please see Note 16 
Convertible debts for further information. Operating lease obligations include the commitments under the lease agreements for our office
premises. We lease office facilities under non-cancelable operating leases with various expiration
dates beginning 2005 through 2008. Rental expenses for the years ended December 31, 2004 and 2003,
six months ended December 31, 2002 and the year ended June 30, 2002 are $3.0 million, $1.7 million,
$0.7 million and $1.1 million, respectively. Base on the current rental lease agreements, future
minimum rental payments required as of December 31, 2004 was $7.2 million, or $3.1 million, $2.6
million, $1.5 million and $0.01 million for the years ending December 31, 2005, 2006, 2007 and 2008, respectively.
Majority of the commitment was from our office lease agreements in PRC. During 2004, we entered
into lease agreements for new premises in Beijing that we began to occupy in phases starting
November 2004. We expect to complete our move by the middle of 2005. The new lease agreements are
for approximately three years expiring 2007. It is our intent to sublease our existing non
cancellable facilities in Beijing. However, we may not be successful in subleasing the facilities
or subleasing at a rate that will cover our current cost. Purchase obligations mainly include the commitments for Internet connection fees associated
with web sites production, content fees associated with web sites production and MVAS, advertising
serving services and marketing activities. Besides the above contractual obligations, we are also obligated to pay contingent
consideration on our acquisitions of Bravado, Crillion and Davidhill in addition to the initial
consideration with respect to each. The contingent consideration for the Bravado acquisition is
based on Bravado achieving certain earnings targets in 2004. As of December 31, 2004, Bravado -58-




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did not achieve its earning targets and no additional consideration is required. The contingent
consideration for the Crillion acquisition is based on Crillions financial performance in fiscal
2004 and 2005. If Crillions pretax net income for fiscal 2004 and 2005 exceeds $6.7 million and
$13.3 million, respectively, the contingent consideration would be between roughly 1.5 to 2.0 times
of fiscal 2004 and 2005 earnings. The total consideration is subject to a cap of $125.0 million
and would be paid 60% in cash and 40% in SINA ordinary shares. As of December 31, 2004, we
estimated that the additional consideration related to the achievement of the 2004 performance
target was approximately $28.1 million, which had not been paid as of year end. The contingent
consideration for the Davidhill acquisition is based on its UC instant messaging services achieving
certain concurrent online user targets by fiscal 2005. The contingent consideration is subject to
a cap of $21.0 million and would be 84% in cash and 16% in SINA ordinary shares. Apart from the above, we did not have any other material long-term debt obligations, capital
lease obligations, operating lease obligations or purchase obligations as of December 31, 2004. There are uncertainties regarding the legal basis of our ability to operate an Internet
business and telecom value-added services 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 it is regulations are
unclear regarding in what specific segments of these industries companies with foreign investors,
including us, may operate. Therefore, we might be required to limit the scope of our operations in
China, and this could have a material adverse effect on our financial position, results of
operations and cash flows. For a discussion of current lawsuits, please refer to Item 3 Legal Proceedings. Off-Balance Sheet Commitments and Arrangements We have not entered into any financial guarantees or other commitments to guarantee the
payment obligations of any unconsolidated third parties. In addition, we have not entered into any
derivative contracts that are indexed to our shares and classified as shareholders equity, or that
are not reflected in our consolidated financial statements. Furthermore, we do not have any
retained or contingent interest in assets transferred to an unconsolidated entity that serves as
credit, liquidity or market risk support to such entity. Moreover, we do not have any variable
interest in any unconsolidated entity that provides financing, liquidity, market risk or credit
support to us or engages in leasing, hedging or research and development services with us. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123)
and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires
all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values, beginning with the first interim or annual
period after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer
will be an alternative to financial statement recognition. We are required to adopt SFAS 123R in
our three months ending September 30, 2005. Under SFAS 123R, we must determine the appropriate fair
value model to be used for valuing share-based payments, the amortization method for compensation
cost and the transition method to be used at date of adoption. The transition methods include
prospective and retroactive adoption options. Under the retroactive
options, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The
prospective method requires that compensation expense be recorded for all unvested stock options
and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the
retroactive methods would record compensation expense for all unvested stock options and restricted
stock beginning with the first period restated. We are evaluating the requirements of SFAS 123R,
and we expect that the adoption of SFAS 123R will have a material impact on our consolidated
results of operations and earnings per share. We have not yet determined the method of adoption or
the effect of adopting SFAS 123R, and we have not determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under SFAS 123. In September 2004, the EITF Issue No. 04-08, The Effect of Contingently Convertible Debt on
Diluted Earnings per Share. (EITF 04-08) was issued stating that contingently convertible debt
should be included in diluted earnings per share computations regardless of whether the market
price trigger has been met. This Issue is effective for reporting periods ending after December
15, 2004. We adopted EITF 04-08 in the three months ended December 31, 2004 and applied
retroactively to all prior periods. The retroactive application of EITF 04-08 resulted in a
reduction of $0.02 to the diluted earnings per share for the quarter ended September 30, 2004, and
had no impact to the diluted earnings per share for all other prior periods. In March 2004, the FASB issued EITF Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (EITF 03-01) which provides new guidance
for assessing impairment losses on debt and equity investments. Additionally, EITF Issue No. 03-1
includes new disclosure requirements for investments that are
deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting
provisions of EITF Issue No. 03-1; however, the disclosure requirements remain effective and have
been adopted by us (see Note 6. Short-term investments). We will evaluate the effect, if any, of
EITF Issue No. 03-1 when final guidance is released. -59-




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Item 7A.Quantitative and Qualitative Disclosures about Market Risk Interest Rate and Security Market Risk Our investment policy limits our investments of excess cash to government or quasi-government
securities and in high-quality corporate securities and limits the amount of credit exposure to any
one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment
risk. Due to the fact that a majority of our investments are in short-term instruments, we have
concluded that there is no material market risk exposure in this area. As of December 31, 2004 we
had unrealized losses of $0.4 million included in accumulated other comprehensive loss in
shareholders equity. Our
Convertible Notes issued in July 2003 in the amount of $100 million bear no interest and
are denominated in U.S. dollars and therefore there is no interest or foreign currency exchange
risk associated with the outstanding Convertible Notes. Foreign Currency Exchange Rate Risk The majority of our revenues derived and expenses and liabilities incurred are in Chinese
renminbi with a relatively small amount in Taiwan dollars, Hong Kong
dollars and U.S. 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. The effect of foreign exchange rate fluctuation during the year ended
December 31, 2004 was not material to us. Investment Risk For
a discussion on the investment risk of Sun Media Group, please refer to our disclosure in
the Results of Operations section under Loss on Investment,
net. -60-




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Item 8:Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageConsolidated Financial Statements:Managements Report on Internal Control over Financial Reporting
    
    62Report of Independent Registered Public Accounting Firm
    
    63Consolidated Balance Sheets at December 31, 2004 and 2003
    
    65Consolidated Statements of Operations for the years ended
December 31, 2004 and 2003, the six months ended December 31,
2002 and the year ended June 30, 2002
    
    66Consolidated Statements of Shareholders Equity for the years
ended December 31, 2004 and 2003, the six months ended December
31, 2002 and the year ended June 30, 2002
    
    67Consolidated Statements of Cash Flows for the years ended
December 31, 2004 and 2003, the six months ended December 31,
2002 and the year ended June 30, 2002
    
    68Notes to Consolidated Financial Statements
    
    70Supplementary Financial Data:Quarterly Financial Results for each of the two years ended
December 31, 2004 and 2003, six months ended December 31, 2002
and of the year in the period ended June 30, 2002 (unaudited)
    
    98
 - 61 -




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f). The management
evaluated the effectiveness of the Companys internal control over financial reporting as of December 31,
2004. In conducting this evaluation, the management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-integrated Framework.
Based on these criteria, the management has concluded that, the
Companys internal control over financial
reporting was effective as of December 31, 2004. The management has excluded Crillion Corporation from its assessment of internal control over
financial reporting as of December 31, 2004 because it was acquired by the Company in a purchase
business combination during 2004. Crillion Corporation is a wholly-owned subsidiary whose total
assets and total revenues represent 4% and 15%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2004. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies and procedures may deteriorate. The
managements assessment of the effectiveness of the
Companys internal control over financial
reporting as of December 31, 2004, has been audited by PricewaterhouseCoopers Zhong Tian CPA
Limited Company, an independent registered public accounting firm, as stated in their report which
is included herein. - 62 -




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of SINA Corporation: We have completed an integrated audit of SINA Corporations 2004 consolidated
financial statements and of its internal control over financial reporting as of December 31, 2004
and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below. Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations, shareholders equity and cash flows present fairly, in all material
respects, the financial position of SINA Corporation and its subsidiaries at December 31, 2004 and
2003, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2004 in conformity with accounting principles generally accepted in the
United States of America. 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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit of financial statements 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 our
opinion. Internal control over financial reporting Also, in our opinion, managements assessment, included in the accompanying Managements Report on Internal
Control Over Financial Reporting, that the Company maintained effective internal control over
financial reporting as of December 31, 2004 based on criteria established in Internal Control -
Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control  Integrated Frameworkissued by the COSO. The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinions. A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. - 63 -




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Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. As described in Managements Report on Internal Control Over Financial Reporting, management
has excluded Crillion Corporation (Crillion) from its assessment of internal control over
financial reporting as of December 31, 2004 because it was acquired by the Company in a purchase
business combination during 2004. We have also excluded Crillion from our audit of internal
control over financial reporting. Crillion is a wholly-owned subsidiary whose total assets and
total revenues represent 4% and 15%, respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2004. PricewaterhouseCoopers Zhong Tian CPA Limited Company
Beijing, the Peoples Republic of China March 15, 2005 - 64 -




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SINA CORPORATION 
 CONSOLIDATED BALANCE SHEETS (In thousands, except par value) December 31,2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    153,768
    
    
    $
    158,148Short-term investments
    
    
    121,867
    
    
    
    69,016Accounts receivable, net
    
    
    39,942
    
    
    
    17,606Short-term deferred tax assets
    
    
    689
    
    
    
    907Prepaid expenses and other current assets
    
    
    10,699
    
    
    
    4,579Total current assets
    
    
    326,965
    
    
    
    250,256Investment in Sun Media Group
    
    
    5,468
    
    
    
    6,793Property and equipment, net
    
    
    16,152
    
    
    
    8,646Long-term investments
    
    
    4,541
    
    
    
    2,085Intangible assets, net
    
    
    13,218
    
    
    
    569Goodwill
    
    
    61,172
    
    
    
    18,091Other assets
    
    
    2,909
    
    
    
    3,457Total assets
    
    $
    430,425
    
    
    $
    289,897LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,052
    
    
    $
    1,147Accrued liabilities
    
    
    68,384
    
    
    
    27,442Income taxes payable
    
    
    4,502
    
    
    
    1,801Total current liabilities
    
    
    74,938
    
    
    
    30,390Convertible debt
    
    
    100,000
    
    
    
    100,000Other long-term liabilities
    
    
    2,142
    
    
    
    Total liabilities
    
    
    177,080
    
    
    
    130,390Commitments and contingencies (Note 17)Shareholders equity:Ordinary Shares: $0.133 par value; 150,000 shares authorized;
51,359 and 48,627 shares issued and outstanding
    
    
    6,834
    
    
    
    6,471Additional paid-in capital
    
    
    263,912
    
    
    
    236,222Ordinary shares subject to subsequent issuance: 0 and 177 shares
    
    
    
    
    
    
    1,349Accumulated deficit
    
    
    (17,058
    )
    
    
    (83,054
    )Accumulated other comprehensive income (loss):Unrealized loss on investment in marketable securities
    
    
    (395
    )
    
    
    (1,510
    )Cumulative translation adjustments
    
    
    52
    
    
    
    29Total shareholders equity
    
    
    253,345
    
    
    
    159,507Total liabilities and shareholders equity
    
    $
    430,425
    
    
    $
    289,897
 The accompanying notes are an integral part of these consolidated financial statements. - 65 -




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SINA CORPORATION 
 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amount and share amount) Years Ended
    
    
    Six Months Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002Net revenues:Advertising
    
    $
    65,417
    
    
    $
    41,173
    
    
    $
    13,869
    
    
    $
    21,105Non-advertising
    
    
    134,570
    
    
    
    73,112
    
    
    
    9,347
    
    
    
    7,403199,987
    
    
    
    114,285
    
    
    
    23,216
    
    
    
    28,508Cost of revenues:Advertising
    
    
    22,187
    
    
    
    14,001
    
    
    
    5,824
    
    
    
    11,537Non-advertising
    
    
    39,424
    
    
    
    20,405
    
    
    
    2,676
    
    
    
    1,938Stock-based compensation
    
    
    
    
    
    
    31
    
    
    
    42
    
    
    
    13361,611
    
    
    
    34,437
    
    
    
    8,542
    
    
    
    13,608Gross profit
    
    
    138,376
    
    
    
    79,848
    
    
    
    14,674
    
    
    
    14,900Operating expenses:Sales and marketing
    
    
    39,585
    
    
    
    21,741
    
    
    
    6,457
    
    
    
    12,468Product development
    
    
    10,355
    
    
    
    6,340
    
    
    
    2,755
    
    
    
    6,666General and administrative
    
    
    15,619
    
    
    
    11,551
    
    
    
    4,480
    
    
    
    8,237Stock-based compensation*
    
    
    
    
    
    
    523
    
    
    
    699
    
    
    
    2,208Amortization of intangible assets
    
    
    3,492
    
    
    
    1,749
    
    
    
    90
    
    
    
    5,063Write-off of intangible assets
    
    
    
    
    
    
    903
    
    
    
    
    
    
    
    Total operating expenses
    
    
    69,051
    
    
    
    42,807
    
    
    
    14,481
    
    
    
    34,642Income (loss) from operations
    
    
    69,325
    
    
    
    37,041
    
    
    
    193
    
    
    
    (19,742
    )Interest income
    
    
    5,139
    
    
    
    2,757
    
    
    
    1,034
    
    
    
    4,212Other expenses
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    Amortization of convertible debt issuance cost
    
    
    (685
    )
    
    
    (341
    )
    
    
    
    
    
    
    Loss on investments, net
    
    
    (1,390
    )
    
    
    (6,063
    )
    
    
    
    
    
    
    Loss on equity investments
    
    
    (3,165
    )
    
    
    (914
    )
    
    
    (311
    )
    
    
    (562
    )Income (loss) before income taxes
    
    
    69,224
    
    
    
    32,318
    
    
    
    916
    
    
    
    (16,092
    )Provision for income taxes
    
    
    (3,228
    )
    
    
    (895
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    65,996
    
    
    $
    31,423
    
    
    $
    916
    
    
    $
    (16,092
    )Basic net income (loss) per share
    
    $
    1.33
    
    
    $
    0.66
    
    
    $
    0.02
    
    
    $
    (0.36
    )Diluted net income (loss) per share
    
    $
    1.15
    
    
    $
    0.58
    
    
    $
    0.02
    
    
    $
    (0.36
    )Weighted average shares:Basic
    
    
    50,274
    
    
    
    47,840
    
    
    
    45,725
    
    
    
    44,315Diluted
    
    
    58,204
    
    
    
    54,794
    
    
    
    48,030
    
    
    
    44,315*Stock-based compensation expense by function:Sales and marketing
    
    $
    
    
    
    $
    16
    
    
    $
    21
    
    
    $
    66Product development
    
    
    
    
    
    
    168
    
    
    
    223
    
    
    
    707General and administrative
    
    
    
    
    
    
    339
    
    
    
    455
    
    
    
    1,435$
    
    
    
    $
    523
    
    
    $
    699
    
    
    $
    2,208
 The accompanying notes are an integral part of these consolidated financial statements. - 66 -




---



##### Table of Contents



SINA CORPORATION 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands) OrdinaryShares
    
    
    Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherAdditional
    
    
    Subject to
    
    
    Receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    ComprehensiveOrdinary Shares
    
    
    Paid-in
    
    
    Subsequent
    
    
    From
    
    
    Deferred Stock
    
    
    Accumulated
    
    
    
    
    
    
    Shareholders
    
    
    IncomeShares
    
    Amount
    
    Capital
    
    Issuance
    
    Shareholders
    
    Compensation
    
    Deficit
    
    Others
    
    Equity
    
    (Loss)Balances at June 30, 2001
    
    
    41,358
    
    
    $
    5,504
    
    
    $
    220,671
    
    
    $
    
    
    
    $
    (1,479
    )
    
    $
    (5,423
    )
    
    $
    (99,301
    )
    
    $
    (5
    )
    
    $
    119,967Issuance of ordinary shares pursuant to
stock plans, net of repurchases
    
    
    (61
    )
    
    
    (8
    )
    
    
    (69
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Repayments of notes
receivable from shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    429
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    429Deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    (1,783
    )
    
    
    
    
    
    
    
    
    
    
    1,783
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,341
    
    
    
    
    
    
    
    
    
    
    
    2,341Acquisition of long-term investment
    
    
    4,593
    
    
    
    611
    
    
    
    4,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,098Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,092
    )
    
    
    
    
    
    
    (16,092
    )
    
    $
    (16,092
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24
    
    
    
    24Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (16,068
    )Balances at June 30, 2002
    
    
    45,890
    
    
    
    6,107
    
    
    
    223,306
    
    
    
    
    
    
    
    (1,050
    )
    
    
    (1,299
    )
    
    
    (115,393
    )
    
    
    19
    
    
    
    111,690Issuance of ordinary shares pursuant to
stock plans, net of repurchases
    
    
    56
    
    
    
    7
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    741
    
    
    
    
    
    
    
    
    
    
    
    741Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    916
    
    
    
    
    
    
    
    916
    
    
    $
    916Unrealized gain on investments in
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,004
    
    
    
    4,004
    
    
    
    4,004Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )
    
    
    (27
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,893Balances at December 31, 2002
    
    
    45,946
    
    
    
    6,114
    
    
    
    223,358
    
    
    
    
    
    
    
    (1,050
    )
    
    
    (554
    )
    
    
    (114,477
    )
    
    
    3,996
    
    
    
    117,387Issuance of ordinary shares pursuant to
stock plans, net of repurchases
    
    
    1,737
    
    
    
    231
    
    
    
    5,777
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,008Repayment of notes receivable from
shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,050Amortization of deferred
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    554
    
    
    
    
    
    
    
    
    
    
    
    554Business acquisition
    
    
    944
    
    
    
    126
    
    
    
    7,087
    
    
    
    1,349
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,562Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,423
    
    
    
    
    
    
    
    31,423
    
    
    $
    31,423Unrealized loss on investments in
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,514
    )
    
    
    (5,514
    )
    
    
    (5,514
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37
    
    
    
    37Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,946Balances at December 31, 2003
    
    
    48,627
    
    
    
    6,471
    
    
    
    236,222
    
    
    
    1,349
    
    
    
    
    
    
    
    
    
    
    
    (83,054
    )
    
    
    (1,481
    )
    
    
    159,507Issuance of ordinary shares pursuant to
stock plans
    
    
    2,296
    
    
    
    305
    
    
    
    15,464
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,769Business acquisition
    
    
    436
    
    
    
    58
    
    
    
    12,226
    
    
    
    (1,349
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,935Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,996
    
    
    
    
    
    
    
    65,996
    
    
    $
    65,996Unrealized gain on investments in
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,115
    
    
    
    1,115
    
    
    
    1,115Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    23
    
    
    
    23Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    67,134Balances at December 31, 2004
    
    
    51,359
    
    
    $
    6,834
    
    
    $
    263,912
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (17,058
    )
    
    $
    (343
    )
    
    $
    253,345
 The accompanying notes are an integral part of these consolidated financial statements. - 67 -




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##### Table of Contents



SINA CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended_
    
    
    Six Months Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    65,996
    
    
    $
    31,423
    
    
    $
    916
    
    
    $
    (16,092
    )Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:Loss on equity investments
    
    
    3,165
    
    
    
    914
    
    
    
    311
    
    
    
    562Loss on disposal of fixed assets
    
    
    33
    
    
    
    160
    
    
    
    101
    
    
    
    267Loss on investments, net
    
    
    1,390
    
    
    
    6,063
    
    
    
    
    
    
    
    Depreciation
    
    
    5,827
    
    
    
    5,113
    
    
    
    2,513
    
    
    
    5,186Stock-based compensation
    
    
    
    
    
    
    554
    
    
    
    741
    
    
    
    2,341Amortization of convertible debt issuance
cost
    
    
    685
    
    
    
    341
    
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    3,492
    
    
    
    1,749
    
    
    
    90
    
    
    
    5,063Write-off of intangible assets
    
    
    
    
    
    
    903
    
    
    
    
    
    
    
    Changes in assets and liabilities (net of
effect of acquisition):Accounts receivable, net
    
    
    (18,409
    )
    
    
    (8,813
    )
    
    
    (1,075
    )
    
    
    (460
    )Prepaid expenses and other current assets
    
    
    (2,586
    )
    
    
    (2,166
    )
    
    
    (550
    )
    
    
    (356
    )Receivable from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    556Deferred tax assets
    
    
    218
    
    
    
    (907
    )
    
    
    
    
    
    
    Other assets
    
    
    (120
    )
    
    
    (918
    )
    
    
    206
    
    
    
    (178
    )Accounts payable
    
    
    671
    
    
    
    (792
    )
    
    
    212
    
    
    
    (514
    )Income taxes payable
    
    
    1,490
    
    
    
    1,801
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    13,006
    
    
    
    11,821
    
    
    
    2,836
    
    
    
    (2,735
    )Net cash provided by (used in)
operating activities
    
    
    74,858
    
    
    
    47,246
    
    
    
    6,301
    
    
    
    (6,360
    )Cash flows from investing activities:Acquisition of property and equipment
    
    
    (13,000
    )
    
    
    (6,058
    )
    
    
    (1,701
    )
    
    
    (2,035
    )Cash paid for business acquisition, net of
cash acquired
    
    
    (27,573
    )
    
    
    (10,548
    )
    
    
    (1,121
    )
    
    
    Investment in joint ventures
    
    
    (2,660
    )
    
    
    (2,818
    )
    
    
    (181
    )
    
    
    Deposit for business acquisition
    
    
    (241
    )
    
    
    
    
    
    
    
    
    
    
    Acquisition of long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,595
    )Sale (purchase) of short-term investments
    
    
    (53,043
    )
    
    
    (27,276
    )
    
    
    18,806
    
    
    
    (4,772
    )Proceeds from sale of investment in Sun Media
Group
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of long-term investment
    
    
    1,215
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in)
investing activities
    
    
    (95,007
    )
    
    
    (46,700
    )
    
    
    15,803
    
    
    
    (15,402
    )
 - 68 -




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##### Table of Contents



SINA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) Years Ended
    
    
    Six Months Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002Cash flows from financing activities:Proceeds from issuance of convertible debt, net
    
    
    
    
    
    
    97,282
    
    
    
    
    
    
    
    Proceeds from issuance of ordinary shares, net
    
    
    15,769
    
    
    
    6,008
    
    
    
    63
    
    
    
    30Repurchase of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Repayments of notes receivable from shareholders
    
    
    
    
    
    
    1,050
    
    
    
    
    
    
    
    429Net cash provided by financing activities
    
    
    15,769
    
    
    
    104,340
    
    
    
    63
    
    
    
    352Net increase (decrease) in cash and cash equivalents
    
    
    (4,380
    )
    
    
    104,886
    
    
    
    22,167
    
    
    
    (21,410
    )Cash and cash equivalents at beginning of year
    
    
    158,148
    
    
    
    53,262
    
    
    
    31,095
    
    
    
    52,505Cash and cash equivalents at end of year
    
    $
    153,768
    
    
    $
    158,148
    
    
    $
    53,262
    
    
    $
    31,095Supplemental disclosure of operating activities:Income taxes paid
    
    $
    1,090
    
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental disclosure of investing activities:Cash paid for business acquisition
    
    $
    (29,100
    )
    
    $
    (12,904
    )
    
    $
    (1,874
    )
    
    $
    Cash acquired
    
    
    1,527
    
    
    
    2,356
    
    
    
    753
    
    
    
    Cash paid for business acquisition, net
    
    $
    (27,573
    )
    
    $
    (10,548
    )
    
    $
    (1,121
    )
    
    $
    Supplemental disclosure of noncash financing activities:Ordinary shares issued for business acquisition
    
    $
    12,284
    
    
    $
    7,213
    
    
    $
    
    
    
    $
    Ordinary shares subject to subsequent issuance for business
acquisition
    
    $
    
    
    
    $
    1,349
    
    
    $
    
    
    
    $
    Ordinary shares issued for acquisition of long term
investment
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,098Deferred non-advertising services exchanged for equity interest
in joint venture
    
    $
    3,430
    
    
    $
    
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements. - 69 -




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##### Table of Contents



SINA CORPORATION 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company and Summary of Significant Accounting Policies  The Company SINA CORPORATION (SINA or the Company), a Cayman Islands corporation, is a leading online
media company and value-added information service provider in the Peoples Republic of China (the
PRC or China) and the global Chinese communities. With a branded network of localized web sites
targeting Greater China and overseas Chinese, the Company provides services through five major
business lines including SINA.com (online news and content), SINA Mobile (mobile value-added
services or MVAS), SINA Online (community-based services and games), SINA.net (search and
enterprise services) and SINA E-Commerce (online shopping and travel). Together these business
lines provide an array of services including region-focused online portals, MVAS, search and
directory, interest-based and community-building channels, free and premium email, online games,
virtual ISP, classified listings, fee-based services, e-commerce and enterprise e-solutions.  Principles of consolidation and basis of presentation The consolidated financial statements include the accounts of the Company, its subsidiaries
and variable interest entities (VIEs) for which the Company is the primary beneficiary. All
significant intercompany accounts and transactions have been eliminated. Investments in entities in
which the Company can exercise significant influence, but which are less than majority owned and
not otherwise controlled by the Company, are accounted for under the equity method. The Company has adopted FASB Interpretation No. 46R (FIN 46R) Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51. FIN 46R requires a VIE to be consolidated by a
company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to
receive a majority of the VIEs residual returns. To comply with PRC laws and regulations the Company provides substantially all its Internet
content provision, MVAS and advertising services in China via its VIEs. These VIEs are wholly or
partially owned by certain employees of the Company. The capital are funded by the Company and
recorded as interest-free loans to these PRC employees. These loans were eliminated with the
capital of the VIEs during consolidation. Under various contractual agreements, employee shareholders of the VIEs are required to
transfer their ownership in these entities to the Companys subsidiaries in China when permitted by
PRC laws and regulations or to designees of the Company at any time for the amount of loans
outstanding. All voting rights of the VIEs are assigned to the Company and the Company has the
right to appoint all directors and senior management personnel of the VIEs. The Company has also
entered into exclusive technical service agreements with the VIEs under which the Company provides
technical and other services to the VIEs in exchange for substantially all net income of the VIEs.
In addition, employee shareholders of the VIEs have pledged their shares in the VIEs as collateral
for the non-payment of loans or for the fees for technical and other services due to the Company.
As of December 31, 2004, the total amount of interest-free loans to the employee shareholders of
VIEs listed below and the other two inactive VIEs was $9.0 million. The following is a summary of the VIEs of the Company:  
    Beijing SINA Internet Information Service Co., Ltd. (the ICP Company), a China
company controlled through business agreement. The ICP Company is responsible for operating
www.sina.com.cn in connection with its Internet content company license and selling the
advertisements to advertisers directly under its online advertising license. It is also
responsible for providing MVAS in China via third party mobile operators to the users. It is
1.5% owned by Yan Wang, the Companys Chief Executive Officer and director, and 98.5% owned
by six other non-executive PRC employees of the Company. The registered capital of the ICP
Company is $2.4 million.
    Beijing SINA Interactive Advertising Co., Ltd. (the Ad Company), a China company
controlled through business agreement. The Ad Company was responsible for placing
advertisements on www.sina.com.cn for its third party customers under its advertising
license. It is 75% owned by Yan Wang and 25% owned by Beijing SINA Information Technology Co. Ltd., one of the Companys subsidiaries in China. The registered capital of the
Ad Company is $0.1 million. - 70 -




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
    Guangdong SINA Internet Information Service Co., Ltd. (the GDICP Company), a China
company controlled through business agreement. The GDICP Company is responsible for
providing MVAS in China via third party mobile operators to the users under its Internet
content company license. It became inactive since late 2004. It is 10% owned by Yan Wang and
90% owned by five other non-executive PRC employees of the Company. The registered capital
of the GDICP Company is $0.4 million.
    Guangzhou Media Message Technologies, Inc. (Xunlong), a China company controlled
through business agreement. Xunlong is responsible for providing MVAS in China via third
party mobile operators to the users under its Internet content company license. It is owned
by three non-executive PRC employees of the Company. The registered capital of the Xunlong
is $1.2 million.
    Beijing Star-Village.com Cultural Development Co., Ltd. (StarVI), a China company
controlled through business agreement. StarVI is responsible for providing MVAS in China via
third party mobile operators to the users under its Internet content company license. It is
owned by three non-executive PRC employees of the Company. The registered capital of the
StarVI is $1.2 million.
    Shenzhen Wang Xing Technology Co., Ltd. (Wangxing), a China company controlled
through business agreement. Wangxing is responsible for providing MVAS in China via third
party mobile operators to the users under its Internet content company license. It is owned
by three non-executive PRC employees of the Company. The registered capital of Wangxing is
$1.2 million.
    Beijing SINA Infinity Advertising Co., Ltd. (the IAD Company), a China company
controlled through business agreement. The IAD Company is responsible for placing
advertisements on www.sina.com.cn for its third party customers. It is owned by five
non-executive PRC employees of the Company. This entity has an approved business scope
including design, production, agency and issuance of advertisements. The registered capital
of the IAD Company is $0.1 million. The Company began to consolidate the Ad Company in April 2000 and the ICP Company in October
2001 (see Note 7-Related Party Transactions). The GDICP Company was established in 2002 but did not
begin activities until 2003. Operating results for the GDICP Company were consolidated for the year
ended December 31, 2003. Xunlong and Star VI were acquired from the Memestar acquisition (see Note
2-Acquisition  Memestar) in January 2003 and the operating results for these two companies were
consolidated by the Company since January 6, 2003. Wangxing was acquired from the Crillion
acquisition (see Note 2  Acquisition  Crillion) in March 2004 and the operating results for
Wangxing were consolidated by the Company since March 24, 2004. The operating results of the IAD
company were consolidated since their establishment in 2004. As of December 31, 2004, the aggregate accumulated losses of all VIEs were approximately $2.4
million and have been reflected in the consolidated financial statements.  Use of estimates The preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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, such differences may be material to the financial statements. Certain prior year amounts
have been reclassified to conform to the current year presentation.  Fiscal year The Company changed its financial year end from June 30 to December 31 in 2002. - 71 -




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Cash equivalents The Company considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. At December 31, 2004 and 2003, cash equivalents were comprised
primarily of investments in commercial paper and money market accounts stated at cost plus accrued
interest, which approximated fair value.  Allowances for doubtful accounts The Company determines the allowance for doubtful accounts based on actual bad debt rate in
the prior year and other factors. The Company also provides specific provisions for bad debts when
facts and circumstances indicate that the receivable is unlikely to be collected, including an
assessment of all receivables over 180 days. If the financial condition of its customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances
may be required.  Deferred tax assets The Company records a valuation allowance for deferred tax assets, if any, based on its
estimates of its future taxable income as well as its tax planning strategies when it is more
likely than not that a portion or all of its deferred tax assets will not be realized. If the
Company is able to utilize more of its deferred tax assets than the net amount previously recorded
when unanticipated events occur, an adjustment to deferred tax assets would increase the Company
net income when those events occur.  Available for sale securities investments Investments classified as available for sale securities are reported at fair value with
unrealized gains (losses), if any, recorded as accumulated other comprehensive income in
shareholders equity. Realized gains or losses are charged to income statement during the period in
which the gain or loss is realized. If the Company determines a decline in fair value is
other-than-temporary, the cost basis of the individual security shall be written down to fair value
as a new cost basis and the amount of the write-down will be accounted for as a realized loss. The
new cost basis will not be changed for subsequent recoveries in fair value. Determination of
whether declines in value are other-than-temporary requires significant judgment. Subsequent
increases and decrease in the fair value of available for sale securities will be included in
comprehensive income through a credit or charge to shareholders equity except for an
other-than-temporary impairment which will be charged to income statement. Investments classified as available for sales securities include marketable equity securities
of Sun Media Group and marketable debt securities. The Company invests in marketable debt
securities with the intent to make such funds readily available for operating or acquisition
purposes and, accordingly, classifies them as short-term investments.  Property and equipment Property and equipment, including leasehold improvements, are stated at historical cost less
accumulated depreciation and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, generally from three to five years. Leasehold
improvements are amortized over the shorter of the estimated useful lives of the assets or the
remaining lease term. The expenditures for repair and maintenance are expensed as incurred. The gain or loss on
disposal of property and equipment, the difference between the net sales proceeds and the carrying
amount of the relevant assets, is recognized in the consolidated statements of operations.  Long-term investments Long-term investments comprise investments in joint ventures which were accounted for using
equity method of accounting. - 72 -




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Business combinations The Company accounts for its business combinations using the purchase method of accounting.
This method requires that the acquisition cost to be allocated to the assets and liabilities the
Company acquired based on their fair values. The Company makes estimates and judgments in
determining the fair value of the acquired assets and liabilities, based on independent appraisal
reports, for material purchases, as well as its experience with similar assets and liabilities in
the similar industries. If different judgments or assumptions were used, the amounts assigned to
the individual acquired assets or liabilities could be materially different. When consider whether
an acquired assets group constitutes a business, we based on the criteria defined by EITF 98-3
Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a
Business.  Goodwill and intangible assets, net Goodwill represents the excess of the purchase price over the fair value of the identifiable
assets and liabilities acquired as a result of the Companys acquisitions of interests in its
subsidiaries and variable interest entities. The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142 Goodwill and Intangible Assets (SFAS 142) on January 1, 2002. Under
SFAS 142, goodwill is no longer amortized, but tested for impairment upon first adoption and
annually thereafter, or more frequently if events or changes in circumstances indicate that it
might be impaired. The company assess goodwill for impairment in accordance with SFAS 142. The Company applies the criteria specified in SFAS No. 141 Business Combinations (SFAS
141) to determine whether an intangible asset should be recognized separately from goodwill.
Intangible assets acquired through business acquisitions are recognized as assets separate from
goodwill if they satisfy either the contractual-legal or separability criterion. Per SFAS 142,
intangible assets with definite lives are amortized over their estimated useful life and reviewed
for impairment in accordance with Statement of Financial Accounting Standards No. 144 Accounting
for the Impairment or Disposal of Long-lived Assets (SFAS 144). Intangible assets, such as
purchased technology, trademark, customer list, user base and non-compete agreements, arising from
the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair
value upon acquisition. Intangible assets are amortized over their estimated useful lives from one
to ten years. The Company reviews the amortization methods and estimated useful lives of
intangible assets regularly. The recoverability of an intangible to be held and used is evaluated
by comparing the carrying amount of the intangible to its future net undiscounted cash flows. If
the intangible is considered to be impaired, the impairment loss is measured as the amount by which
the carrying amount of the intangible exceeds the fair value of the intangible calculated using a
discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests and if different estimates or
judgments had been utilized, the timing or the amount of the impairment charges could be different.  Revenue recognition Advertising Advertising revenues are derived principally from online advertising and sponsorship
arrangements. Online advertising arrangements allow advertisers to place advertisements on
particular areas of the Companys web sites, in particular formats and over particular periods of
time. Advertising revenues from online advertising arrangements are recognized ratably over the
displayed period of the contract when the collectibility is reasonably assured. Sponsorship
arrangements allow advertisers to sponsor a particular area on its web sites 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
online advertising and sponsorship arrangements to be placed on the Companys web sites are
recognized ratably over the term of such programs. In accordance with EITF 00-21 Accounting for Revenue Arrangements with Multiple
Deliverables, advertising arrangements involving multiple deliverables are broken down into
single-element arrangements based on relative fair value for revenue recognition purpose. The
Company recognizes revenue on the elements delivered and defers the recognition of revenue for the
fair value of the undelivered elements until the remaining obligations have been satisfied. Revenues from barter transactions are recognized during the period in which the advertisements
are displayed on the companys properties. Barter transactions are recorded at the lower of the
fair value of the goods and services received or the fair value of the advertisement given, provided the fair value of the transaction is reliably
measurable. Revenues from barter transactions were minimal for all periods presented. - 73 -




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Non-advertising MVAS revenues are derived principally from providing mobile phone users with SMS, MMS, WAP and
IVR services. These services include news and other content subscriptions, mobile dating service,
picture and logo download, ring tones, ring back tones, mobile games, chat rooms and access to
music files. Revenues from MVAS are charged on a monthly or per-usage basis. Such revenues are
recognized in the period in which the service is performed, provided that no significant company
obligations remain, collection of the receivables is reasonably assured and the amounts can be
accurately estimated. The Company contracts with third-party mobile operators, China Mobile Communication
Corporation (China Mobile) and its subsidiaries and China Unicom Co., Ltd. (China Unicom) and
its subsidiaries, for billing and transmission services related to the MVAS transmitted to its
users. In accordance with EITF 99-19, revenues are recorded on a gross basis when the Company is
considered the primary obligor to the MVAS users. Under the gross method, the amounts billed to
MVAS users are recognized as revenues and the fees charged or retained by the third party mobile
operators are recognized as cost of revenues. Revenues on MVAS where the Company is not considered
the primary obligor to the user are recorded on a net basis. Under the net method, revenues are
recorded net of fees charged or retained by the third party mobile operators. Revenues recorded on
a net basis were $5.1 million or 4% of the Companys MVAS revenues for the year ended December 31,
2004 and were not significant to the Companys MVAS revenues for the prior periods. Due to the time lag of receiving billing statements from third-party mobile operators, MVAS
revenues are estimated based on the Companys internal records of billings and transmissions for
the month, adjusting for prior periods confirmation rates with mobile operators and prior periods
discrepancies between internally estimated revenues and actual revenues confirmed by mobile
operators. Prior periods confirmation rate applies to the estimation of revenue is determined at
the lower of the latest confirmation rate available and the average of six months historical rates
available, given that the Company had obtained six month confirmation rates. Historically, there
have been no significant true up adjustments to the estimates. To the extent that such revenues
cannot be accurately estimated, the Company relies on the billing statements from the mobile
operators to record revenues. Historically, due to the time lag of mobile operator billing statements and lack of adequate
information to make estimates, the Company has adopted a one-month lag reporting policy for MVAS
revenues. This policy has been applied on a consistent basis. Such policy does not apply to
revenues from acquired entities, Memestar and Crillion. For the years ended December 31, 2004, 2003
and 2002, the Company recorded $124.0 million, $64.4 million and $9.1 million of revenues from its
MVAS, respectively. If the Company had not used the one-month lag reporting policy, its revenues
from MVAS for those periods would have been $124.7 million, $68.3 million and $9.7 million,
respectively. China Mobile and its subsidiaries have started transitioning MVAS providers to a new billing
platform for SMS since the middle of 2004. Certain of their provincial subsidiaries have required
the Company to switch to this new billing platform recently. Other provincial subsidiaries will
require the Company to switch to the new billing platform in other provinces in the future. China
Unicom and its subsidiaries are also in the process of implementing a new billing system. The new
billing platforms may result in more controls by the mobile operators in the operation, a higher
failure rate for fee collection from the Companys users or make it more difficult for it to
recruit new users and hence may reduce its revenues from MVAS significantly. The Company has been
monitoring the extent of the impact of the new billing platforms to its business and its
confirmation rates used. The Company has been evaluating the current MVAS revenue recognition
policy. If there were no consistent trend of confirmation rates trend or there are constant significant
true up adjustments to its estimates under the new billing platforms, its current policy of
estimating MVAS revenues may not be appropriate. The Company may have to record the MVAS revenues
when it receives the billing statements from third-party mobile operators. Due to the time lag of
receiving the billing statements, its MVAS revenues may fluctuate with the collection of billing
statements if the Company were to record the MVAS revenues when it received the billing statements. As of
December 31, 2004, the Company has moved fourteen provinces onto China Mobiles new billing
platform. The Company is not yet able to isolate the effect of the new platform on the collection
failure rates, however in general the new billing systems have resulted in a higher failure rate on
its SMS billing based on the limited history. The Company purchases certain contents from third-party content providers for its MVAS. Most
of these arrangements state that the fees payable to the third-party content providers are
calculated based on certain percentages of the revenue earned by their contents after deducting the
fees paid to the third-party mobile operators. The Companys MVAS revenues are inclusive of such fees since the Company acts as the principal in these arrangements by
having the ability to determine the fees charged to end users and being the primary obligor to the
end users with respect to providing such services. - 74 -




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Fee based services. Fee based services allow the Companys users to subscribe for services on
its web sites including online games, virtual ISP and paid email services. Revenues from these
services are recognized in the period in which the service is performed, provided that no
significant company obligations remain, collection of the receivables is reasonably assured and the
amounts can be accurately estimated. E-commerce.E-commerce revenues are derived principally from slotting fees charged to
merchants for selective positioning and promoting their goods or services within its online mall,
SinaMall, and from commissions calculated as a percentage of the online sales transaction value of
the merchants. Slotting fee revenue is recognized ratably over the period the products are shown on
its web site while the commission revenue is recognized on a net basis after both successful online
verification of customers credit cards and shipment of products. Product returns have not been
significant and are assumed by vendors. Enterprise services. Enterprise services mainly include paid search and directory listings,
corporate emails, classified listings and enterprise e-solutions. Revenues are recognized in the
period in which the service is performed, provided that no significant company obligations remain,
collection of the receivables is reasonably assured and the amounts can be accurately estimated. In accordance with generally accepted accounting principles in the United States of America,
the recognition of these revenues is partly based on the Companys assessment of the probability of
collection of the resulting accounts receivable balance. As a result, the timing or amount of
revenue recognition may have been different if different assessments of the probability of
collection of accounts receivable had been made at the time the transactions were recorded in
revenue.  Cost of revenues Advertising Cost of advertising revenues consists mainly of costs associated with the production of web
sites, which includes fees paid to third parties for Internet connection, content and services,
personnel related costs, and equipment depreciation associated with our web site production. Cost
of advertising revenues also includes the business taxes levied on advertising sales in China.  Non-advertising Cost of non-advertising revenues consists mainly of fees paid to or retained by the
third-party mobile operators for their services relating to the collection of the Companys MVAS
revenues and for using their transmission gateways, and fees or royalties paid to third-party
content providers for services and content associated with the MVAS and costs for providing the
enterprise services. Cost of non-advertising revenues also includes the business taxes levied on
non-advertising sales in China.  Product development expenses Product development expenses consist primarily of personnel related expenses incurred for
enhancement to and maintenance of the Companys web sites as well as costs associated with new
product development such as email, search, instant messaging and casual games. The Company
recognizes web site development costs in accordance with 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 web site 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 Advertising expenses generally represent the cost of promotions for corporate image or for
product marketing and are expensed as incurred. - 75 -




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Stock-based compensation The Company accounts for stock-based employee compensation arrangements in accordance with
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, as amended by FASB Interpretation No. (FIN) 44 and Emerging Issues Task Force
(EITF) No. 00-23 and complies with the disclosure provisions of SFAS No. 123 Accounting for
Stock-Based Compensation as amended by SFAS No. 148 Accounting for Stock-Based Compensation 
Transition and Disclosure. Under APB No. 25, as amended, 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. Total compensation cost
as determined at the grant date of option is recorded in shareholders equity as additional paid-in
capital with an offsetting entry recorded to deferred stock compensation. Deferred stock
compensation is amortized over the vesting period of 4 years on an accelerated basis using the
model presented in paragraph 24 of FIN 28. Accordingly, the percentages of the deferred
compensation amortized in the first, second, third and fourth years following the option grant date
are approximately 52%, 27%, 15% and 6%, respectively. SFAS No. 148 amends SFAS No. 123 to provide
alternative methods of transition for companies that voluntarily change to the fair value based
method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation and the effect of
the method used on reported results. 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 considering the expected volatility of our
stock price, determined in accordance with SFAS 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 plans 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 income (loss) per share
would have been adjusted to the pro forma amounts as follows: Years Ended December 31,
    
    
    Six Months Ended
    
    
    Year Ended June 30,December 31,2004
    
    
    2003
    
    
    2002
    
    
    2002( in thousands)Net income (loss):As reported
    
    $
    65,996
    
    
    $
    31,423
    
    
    $
    916
    
    
    $
    (16,092
    )Add: Stock-based employee
compensation expenses included in
reported net income
    
    
    
    
    
    
    554
    
    
    
    741
    
    
    
    2,341Deduct: Employee stock purchase
plan related compensation expenses
determined under fair value based
method
    
    
    (135
    )
    
    
    (119
    )
    
    
    (30
    )
    
    
    (4
    )Deduct: Stock-based employee
compensation expenses determined
under fair value based method
    
    
    (11,063
    )
    
    
    (7,712
    )
    
    
    (1,406
    )
    
    
    (2,558
    )Pro forma
    
    $
    54,798
    
    
    $
    24,146
    
    
    $
    221
    
    
    $
    (16,313
    )Diluted net income (loss) per share:As reported
    
    $
    1.15
    
    
    $
    0.58
    
    
    $
    0.02
    
    
    $
    (0.36
    )Pro forma
    
    $
    0.95
    
    
    $
    0.44
    
    
    $
    0.00
    
    
    $
    (0.37
    )
 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: Years Ended
    
    
    Six Months Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002Risk-free interest rate
    
    
    1.19% - 3.32
    %
    
    
    2.04% - 3.47
    %
    
    
    2.44% - 3.07
    %
    
    
    3.70% - 4.36
    %Expected life (in years)
    
    
    1-4
    
    
    
    1-4
    
    
    
    1-4
    
    
    
    1-4Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volatility
    
    
    88
    %
    
    
    93
    %
    
    
    92
    %
    
    
    49
    %
 - 76 -




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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 assessed using the
criteria in SFAS No. 109, Accounting for Income Taxes, will not more-likely-than-not be realized. Foreign currency The Companys reporting currency is the U.S. dollar. 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 exchange rates
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 are recorded in accumulated other comprehensive income (loss) as a component
of shareholders equity. Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statement of operations and were not significant during the periods
presented. Net income (loss) per share Basic net income (loss) per share is computed using the weighted average number of the
ordinary shares outstanding during the period. Diluted net income (loss) per share is computed
using the weighted average number of ordinary share and ordinary share equivalents outstanding
during the period. Per EITF Issue No. 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings per
Share (EITF 04-08), which became effective for reporting periods ending after December 15, 2004,
contingently convertible debt are included in diluted earnings per share computations regardless of
whether the market price trigger has been met. As a result of adopting EITF 04-08 for the three
months ended December 31, 2004, and retroactively, the Company included the dilution effect of its
outstanding contingent convertible debt in its diluted earnings per share calculations. The
retroactive application of EITF 04-08 resulted in a reduction of $0.02 to the diluted earnings per
share for the three months ended September 30, 2004, and had no impact to the diluted earnings per
share for all other prior periods.  Comprehensive income (loss) Comprehensive income (loss) 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 income (loss)
for the periods presented includes net income (loss), foreign currency translation adjustments and
unrealized gains (losses) on marketable securities classified as available for sale.  Recent accounting pronouncements In September 2004, the EITF Issue No. 04-08, The Effect of Contingently Convertible Debt on
Diluted Earnings per Share. (EITF 04-08) was issued stating that contingently convertible debt
should be included in diluted earnings per share computations regardless of whether the market
price trigger has been met. This Issue is effective for reporting periods ending after December
15, 2004. The Company adopted EITF 04-08 in the three months ended December 31, 2004 and applied
retroactively to all prior periods. The retroactive application of EITF 04-08 resulted in a
reduction of $0.02 to the diluted earnings per share for the quarter ended September 30, 2004, and
had no impact to the diluted earnings per share for all other prior periods. In March 2004, the FASB issued EITF Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (EITF 03-1) which provides new guidance
for assessing impairment losses on debt and equity investments. Additionally, EITF 03-1 includes
new disclosure requirements for investments that are deemed to be temporarily impaired. In
September 2004, the FASB delayed the accounting provisions of EITF 03-1; however, the disclosure requirements remain effective and have been adopted by the Company (see Note 6. Short-term
investments). The Company will evaluate the effect, if any, of EITF 03-1 when final guidance is
released. - 77 -




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In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123)
and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires
all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values, beginning with the first interim or annual
period after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer
will be an alternative to financial statement recognition. The Company is required to adopt SFAS
123R in its three months ending September 30, 2005. Under SFAS 123R, The Company must determine the
appropriate fair value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption. The transition
methods include prospective and retroactive adoption options. Under the retroactive options, prior
periods may be restated either as of the beginning of the year of adoption or for all periods
presented. The prospective method requires that compensation expense be recorded for all unvested
stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R,
while the retroactive methods would record compensation expense for all unvested stock options and
restricted stock beginning with the first period restated. The Company is evaluating the
requirements of SFAS 123, and it expects that the adoption of SFAS 123R will have a material
impact on its consolidated results of operations and earnings per share. 2. Acquisitions Memestar.In January 2003, the Company completed the acquisition of Memestar Limited, a
British Virgin Islands limited liability corporation (Memestar), through a purchase of all of the
outstanding shares of Memestar. As a result of such acquisition, Memestar became a wholly-owned
subsidiary of SINA. Memestar, through its various subsidiaries and exclusive contractual
arrangements with two local entities in the PRC (Xunlong and Star VI) is engaged in the business of
providing MVAS in the PRC. The primary purposes of the acquisition were to enhance the Companys
MVAS as well as increase its market share in the PRC MVAS market. The aggregate purchase price of $24,255,113 is comprised of five elements: (a) $10,277,675 in
cash paid at the closing of the acquisition; (b) 560,369 newly issued SINA ordinary shares, valued
at $4,281,219 at the time of signing the definitive agreement, delivered at the closing of the
acquisition; (c) $5,250,000 in cash paid in four equal installments after the closing date of the
acquisition (d) 560,369 newly issued SINA ordinary shares, valued at $4,281,219 at the time of
signing the definitive agreement, to be delivered on the first anniversary of the closing date of
the acquisition, 383,733 of which were issued in August 2003, prior to the first anniversary of the
closing, as a result of an amendment to the share purchase agreement, and (e) approximately
$165,000 in legal and professional fees related to the acquisition. The purchase price was allocated as follows (in thousands): Cash
    
    $
    2,356Accounts receivable
    
    
    2,946Other assets
    
    
    351Intangible assets
    
    
    2,228Goodwill
    
    
    18,091Current liabilities
    
    
    (1,717
    )Purchase price
    
    $
    24,255
 Amortizable intangible assets acquired, including customer lists and non-compete arrangements
with certain Memestar executives, have estimated useful lives ranging from fourteen to eighteen
months. The amortization expense for the year ended December 31, 2004 was $0.6 million. Goodwill of
$18.1 million represents the excess of the purchase price over the fair value of the net tangible
and identifiable intangible assets acquired and is not deductible for tax purposes. In accordance
with SFAS 142, goodwill is not amortized but is tested for impairment annually. The Company
performed an impairment test relating to goodwill arising from Memestar acquisition and concluded
there was no impairment as to the carrying value of the goodwill as of December 31, 2004. The
purchase allocation for Memestar acquisition is based on an appraisal performed by an independent
appraisal firm in the United States. Immediately after the signing of the definitive agreement,
the Company obtained effective control over Memestar. Accordingly, the operating results of
Memestar have been consolidated with those of the Company starting January 6, 2003. - 78 -




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Bravado.In February 2004, the Company completed the acquisition of Bravado Investments
Limited, a British Virgin Islands limited liability corporation (Bravado), through a purchase of
all of the outstanding shares of Bravado. As a result of such acquisition, Bravado became a
wholly-owned subsidiary of SINA. Bravado, through its subsidiary in the PRC, is engaged in the
business of providing online and offline hotel reservation services under the brand Fortune Trip in
the PRC. The primary purpose of the acquisition was to enter the PRC online travel market. The aggregate purchase price is comprised of an initial consideration and a contingent
consideration on achieving specified earnings in future periods. The initial consideration of
$1,836,414 is comprised of two elements: (a) $1,812,251 in cash; and (b) approximately $24,163 in
legal and professional fees related to the acquisition. The contingent consideration is based on
Bravados financial performance in 2004. The contingent consideration will be $303,000 or $606,000
in cash, based on Bravado achieving certain earnings targets in 2004. As of December 31, 2004,
Bravado did not achieve the earning targets and no additional consideration will be paid. The initial purchase price of $1,836,414 was allocated as follows (in thousands): Cash
    
    $
    64Accounts receivable
    
    
    82Other assets
    
    
    109Intangible assets
    
    
    895Goodwill
    
    
    824Current liabilities
    
    
    (138
    )Purchase price
    
    $
    1,836
 Amortizable intangible assets acquired, including hotel reservation contracts and
non-competition arrangements with certain Bravado executives, have estimated useful lives ranging
from twenty-eight to thirty-six months. The amortization expense of intangible assets for the year
ended December 31, 2004 was $341,000. Goodwill of $824,000 represents the excess of the initial
purchase price over the fair value of the net tangible and identifiable intangible assets acquired
and is not deductible for tax purposes. In accordance with SFAS 142, goodwill is not amortized but
is tested for impairment annually. The Company performed an impairment test relating to goodwill
arising from Bravado acquisition and concluded there was no impairment as to the carrying value of
the goodwill as of December 31, 2004. Immediately after the closing of the acquisition, the
operating results of Bravado were consolidated with those of the Company starting February 1, 2004. Crillion. In March 2004, the Company completed the acquisition of Crillion Corporation, a
British Virgin Islands limited liability corporation (Crillion), through a purchase of all of the
outstanding shares of Crillion. As a result of such acquisition, Crillion became a wholly-owned
subsidiary of SINA. Crillion, through its subsidiary and exclusive contractual arrangement with a
local entity in the PRC, is engaged in the business of providing MVASin the PRC. The primary
purposes of the acquisition were to enhance the Companys MVASas well as increase its market share
in the PRC MVASmarket. The aggregate purchase price is comprised of an initial consideration and two contingent
considerations on achieving specified earnings in future periods. The initial consideration of
$18,958,486 is comprised of three elements: (a) $9,898,785 in cash; (b) 195,593 newly issued SINA
ordinary shares, valued at $8,534,701 at the time of closing, delivered at the closing of the
acquisition; and (c) approximately $525,000 in legal and professional fees related to the
acquisition. The two contingent considerations are based on Crillions financial performances in
2004 and 2005. The contingent considerations would roughly be 1.5 to 2.0 times Crillions 2004 and
2005 earnings basis, respectively, provided that Crillions pretax net income for 2004 and 2005 is
over $6.7 million and $13.3 million, respectively. The total consideration is subject to a cap of
$125.0 million and will be 60% in cash and 40% in SINA ordinary shares. As of December 31, 2004,
the Company estimated that the additional consideration related to the achievement of the 2004
performance target was approximately $28.1 million, which was recorded as additional goodwill in
the three months ended December 31, 2004. The initial purchase price of $18,958,486 was allocated as follows (in thousands): Cash
    
    $
    1,453Accounts receivable
    
    
    3,845Other assets
    
    
    772Intangible assets
    
    
    4,466Goodwill
    
    
    9,898Current liabilities
    
    
    (1,475
    )Purchase price
    
    $
    18,959
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Amortizable intangible assets acquired, including customer list, content provider contracts
and non-competition arrangements with certain Crillion executives, have estimated useful lives
ranging from sixteen to thirty-six months. The amortization expense of intangible assets for the
year ended December 31, 2004 was $2.0 million. As of December 31, 2004, total goodwill recorded for
the Crillion acquisition was $38.0 million, which included an initial $9.9 million, representing
the excess of the initial purchase price over the fair value of the net tangible and identifiable
intangible assets acquired, and the estimated $28.1 million of additional consideration for the
achievement of the 2004 performance target. In accordance with SFAS 142, goodwill is not amortized
but is subject to annual impairment assessment. The Company performed an impairment test relating
to goodwill arising from Crillion acquisition and concluded there was no impairment as to the
carrying value of the goodwill as of December 31, 2004. The purchase price allocation for the
Crillion acquisition was based on an appraisal performed by an independent appraisal firm in the
United States. Immediately after the closing of the acquisition, the operating results of Crillion
were consolidated with those of the Company starting March 25, 2004. Davidhill. On July 1, 2004, the Company entered into an agreement to acquire Davidhill Capital
Inc., a British Virgin Islands limited liability corporation (Davidhill), and its UC instant
messaging technology platform. The closing of the acquisition occurred on October 19, 2004, but
the operating results of Davidhill have been consolidated with those of SINA starting July 1, 2004,
when the Company took over the effective control of Davidhill. Launched in 2002, the UC instant
messaging service allows users to communicate in real-time over the Internet and mobile phone
networks, via text messages, images and voice. UC also provides community services such as chat
rooms, online games, alumni clubs, online karaoke and other entertainment services. The primary
purpose of the acquisition was to leverage UC instant messaging technology platform to SINAs
long-term web and wireless strategy. Davidhill owns the UC instant messaging technology platform and certain fixed assets (the
asset group) via its wholly-owned subsidiary in the PRC. Davidhill and its subsidiary have not
commenced generating any revenue from the UC instant messaging services. The Company acquired the
asset group through a purchase of all of the outstanding shares of Davidhill. As a result of such
acquisition, Davidhill became a wholly-owned subsidiary of SINA. The Company considered EITF 98-3
Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a
Business and concluded that the asset group constitutes a business. The Company therefore applied
SFAS141 Business Combinations to account for the acquisition of Davidhill. The aggregate purchase price is comprised of an initial consideration and a contingent
consideration on achieving specified performances in future periods. The initial consideration of
$15,250,000 is comprised of three elements: (a) $12,600,000 in cash; (b) 63,828 newly issued SINA
ordinary shares, valued at $2,400,000 in accordance with the average of per share closing prices of
SINA ordinary shares on the Nasdaq National Market during the thirty (30) calendar days immediately
preceding July 1, 2004, delivered at the closing of the acquisition; and (b) approximately $250,000
in legal and professional fees related to the acquisition. The contingent consideration of the
Davidhill acquisition are based on certain simultaneous online user targets being reached by
Davidhill in the 15 months after the agreement date. The contingent consideration is subject to a
cap of $21.0 million and will be 84% in cash and 16% in SINA ordinary shares. The initial purchase price of $15,250,000 was allocated as follows (in thousands): Cash
    
    $
    10Fixed assets
    
    
    187Intangible assets
    
    
    10,780Goodwill
    
    
    4,273Purchase price
    
    $
    15,250
 Amortizable intangible assets acquired, including technology and non-competition arrangements
with certain Davidhill executives, have estimated useful lives ranging from twenty-seven months to
ten years. The amortization expense of intangible assets for the year ended December 31, 2004 was
$0.6 million. Goodwill of $4.3 million represents the excess of the initial purchase price over the
fair value of the net tangible and identifiable intangible assets acquired, and is not deductible
for tax purposes. The contingent consideration, if any, will be recorded as additional goodwill. In
accordance with SFAS 142, goodwill is not amortized but is tested for impairment at initial
valuation and annually thereafter. The purchase - 80 -




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price allocation for the Davidhill acquisition was based on an appraisal performed by an
independent appraisal firm in the United States. The operating results of Davidhill were
consolidated with those of the Company starting July 1, 2004 after the Company took effective
control over the operations of Davidhill. The following unaudited pro forma information presents a summary of the results of operations
of the Company assuming the acquisition of Memestar, Bravado, Crillion and Davidhill had occurred
on January 1, 2003 (in thousands, except per share amounts): Years EndedDecember 31,2004
    
    
    2003Net revenues:
    
    $
    205,049
    
    
    $
    125,979Net income
    
    $
    66,855
    
    
    $
    31,863Basic net income per share
    
    $
    1.34
    
    
    $
    0.67Diluted net income per share
    
    $
    1.16
    
    
    $
    0.58
 3. Intangible assets The following table summarizes the intangible assets acquired from Memestar, Bravado, Crillion
and Davidhill: As of December 31,2004
    
    
    2003(In thousands)(i) Davidhill:Non-Compete agreements
    
    $
    480
    
    
    
    Technology
    
    
    10,300
    
    
    
    10,780
    
    
    
    Less: Accumulated amortization
    
    
    (622
    )
    
    
    Net
    
    
    10,158
    
    
    
    (ii) Crillion:Non-Compete agreements
    
    
    1,891
    
    
    
    Customer list
    
    
    2,494
    
    
    
    Content provision contracts
    
    
    81
    
    
    
    4,466
    
    
    
    Less: Accumulated amortization
    
    
    (1,960
    )
    
    
    Net
    
    
    2,506
    
    
    
    (iii) Bravado:Non-Compete agreements
    
    
    121
    
    
    
    Hotel reservation contracts
    
    
    774
    
    
    
    895
    
    
    
    Less: Accumulated amortization
    
    
    (341
    )
    
    
    Net
    
    
    554
    
    
    
    (iv) MemestarNon-Compete agreements
    
    
    1,256
    
    
    $
    1,256Customer lists
    
    
    972
    
    
    
    9722,228
    
    
    
    2,228Less: Accumulated amortization
    
    
    (2,228
    )
    
    
    (1,659
    )Net
    
    
    
    
    
    
    569Total intangible assets, net
    
    $
    13,218
    
    
    $
    569
 Based on the current amount of intangible assets subject to amortization, the estimated
amortization expense for each of the succeeding five years is $3.4 million, $2.0 million, $1.0
million, $1.0 million and $1.0 million for the years ending December 31, 2005, 2006, 2007, 2008 and
2009, respectively. - 81 -




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4. Investment in Sun Media Group In September 2001, the Company completed the acquisition of an approximately 27.6% equity
interest in Sun Media Group (Sun Media), a Hong Kong Stock Exchange listed company, from Ms. Lan
Yang, the chairperson and a major shareholder of Sun Media for consideration of $7.9 million in
cash and approximately 4.6 million of the Companys newly issued ordinary shares and transaction
costs of $731,000 for a total purchase price of $13.7 million. The above investment was accounted for using the equity method of accounting until September
30, 2002 when the Companys equity interest in Sun Media dropped to below 20% and the Company
ceased to maintain significant influence over its operations. Commencing October 1, 2002, such
investment was accounted for as an investment in marketable equity securities under the provisions
of SFAS 115 and was classified as available for sale and reported at fair value with unrealized
gains (losses), if any, recorded as a component of comprehensive income (loss) included in
shareholders equity. The Company had recorded $0.9 million of equity loss from this investment
through September 30, 2002 and the carrying value of this investment was $12.9 million at the time
when the accounting method changed. For the three months ended December 31, 2002, the Company
recorded $3.8 million of unrealized gains on the Sun Media investment as a component of
comprehensive income in shareholders equity. The fair market value of such investment was $16.7
million as of December 31, 2002. The fair market value of this investment began to drop below the carrying value starting May
2003. At December 31, 2003, the fair market value of this investment was $6.8 million. The Company
considered the decline in the value of this investment to be other-than-temporary and recognized
$6.1 million as impairment of investment during the three months ended December 31, 2003. During the three months ended March 31, 2004, the Company sold $0.2 million of this investment
and obtained a gain of $59,000. The realized gain was recorded as gain on investment in Sun Media
Group for the three months ended March 31, 2004. At September 30, 2004, the fair market value of
this investment was $4.0 million as compared to its carrying value of $6.6 million. The Company
considered the decline in the value of this investment to be other-than-temporary and recognized
$2.6 million as impairment of investment during the three months ended September 30, 2004. The fair
market value of this investment was $5.5 million on December 31, 2004. The Company recorded an
unrealized gain of $1.5 million as a component of comprehensive income for the year ended December
31, 2004. At March 10, 2005, the fair market value of this investment was $5.2 million. The Company
will continue to monitor the investment and if there is a decline in fair value, the Company may
have to recognize additional impairment charges in future periods. 5. Long-term investments Long-term investments comprise investments in joint ventures which were accounted for using
equity method of accounting. As of December 31, 2004, the carrying value of long-term investments
of $4.5 million mainly comprise investments in: i) a joint venture Shanghai NC-SINA Information
Technology Co. Ltd. (Shanghai NC-SINA) in PRC with NC Soft, a Korean online game company, of $1.4
million; ii) a joint venture China Online Auction Limited (COAL) in PRC with Yahoo! of $1.9
million. The following summarizes the gain (loss) on the Companys equity investments for the
periods presented: Shanghai NC-SINA
    
    
    COAL
    
    
    Sun Media Group
    
    
    Others
    
    
    Total(In thousands)Balances at June 30, 2001
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Investment
    
    
    
    
    
    
    
    
    
    
    13,729
    
    
    
    
    
    
    
    13,729Loss on equity investment
    
    
    
    
    
    
    
    
    
    
    (562
    )
    
    
    
    
    
    
    (562
    )Balances at June 30, 2002
    
    
    
    
    
    
    
    
    
    
    13,167
    
    
    
    
    
    
    
    13,167Loss on equity investment
    
    
    
    
    
    
    
    
    
    
    (311
    )
    
    
    
    
    
    
    (311
    )Change to
accounted for as available for sale securities
    
    
    
    
    
    
    
    
    
    
    (12,856
    )
    
    
    
    
    
    
    (12,856
    )Balances at December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investments
    
    
    2,550
    
    
    
    
    
    
    
    
    
    
    
    449
    
    
    
    2,999Gain / (loss) on equity investments
    
    
    (967
    )
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    (914
    )Balances at December 31, 2003
    
    
    1,583
    
    
    
    
    
    
    
    
    
    
    
    502
    
    
    
    2,085Investments or additional investment
    
    
    765
    
    
    
    4,100
    
    
    
    
    
    
    
    1,225
    
    
    
    6,090Sale of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (469
    )
    
    
    (469
    )Loss on equity investments
    
    
    (964
    )
    
    
    (2,168
    )
    
    
    
    
    
    
    (33
    )
    
    
    (3,165
    )Balances at December 31, 2004
    
    $
    1,384
    
    
    $
    1,932
    
    
    $
    
    
    
    $
    1,225
    
    
    $
    4,541
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6. Short-term investments The investment in marketable debt securities is classified as available for sale securities.
The Company invests in these securities with the intent to make such funds readily available for
operating or acquisition purposes and accordingly, classifies them as short-term investments. The
aggregate fair value of marketable debt securities was $121.9 million as of December 31, 2004 and
$69.0 million as of December 31, 2003 and was summarized as following: December 31,2004
    
    2003(In thousands)Time deposits
    
    $
    1,329
    
    
    $
    35Marketable debt securities *
    
    
    120,538
    
    
    
    68,981$
    121,867
    
    
    $
    69,016* Marketable debt securities due within one year
    
    $
    56,473
    
    
    $
    13,094Marketable debt securities due after one year through five years
    
    
    64,065
    
    
    
    55,887$
    120,538
    
    
    $
    68,981
 During the years ended December 31, 2004 and 2003, the Company recorded $0.4 million and $1.7
million, respectively, of unrealized losses on its marketable debt securities as a component of
comprehensive income. During the six months ended December 31, 2002, the Company recorded $0.2
million of unrealized gains on its marketable debt securities as a component of comprehensive
income. The Company considered the declines in value as not other-than-temporary, because the
declines in market value were attributable to changes in interest rates, not credit quality, and
because the Company has the ability and intent to hold these investments until a recovery of fair
value, which may be maturity. Investments in available-for-sale debt securities at fair value were
as follows: As of December 31, 2004Cost
    
    
    Accrued
    
    
    
    
    
    
    
    
    
    
    Estimated fairinterest
    
    
    Unrealized gain (loss)
    
    
    valueLess than one year
    
    
    Over one year(In thousands)Time deposits
    
    $
    1,329
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,329Securities
    
    
    209
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    $
    251Supranational Bonds
    
    
    5,000
    
    
    
    46
    
    
    
    
    
    
    
    (31
    )
    
    
    5,015U.S. Treasury and federal agency
    
    
    20,988
    
    
    
    81
    
    
    
    (16
    )
    
    
    (929
    )
    
    
    20,124China government and agency
    
    
    47,382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,382Corporate bonds and notes
    
    
    43,348
    
    
    
    441
    
    
    
    (488
    )
    
    
    (173
    )
    
    
    43,128Floating rate notes
    
    
    4,958
    
    
    
    
    
    
    
    
    
    
    
    (320
    )
    
    
    4,638Total
    
    $
    123,214
    
    
    $
    568
    
    
    $
    (462
    )
    
    $
    (1,453
    )
    
    $
    121,867
 As of December 31, 2003Cost
    
    
    Accrued
    
    
    
    
    
    
    
    
    
    
    Estimated fairinterest
    
    
    Unrealized losses
    
    
    valueLess than one year
    
    
    Over one year(In thousands)Time deposits
    
    $
    35
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    35Supranational Bonds
    
    
    8,013
    
    
    
    102
    
    
    
    (279
    )
    
    
    
    
    
    
    7,836U.S. Treasury and federal agency
    
    
    20,984
    
    
    
    88
    
    
    
    (921
    )
    
    
    
    
    
    
    20,151China government and agency
    
    
    5,468
    
    
    
    45
    
    
    
    (46
    )
    
    
    
    
    
    
    5,467Corporate bonds and notes
    
    
    30,476
    
    
    
    362
    
    
    
    (174
    )
    
    
    
    
    
    
    30,664Floating rate notes
    
    
    4,953
    
    
    
    
    
    
    
    (90
    )
    
    
    
    
    
    
    4,863Total
    
    $
    69,929
    
    
    $
    597
    
    
    $
    (1,510
    )
    
    $
    
    
    
    $
    69,016
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7. Balance Sheet Components December 31,2004
    
    
    2003(In thousands)Cash and cash equivalents:Cash and investment in money market accounts
    
    $
    134,780
    
    
    $
    153,149Commercial paper
    
    
    18,988
    
    
    
    4,999$
    153,768
    
    
    $
    158,148Accounts receivable, net:Accounts receivable
    
    $
    41,696
    
    
    $
    19,183Less: Allowance for doubtful accounts*
    
    
    (1,754
    )
    
    
    (1,577
    )$
    39,942
    
    
    $
    17,606*Balance at beginning of year
    
    $
    (1,577
    )
    
    $
    (1,579
    )Charge to expenses
    
    
    (1,060
    )
    
    
    (1,348
    )Write-offs net of recoveries
    
    
    883
    
    
    
    1,350Balance at end of year
    
    $
    (1,754
    )
    
    $
    (1,577
    )Property and equipment, net:Computer equipment and software
    
    $
    30,760
    
    
    $
    19,340Furniture and fixtures
    
    
    1,695
    
    
    
    1,295Automobiles
    
    
    239
    
    
    
    231Leasehold improvements
    
    
    2,904
    
    
    
    1,49935,598
    
    
    
    22,365Less: Accumulated depreciation and amortization
    
    
    (19,446
    )
    
    
    (13,719
    )$
    16,152
    
    
    $
    8,646Goodwill:Davidhill
    
    
    4,273
    
    
    
    Crillion
    
    
    37,984
    
    
    
    Bravado
    
    
    824
    
    
    
    Memestar
    
    
    18,091
    
    
    
    18,091$
    61,172
    
    
    $
    18,091Accrued liabilities:Payroll and related expenses
    
    $
    3,984
    
    
    $
    6,147Customer advances
    
    
    9,717
    
    
    
    4,253Business taxes
    
    
    1,905
    
    
    
    2,485Sales rebates
    
    
    7,234
    
    
    
    3,222Marketing expenses
    
    
    2,600
    
    
    
    1,207Professional fees
    
    
    1,534
    
    
    
    1,193Content fees
    
    
    3,675
    
    
    
    1,970Withholding tax from employees for stock options exercised
    
    
    3,964
    
    
    
    1,547Payment for Crillion acquisition
    
    
    28,087
    
    
    
    Payment for Memestar acquisition
    
    
    
    
    
    
    2,625Others
    
    
    5,684
    
    
    
    2,793$
    68,384
    
    
    $
    27,442
 8. Related Party Transactions Transactions with ICP Company and Ad Company.To comply with Chinese regulations, in April
2000, Beijing SINA Information Technology Co. Ltd. or BSIT, the Companys subsidiary in China,
entered into agreements with two limited liability companies incorporated in China: Beijing SINA
Interactive Advertising Co., Ltd. (the Ad Company) and Beijing SINA Internet Information Services
Co., Ltd. (the ICP Company.) The Ad Company is a Chinese advertising company that - 84 -




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is 75% owned by Yan Wang, the Companys Chief Executive Officer, and 25% owned by BSIT. The
ICP Company is a Chinese Internet content provider that is 3% owned by Yan Wang and 97% by six
other PRC employees of the Company. All individual shareholders of the Ad Company and the ICP
Company are required under their agreements with BSIT to transfer their interest in the Ad Company
or ICP Company to BSIT or to any person specified by BSIT at any time at BSITs request, provided
that such transfer is not in violation of Chinese laws and regulations. In the opinion of SINAs
Chinese counsel, the ownership of BSIT 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. The Ad Company has become inactive after the ICP Company
obtained online advertising license in May 2002 and the ICP Company began to sell advertising
directly to advertisers. In addition, BSIT 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. BSIT 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 is paid to BSIT. Through ten-year proxies ending in the years 2011 and 2010, BSIT has complete voting control
over the ICP Company and the Ad Company. The employee owners of the ICP Company and the Ad Company
do not have participating rights as defined in EITF 96-16 with respect to the management of the ICP
Company and the Ad Company. Therefore, the financial position and results of operations of the ICP
Company and the Ad Company are consolidated with the financial statements of SINA, and intercompany
transactions and balances are eliminated in the consolidation. BSIT was formerly known as Beijing Stone Rich Sight Information Technology Co. Ltd. or BSRS. Transactions with joint ventures.The Company sold advertising space to Shanghai NC-SINA to
allow the joint venture to promote its online game on the Companys web site. The contract terms
are at rates and terms that management believes are comparable with those entered into with
independent third parties. Revenues derived from the advertising arrangement with Shanghai NC-SINA
were $0.3 million and $0.1 million, respectively, for the years ended December 31, 2004 and 2003.
The company also provides a payment platform for customers of Shanghai NC-SINA to purchase virtual
point cards to play its online game. Payments from its customers are recorded as customer advances
received on behalf of Shanghai NC-SINA. As of December 31, 2004, the balance for such customer
advances was $3.7 million. As part of the joint venture arrangement with COAL, the Company agreed to divert certain
number of users to COALs auction site in exchange for equity interest in COAL. Such obligation was
recorded as deferred revenue at the time the Company recorded the equity investment in COAL.
Non-advertising revenues from this arrangement are recognized on a pro-rated basis, based on the
number of users diverted to COALs auction site. Non-advertising revenues from this arrangement
was $0.4 million for the year ended December 31, 2004. As of December 31, 2004, deferred revenue
from COAL was $3.0 million, $2.1 million of which related to long-term liabilities. Shareholder notes.In 1999, certain officers of the Company exercised stock options prior to
being vested with notes payable to the Company. The notes have a five-year term expiring in 2004
with full recourse and bear interest at rates ranging from 5.74% to 5.87%. Ordinary shares issued
with notes payable are subject to rights of repurchase by the Company until such shares are vested.
During the year ended December 31, 2003, six months ended December 31, 2002, and years ended June
30, 2002 and 2001, notes of $1.1 million, nil, $0.4 million and $0.6 million were repaid,
respectively. As of December 31, 2004 and 2003, there were no outstanding notes receivable from
shareholders. 9. Income Taxes The Company is registered in the Cayman Islands and has operations in four tax jurisdictions
including the PRC, the United States of America, Hong Kong and Taiwan. The operations in Taiwan
represent a branch office of the subsidiary in the United States. For operations in the United
States of America, Hong Kong and Taiwan, the Company has incurred net accumulated operating losses
for income tax purposes. The Company believes that it is more likely than not that these net
accumulated operating losses will not be utilized in the future and hence the Company has not
recorded income tax provisions or benefits for these locations as of December 31, 2004. The Company
generated substantially all its net income from its PRC operations for the years ended December 31,
2004 and 2003, and the Company has recorded income tax provisions for the years ended December 31,
2004 and 2003. - 85 -




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The components of income before income taxes are as follows: Years Ended December 31,
    
    
    Six Months Ended
    
    
    Year EndedDecember 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands, except percentage)Loss subject to non China operation
    
    $
    (7,798
    )
    
    $
    (11,864
    )
    
    $
    (2,770
    )
    
    $
    (12,155
    )Income (loss) subject to China operation
    
    
    77,022
    
    
    
    44,182
    
    
    
    3,686
    
    
    
    (3,937
    )Income (loss) before taxes
    
    $
    69,224
    
    
    $
    32,318
    
    
    $
    916
    
    
    $
    (16,092
    )Income tax expenses subject to non China operation
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Effective tax rate for non China operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expenses subject to China operation
    
    $
    3,228
    
    
    $
    895
    
    
    $
    
    
    
    $
    Effective tax rate for China operation
    
    
    4
    %
    
    
    2
    %
    
    
    
    
    
    
    
  Cayman Islands Under the current tax laws of Cayman Islands, the Company is not subject to tax on income or
capital gain. In addition, upon payments of dividends by the Company to its shareholders, no Cayman
Islands withholding tax will be imposed.  United States of America The components of income (loss) before income taxes separating U.S. and non U.S. operations
are as follows: Years Ended
    
    
    Six Months Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands)Income (loss) subject to U.S.
operation (including Taiwan branch)
    
    $
    41
    
    
    $
    (1,515
    )
    
    $
    (1,186
    )
    
    $
    (6,154
    )Loss subject to other operations
    
    
    (7,839
    )
    
    
    (10,349
    )
    
    $
    (1,584
    )
    
    $
    (6,001
    )Income (loss) subject to China operation
    
    
    77,022
    
    
    
    44,182
    
    
    
    3,686
    
    
    
    (3,937
    )Income (loss) before taxes
    
    $
    69,224
    
    
    $
    32,318
    
    
    $
    916
    
    
    $
    (16,092
    )
 As of December 31, 2004, the Companys subsidiary in the United States of America had
approximately $57.6 million of federal and $19.4 million of state net operating loss carryforwards
available to offset future taxable income. The federal net operating loss carryforwards will
expire, if unused, in the years ending December 31, 2011 through 2025, and the state net operating
loss carryforwards will expire, if unused, in the years ending December 31, 2005 through 2015.
Included in the net operating loss carryforwards is $31.2 million and $19.2 million of federal and
state net operating loss carryforwards relating to employee stock options, the benefit of which
will be credited to equity when realized. The Tax Reform Act of 1986 limits the use of net
operating loss and tax credit carryforwards in certain situations when changes occur in the stock
ownership of a company. In the event the Company has a change in ownership, utilization of
carryforwards could be restricted. The deferred tax assets for the United States subsidiary at
December 31, 2004 consists mainly of net operating loss carryforwards and were fully reserved as
the management believes it is more likely than not that these assets will not be realized in the
future. - 86 -




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The following table set forth the significant components of the net deferred tax assets for
operation in the United States of America as of December 31, 2004, 2003 and 2002, and June 30,
2002: December 31,
    
    
    December 31,
    
    

June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands)Deferred tax assets:Net operating loss carryforwards
    
    $
    20,817
    
    
    $
    18,251
    
    
    $
    15,323
    
    
    $
    14,805Allowances for doubtful
accounts, accruals and other
liabilities
    
    
    131
    
    
    
    139
    
    
    
    248
    
    
    
    282Depreciation
    
    
    
    
    
    
    
    
    
    
    117
    
    
    
    113Other tax credits
    
    
    549
    
    
    
    564
    
    
    
    592
    
    
    
    622Total deferred tax assets
    
    
    21,497
    
    
    
    18,954
    
    
    
    16,280
    
    
    
    15,822Less: valuation allowance
    
    
    (21,497
    )
    
    
    (18,954
    )
    
    
    (16,280
    )
    
    
    (15,822
    )Deferred tax assets
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Hong Kong As of December 31, 2004, the Companys Hong Kong subsidiary had approximately $11.2 million
net operating loss carryforwards which can be carried forward indefinitely to offset future taxable
income. The deferred tax assets for Hong Kong subsidiary at December 31, 2004 consists mainly of
net operating loss carryforwards and were fully reserved as the management believes it is more
likely than not that these assets will not be realized in the future. The following table set forth the significant components of the net deferred tax assets for
Hong Kong operation as of December 31, 2004, 2003 and 2002, and June 30, 2002: December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands)Deferred tax assets:Net operating loss carryforwards
    
    $
    1,798
    
    
    $
    1,778
    
    
    $
    1,624
    
    
    $
    1,524Allowances for doubtful accounts,
accruals and other liabilities
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    Total deferred tax assets
    
    
    1,798
    
    
    
    1,794
    
    
    
    1,624
    
    
    
    1,524Less: valuation allowance
    
    
    (1,798
    )
    
    
    (1,794
    )
    
    
    (1,624
    )
    
    
    (1,524
    )Deferred tax assets
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  China Pursuant to the PRC Income Tax Laws, the Companys subsidiaries and VIEs are generally subject
to Enterprise Income Taxes (EIT) at a statutory rate of 33%, which comprises 30% national income
tax and 3% local income tax. Some of these subsidiaries and VIEs are qualified new technology
enterprises and under PRC Income Tax Laws, they are subject to a preferential tax rate of 15%. In
addition, some of the Companys subsidiaries are Foreign Investment Enterprises and under PRC
Income Tax Laws, they are entitled to either a three-year tax exemption followed by three years
with a 50% reduction in the tax rate, commencing the first operating year, or a two-year tax
exemption followed by three years with a 50% reduction in the tax rate, commencing the first
profitable year. The VIEs are wholly owned by the Companys employees and controlled by the Company
through various contractual agreements. To the extent that these VIEs have undistributed after-tax
net income, the Company has to pay taxes on behalf of its employees when dividends are distributed
from these local entities in the future. The dividend tax rate is 20%. - 87 -




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Composition of income tax expenses for China operation The following table set forth current and deferred portion of income tax expenses of the
Companys China subsidiaries and VIEs, which were included in the consolidated statements for the
periods presented: Six Months
    
    
    Year EndedYears Ended December 31,
    
    
    Ended December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands)Current income taxes benefits (expenses)
    
    $
    (3,441
    )
    
    $
    (1,802
    )
    
    $
    
    
    
    $
    Change in deferred tax assets
    
    
    (1,113
    )
    
    
    1,545
    
    
    
    (190
    )
    
    
    274Change in valuation allowance
    
    
    1,326
    
    
    
    (638
    )
    
    
    190
    
    
    
    (274
    )Income tax expenses
    
    $
    (3,228
    )
    
    $
    (895
    )
    
    $
    
    
    
    $
    
  Reconciliation of the differences between statutory tax rate and the effective tax rate for
China operation The following table set forth reconciliation between the statutory EIT rate and the effective
tax rate for China operation for the periods presented: Six Months Ended
    
    
    Year EndedYears Ended December 31,
    
    
    December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002Statutory EIT rate
    
    
    33%
    
    
    
    33%
    
    
    
    33%
    
    
    
    33%Tax differential from statutory rate
applicable to the subsidiaries and
VIEs
    
    
    (1%)
    
    
    
    (1%)
    
    
    
    (23%)
    
    
    
    (7%)Effect on tax holiday
    
    
    (32%)
    
    
    
    (30%)
    
    
    
    
    
    
    
    Permanent differences
    
    
    2%
    
    
    
    2%
    
    
    
    1%
    
    
    
    (20%)Change in valuation allowance
    
    
    2%
    
    
    
    (2%)
    
    
    
    (5%)
    
    
    
    (7%)Others
    
    
    
    
    
    
    
    
    
    
    (6%)
    
    
    
    1%Effective tax rate for China operations
    
    
    4%
    
    
    
    2%
    
    
    
    
    
    
    
    
 The following table set forth the significant components of the net deferred tax assets for
China operation as of December 31, 2004, 2003 and 2002, and June 30, 2002: December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands)Deferred tax assets:Net operating loss carryforwards
    
    $
    
    
    
    $
    566
    
    
    $
    1,394
    
    
    $
    1,691Allowances for doubtful accounts, accruals and other liabilities
    
    
    260
    
    
    
    1,048
    
    
    
    192
    
    
    
    202Depreciation
    
    
    859
    
    
    
    619
    
    
    
    378
    
    
    
    261Total deferred tax assets
    
    
    1,119
    
    
    
    2,233
    
    
    
    1,964
    
    
    
    2,154Less: valuation allowance
    
    
    
    
    
    
    (1,326
    )
    
    
    (1,964
    )
    
    
    (2,154
    )Deferred tax assets
    
    $
    1,119
    
    
    $
    907
    
    
    $
    
    
    
    $
    
 - 88 -




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Aggregate net deferred tax assets The following table set forth the significant components of the aggregate net deferred tax
assets of the Company as of December 31, 2004, 2003 and 2002, and June 30, 2002: December 31,
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands)Short-term deferred tax assets:Net operating loss carryforwards
    
    $
    
    
    
    $
    566
    
    
    $
    577
    
    
    $
    Allowances for doubtful accounts, accruals and other liabilities
    
    
    391
    
    
    
    1,203
    
    
    
    440
    
    
    
    484Depreciation
    
    
    429
    
    
    
    619
    
    
    
    495
    
    
    
    374Total deferred tax assets
    
    
    820
    
    
    
    2,388
    
    
    
    1,512
    
    
    
    858Less: valuation allowance
    
    
    (131
    )
    
    
    (1,481
    )
    
    
    (1,512
    )
    
    
    (858
    )Short-term deferred tax assets
    
    $
    689
    
    
    $
    907
    
    
    $
    
    
    
    $
    Long-term deferred tax assets included in other assets:Net operating loss carryforwards
    
    $
    22,615
    
    
    $
    20,029
    
    
    $
    17,764
    
    
    $
    18,020Depreciation
    
    
    430
    
    
    
    
    
    
    
    
    
    
    
    Other tax credits
    
    
    549
    
    
    
    564
    
    
    
    592
    
    
    
    622Total deferred tax assets
    
    
    23,594
    
    
    
    20,593
    
    
    
    18,356
    
    
    
    18,642Less: valuation allowance
    
    
    (23,164
    )
    
    
    (20,593
    )
    
    
    (18,356
    )
    
    
    (18,642
    )Long-term deferred tax assets
    
    $
    430
    
    
    $
    
    
    
    $
    
    
    
    $
    Net deferred tax assets
    
    $
    1,119
    
    
    $
    907
    
    
    $
    
    
    
    $
    
 Movement of valuation allowances for deferred tax assets The following table set forth the movement of the aggregate valuation allowances for
deferred assets for the periods presented: Years Ended December 31,
    
    
    Six Months,
    
    
    Year EndedEnded June 30
    
    
    June 30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands)Balance at beginning of the year
    
    $
    22,074
    
    
    $
    19,868
    
    
    $
    19,500
    
    
    $
    16,547Provision for the year
    
    
    2,547
    
    
    
    3,348
    
    
    
    1,075
    
    
    
    2,953Recoveries of deferred tax assets
    
    
    (1,326
    )
    
    
    (1,142
    )
    
    
    (707
    )
    
    
    Balance at end of the year
    
    $
    23,295
    
    
    $
    22,074
    
    
    $
    19,868
    
    
    $
    19,500
 10. Net income (loss) Per Share Basic net income (loss) per share is computed using the weighted average number of the
ordinary shares outstanding during the period. Diluted net income (loss) per share is computed
using the weighted average number of ordinary share and ordinary share equivalents outstanding
during the period. - 89 -




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The following table sets forth the computation of basic and diluted net income (loss) per
share for the periods indicated: Years ended December 31,
    
    
    Six months ended
    
    
    Year ended June 30,December 31,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands, except per share amounts)Numerator:Net income (loss)
    
    $
    65,996
    
    
    $
    31,423
    
    
    $
    916
    
    
    $
    (16,092
    )Amortization of convertible debt issuance cost
    
    
    685
    
    
    
    341
    
    
    
    
    
    
    
    Net income (loss) used in computing diluted
net income (loss) per share
    
    $
    66,681
    
    
    $
    31,764
    
    
    $
    916
    
    
    $
    (16,092
    )Denominator:Weighted average ordinary shares outstanding
    
    
    50,274
    
    
    
    47,518
    
    
    
    45,725
    
    
    
    44,315Ordinary shares to be issued for business
acquisition
    
    
    
    
    
    
    322
    
    
    
    
    
    
    
    Shares used in computing basic net income
(loss) per share
    
    
    50,274
    
    
    
    47,840
    
    
    
    45,725
    
    
    
    44,315Weighted average ordinary share equivalents:Stock options
    
    
    4,053
    
    
    
    4,994
    
    
    
    2,113
    
    
    
    Unvested restricted shares
    
    
    
    
    
    
    21
    
    
    
    192
    
    
    
    Convertible debt
    
    
    3,877
    
    
    
    1,939
    
    
    
    
    
    
    
    7,930
    
    
    
    6,954
    
    
    
    2,305
    
    
    
    Shares used in computing diluted net income
(loss) per share
    
    
    58,204
    
    
    
    54,794
    
    
    
    48,030
    
    
    
    44,315Basic net income (loss) per share
    
    $
    1.33
    
    
    $
    0.66
    
    
    $
    0.02
    
    
    $
    (0.36
    )Diluted net income (loss) per share
    
    $
    1.15
    
    
    $
    0.58
    
    
    $
    0.02
    
    
    $
    (0.36
    )
 11. Employee Benefit Plans  401(k)Savings Plan The Companys U.S. subsidiary has a savings 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 100% 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 has not
been required to contribute to the 401(k) Plan.  China Contribution Plan The Companys subsidiaries and VIEs in China participate in a government-mandated
multi-employer defined contribution plan pursuant to which certain retirement, medical, housing 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 the year ended December 31, 2004 and 2003, six months ended
December 31, 2002 and the year ended June 30, 2002, the Company contributed a total of $4.3
million, $2.3 million, $0.7 million and $0.8 million, respectively, to these funds. 12. Profit Appropriation The Companys subsidiaries and VIEs in China are required to make appropriations to certain
non-distributable reserve funds. Its subsidiaries, in accordance with the laws applicable to
Chinas Foreign Investment Enterprises, must make appropriations from its after-tax profit (as
determined under PRC GAAP) to non-distributable reserve funds including (i) - 90 -




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general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund.
General reserve fund is at least 10% of the after-tax profits calculated in accordance with the PRC
GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital
of the respective company. The appropriation of the other two reserve funds is at the Companys
discretion. At the same time, the Companys VIEs, in accordance with the China Company Laws, must
make appropriations from its after-tax profit (as determined under PRC GAAP) to non-distributable
reserve funds including (i) statutory surplus fund, (ii) statutory public welfare fund and (iii)
discretionary surplus fund. Statutory surplus fund is at least 10% of the after-tax profits
calculated in accordance with the PRC GAAP. Appropriation is not required if the reserve fund has
reached 50% of the registered capital of the respective company. Appropriation to the statutory
public welfare fund is 5% to 10% of the after-tax profits calculated in accordance with the PRC
GAAP. Appropriation to discretionary surplus fund is made at the discretion of the Company. General reserve fund and statutory surplus fund are restricted for set off against losses,
expansion of production and operation or increase in register capital of the respective company.
Statutory public welfare fund is restricted to the capital expenditures for the collective welfare
of employees. These reserves are not transferable to the Company in the form of cash dividends,
loans or advances. These reserves are therefore not available for distribution except in
liquidation. As of December 31, 2004, the Company is subject to a maximum appropriation of $4.8
million to these non-distributable reserve funds. 13. Stock Plans 1999 Stock Plan In May 1999, the Company adopted the 1999 Stock Plan (the 1999 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. As of December 31, 2004, the Company has cumulatively reserved
13,608,000 ordinary shares for issuance under the 1999 Plan, including a previous plan carried over
from 1997 and options assumed in the Sinanet acquisition. The 1999 Plan provides for an annual
automatic increase in the number of ordinary shares reserved for issuance under the plan on the
first day of 2001, 2002, 2003, 2004 and 2005 fiscal years equal to the lesser of (1) 750,000
shares, (2) 3% of the ordinary shares outstanding on the last day of the immediately proceeding
fiscal year, or (3) such lesser number of shares as is determined by the Board. The 1999 Plan will
continue in effect until May 2009, unless terminated earlier in accordance with the terms of the
Plan. As of December 31, 2004, there were a total of 3,882,000 options outstanding and 1,161,000
options were available for grant under the 1999 Plan. Options under the Companys 1999 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 December 31, 2002 generally vest 25% after the first year and then 2.083% each month
thereafter. Certain options vest monthly over a four year term or a one year term. 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. At December 31, 2004, 2003, 2002, and June 30,
2002, there were nil, nil, 150,000 and 309,000, respectively, 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 December 31, 2004,
there were a total of 1,214,000 options outstanding and 6,000 options were available for grant
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 December 31, 2002 generally vest 25% after the first year and then 2.083%
each month thereafter. Certain options vest monthly over a four- - 91 -




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year term or a one year term. 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 non statutory 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
non statutory 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 December 31,
2004, 322,000 options were outstanding and 150,000 options were available for grant under the
Directors Plan. Activities of All Stock Option Plans The following table summarizes stock option activity under the Companys stock option plans: Six Months EndedYears Ended December 31,
    
    December 31,
    
    Year Ended June 30,2004
    
    2003
    
    2002
    
    2002(In thousands, except per share amounts)Weighted
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    

    
    AverageOptions
    
    Exercise
    
    Options
    
    Exercise
    
    Options
    
    Exercise
    
    Options
    
    ExerciseOutstanding
    
    Price
    
    Outstanding
    
    Price
    
    Outstanding
    
    Price
    
    Outstanding
    
    PriceOutstanding at
beginning of period
    
    
    6,270
    
    
    $
    7.00
    
    
    
    6,583
    
    
    $
    3.38
    
    
    
    5,551
    
    
    $
    3.75
    
    
    
    4,469
    
    
    $
    6.21Granted
    
    
    1,644
    
    
    
    22.85
    
    
    
    2,077
    
    
    
    14.42
    
    
    
    1,265
    
    
    
    2.11
    
    
    
    2,470
    
    
    
    1.62Exercised
    
    
    (2,242
    )
    
    
    6.90
    
    
    
    (1,668
    )
    
    
    3.52
    
    
    
    (43
    )
    
    
    1.07
    
    
    
    (37
    )
    
    
    0.47Canceled
    
    
    (254
    )
    
    
    11.98
    
    
    
    (722
    )
    
    
    3.30
    
    
    
    (190
    )
    
    
    6.19
    
    
    
    (1,351
    )
    
    
    8.08Outstanding at period
End
    
    
    5,418
    
    
    
    11.62
    
    
    
    6,270
    
    
    
    7.00
    
    
    
    6,583
    
    
    
    3.38
    
    
    
    5,551
    
    
    
    3.75Weighted average fair
value of options granted
during the year
    
    
    
    
    
    $
    12.88
    
    
    
    
    
    
    $
    8.56
    
    
    
    
    
    
    $
    1.39
    
    
    
    
    
    
    $
    0.71
 At December 31, 2004, approximately 1,317,000 options were available for grant under the
Plans. Options Outstanding at December 31, 2004
    
    Options Exercisable atWeighted
    
    
    
    
    
    December 31, 2004Average
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Price(In thousands)
    
    
    
    
    
    
    
    
    
    (In thousands)$  0.16 -
$  1.68
    
    
    1,557
    
    
    
    6.89
    
    
    $
    1.53
    
    
    
    1,251
    
    
    $
    1.51$  1.88 - $12.98
    
    
    1,863
    
    
    
    7.51
    
    
    
    8.79
    
    
    
    638
    
    
    
    7.98$15.00 - $20.86
    
    
    1,446
    
    
    
    9.23
    
    
    
    19.96
    
    
    
    135
    
    
    
    17.22$23.08 - $36.40
    
    
    552
    
    
    
    9.26
    
    
    
    27.76
    
    
    
    213
    
    
    
    33.335,418
    
    
    
    
    
    
    
    
    
    
    
    2,237
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Stock-based compensation.The Company recorded cumulative deferred stock compensation, which
represents the difference between the exercise price of options granted 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 nil, $0.6 million and $0.7 million for the years
ended December 31, 2004, 2003 and six months ended December 31, 2002, respectively, and $2.3
million for the year ended June 30, 2002. 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 December 31, 2004, total contributions by
employees to the Purchase Plan were $1.1 million and 223,000 shares had been issued under the
Purchase Plan. 14. Segment Information Based on the criteria established by Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information, the Company currently
operates in two principal business segments globally; advertising and non-advertising. The Company
does not allocate any operating costs or assets to its segments as management does not use this
information to measure the performance of these operating segments. Management does not believe
that allocating these expenses or assets is meaningful in evaluating these segments performance. The following is a summary of revenues, cost of revenues and gross profit margins: Year Ended
    
    
    Six Months Ended
    
    
    Year EndedDecember
31,
    
    
    December
31,
    
    
    June
30,2004
    
    
    2003
    
    
    2002
    
    
    2002(In thousands, except
percentages)Revenues:Advertising
    
    $
    65,417
    
    
    $
    41,173
    
    
    $
    13,869
    
    
    $
    21,105MVAS
    
    
    123,954
    
    
    
    64,377
    
    
    
    6,047
    
    
    
    3,920Others
    
    
    10,616
    
    
    
    8,735
    
    
    
    3,300
    
    
    
    3,483$
    199,987
    
    
    $
    114,285
    
    
    $
    23,216
    
    
    $
    28,508Cost of Revenues:Advertising
    
    $
    22,187
    
    
    $
    14,001
    
    
    $
    5,824
    
    
    $
    11,537MVAS
    
    
    38,277
    
    
    
    19,455
    
    
    
    2,258
    
    
    
    1,275Others
    
    
    1,147
    
    
    
    950
    
    
    
    418
    
    
    
    663$
    61,611
    
    
    $
    34,406
    
    
    $
    8,500
    
    
    $
    13,475Gross profit
margins:Advertising
    
    
    66
    %
    
    
    66
    %
    
    
    58
    %
    
    
    45
    %MVAS
    
    
    69
    %
    
    
    70
    %
    
    
    63
    %
    
    
    68
    %Others
    
    
    89
    %
    
    
    89
    %
    
    
    87
    %
    
    
    81
    %Overall
    
    
    69
    %
    
    
    70
    %
    
    
    63
    %
    
    
    53
    %
 The following is a summary of the Companys geographic operation: U.S.
    
    
    China
    
    
    Hong Kong
    
    
    Taiwan
    
    
    Total(In thousands)Year ended and as of December 31, 2004:Revenues
    
    $
    2,281
    
    
    $
    194,921
    
    
    $
    1,807
    
    
    $
    978
    
    
    $
    199,987Long-lived assets
    
    
    59
    
    
    
    15,468
    
    
    
    179
    
    
    
    446
    
    
    
    16,152Year ended and as of December 31, 2003:Revenues
    
    $
    2,398
    
    
    $
    108,507
    
    
    $
    1,854
    
    
    $
    1,526
    
    
    $
    114,285Long-lived assets
    
    
    66
    
    
    
    7,592
    
    
    
    132
    
    
    
    856
    
    
    
    8,646Six months ended and as of December 31, 2002:Revenues
    
    $
    1,427
    
    
    $
    19,675
    
    
    $
    1,060
    
    
    $
    1,054
    
    
    $
    23,216Long-lived assets
    
    
    362
    
    
    
    5,453
    
    
    
    452
    
    
    
    1,332
    
    
    
    7,599Year ended and as of June 30, 2002:Revenues
    
    $
    2,524
    
    
    $
    22,832
    
    
    $
    1,542
    
    
    $
    1,610
    
    
    $
    28,508Long-lived assets
    
    
    666
    
    
    
    5,079
    
    
    
    824
    
    
    
    1,671
    
    
    
    8,240
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Revenues are attributed to the countries in which the invoices are issued. Long-lived assets
comprise the net book value of property and equipment. 15. Certain risks and concentrations Financial instruments that potentially subject the Company to significant concentrations of
credit risk consist primarily of cash and cash equivalents, marketable debt securities 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., the PRC, Hong Kong and Taiwan which management
believes are of high credit quality. The Company usually invests in marketable debt securities with
A ratings or above. Accounts receivable consist primarily of advertising agencies, direct advertising customers
and third party mobile operators. As of December 31, 2004 and 2003, respectively, approximately 98%
and 92% of the net accounts receivable were derived from the Companys operations in the PRC.
Regarding its advertising operations, no individual advertising customer accounted for more than
10% of total net revenues for the years ended December 31, 2004 and 2003, the six months ended
December 2002 and the year ended June 30, 2002. Also, no individual advertising customer accounted
for more than 10% of accounts receivables as of December 31, 2004 and 2003. For its MVAS
operations in the PRC, the Company contracts with third party mobile operators, China Mobile and
its subsidiaries and China Unicom and its subsidiaries, for utilizing their transmission gateways
for message delivery and billing systems to collect subscription or usage fees from its
subscribers. MVAS fees charged to users via these third party mobile operators accounted for 62%
and 56% of the Companys net revenues for the years ended December 31, 2004 and 2003, respectively,
26% of the Companys net revenues for the six months ended December 31, 2002 and 14% of the
Companys net revenues for the year ended June 30, 2002. SMS revenues accounted for 52% and 55% of
the Companys net revenues for the years ended December 31, 2004 and 2003, respectively, 25% of the
Companys net revenues for the six months ended December 31, 2002 and 14% of the Companys net
revenues for the year ended June 30, 2002. The following table summarizes the Companys revenue and
accounts receivable concentration: % of total net revenuesFor the year
    
    For the sixFor the year
    
    ended
    
    months ended
    
    For the yearended December
    
    December
    
    December 31,
    
    ended June 30,Customer
    
    31, 2004
    
    31, 2003
    
    2002
    
    2002China Mobile and its subsidiaries
    
    
    54
    %
    
    
    53
    %
    
    
    19
    %
    
    
    14
    %China Unicom and its subsidiaries
    
    
    8
    %
    
    
    3
    %
    
    
    7
    %
    
    
    
 % of total accounts receivable, netCustomer
    
    As of December 31, 2004
    
    As of December 31, 2003China Mobile and its subsidiaries
    
    
    47
    %
    
    
    45
    %China Unicom and its subsidiaries
    
    
    9
    %
    
    
    5
    %
 Accounts receivable from third-party mobile operators represent MVAS fees collected on behalf
of the Company after deducting their billing services and transmission charges. The Company
maintains allowances for potential credit losses and historically the Company has not had any
significant direct write off of bad debts. 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 - 94 -




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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 effect on the Companys business and operating results. The Company relies on a
number of third-party suppliers for various other services, including web server hosting, banner
advertising delivery software, Internet traffic measurement software and transmission and billing
of MVAS. Any failure of these suppliers to provide services to the Company or any termination of
these services with the Company could have a material adverse effect on the Companys business and
operating results. The majority of the Companys net income was derived from China. The operations in China are
carried out by the subsidiaries and VIEs. The Company depends on dividend payments from its
subsidiaries in China for its revenues after these subsidiaries receive payments from VIEs in China
under various services and other arrangements. In addition, under Chinese law, its subsidiaries are
only allowed to pay dividends to the Company out of their accumulated profits, if any, as
determined in accordance with Chinese accounting standards and regulations. Moreover, these Chinese
subsidiaries are required to set aside at least 10% of their respective accumulated profits, if
any, up to 50% of their registered capital to fund certain mandated reserve funds that are not
payable or distributable as cash dividends. The appropriation to mandated reserve funds are
assessed annually. As of December 31, 2004, the Company is subject to a maximum appropriation of
$4.8 million to these non-distributable reserve funds. The Companys subsidiaries and VIEs in China
are subject to different tax rates. See Note 9  Income Taxes. The majority of the Companys revenues derived and expenses incurred were in Chinese renminbi.
The Companys cash and short-term investment balance denominated in Chinese renminbi was
approximately $123.3 million, which accounted for approximately 45% of its total cash and
short-term investment balance as of December 31, 2004. The Companys accounts receivable balance
denominated in Chinese renminbi was approximately $38.9 million, which accounted for approximately
98% of its total accounts receivable balance as of December 31, 2004. The Companys liabilities
balance denominated in Chinese renminbi was approximately $42.2 million, which accounted for
approximately 24% of its total liabilities balance as of December 31, 2004. Accordingly, the
Company may experience economic losses and negative impacts on earnings and equity as a result of
exchange rate fluctuations in the currency of the PRC. Moreover, the Chinese government imposes
controls on the convertibility of renminbi into foreign currencies and, in certain cases, the
remittance of currency out of the PRC. The Company may experience difficulties in completing the
administrative procedures necessary to obtain and remit foreign currency. The Company performed test on the restricted net assets of consolidated subsidiaries and VIEs
(the restricted net assets) in accordance with SEC Rule 12-04 Condensed financial information of
registrant and concluded that the restricted net assets did not exceed 25% of the consolidated net
assets of the Company as of December 31, 2004. 16. Convertible debts As of December 31, 2004, the Company has $100 million of zero coupon convertible subordinated
notes (the Notes) due 2023. The Notes were issued at par and bears no interest. The Notes will be
convertible into SINA ordinary shares, upon satisfaction of certain conditions, at an initial
conversion price of $25.79 per share, subject to adjustments for certain events. One of the conditions for conversion of the Notes to SINA ordinary shares is conversion upon
satisfaction of market price condition, when the sale price (defined as closing per share sales
price) of SINA ordinary shares reaches a specified threshold for a defined period of time. The
specified thresholds are i) during the period from issuance to July 15, 2022, if the sale price of
SINA ordinary shares, for each of any five consecutive trading days in the immediately preceding
fiscal quarter, exceeds 115% of the conversion price per ordinary share, and ii) during the period
from July 15, 2022 to July 15, 2023, if the sale price of SINA ordinary shares on the previous
trading day is more than 115% of the conversion price per ordinary share. For the quarter ended
December 31, 2004, the sale price of SINA ordinary shares
exceeded the threshold set forth in item i)
above for the required period of time; therefore, the Notes are therefore convertible into SINA
ordinary shares pursuant to the threshold set forth in item i) above during the quarter ending March
31, 2005. Upon a purchasers election to convert the Notes in the futures, the Company has the right to
deliver cash in lieu of ordinary shares, or a combination of cash and ordinary shares. The Company
may redeem for cash all or part of the Notes on or after July 15, 2012, at a price equal to 100% of
the principal amount of the Notes being redeemed. The purchasers may require the Company to
repurchase all or part of the Notes for cash on July 15 annually from 2007 through 2013, and on
July 15, 2018, or upon a change of control, at a price equal to 100% of the principal amount of the
Notes. - 95 -




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17. Commitments and Contingencies The following table sets forth the contractual commitments and obligations of the Company as
of December 31, 2004: Payments due by periodLess than one
    
    
    One to
    
    
    Three to
    
    
    More thanTotal
    
    
    year
    
    
    three years
    
    
    five years
    
    
    five years( In thousands)Contractual obligations:Long-term debt obligations
    
    $
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    Operating lease obligations
    
    
    7,165
    
    
    
    3,062
    
    
    
    4,089
    
    
    
    14
    
    
    
    Purchase obligations
    
    
    25,708
    
    
    
    24,325
    
    
    
    1,383
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    2,142
    
    
    
    
    
    
    
    2,142
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    135,015
    
    
    $
    27,387
    
    
    $
    7,614
    
    
    $
    100,014
    
    
    $
    
 Long-term debt obligations represent the zero-coupon convertible subordinated notes issued on
July 7, 2003. Please see Note 16  Convertible debts for further information. Operating lease obligations include the commitments under the lease agreements for the
Companys office premises. The Company leases office facilities under non cancellable operating
leases with various expiration dates through 2008. Rental expenses for the year ended December 31,
2004 and 2003, six months ended December 31, 2002 and the year
ended June 30, 2002 were $3.0 million, $1.7 million, $0.7 million and $1.1 million, respectively. Base on the current rental
lease agreements, future minimum rental payments required as of
December 31, 2004 are $7.2 million
and was $3.1 million, $2.6 million, $1.5 million and $0.01 million for the years ending December
31, 2005, 2006, 2007 and 2008, respectively. Majority of the commitment was from the Companys
office lease agreements in PRC. During 2004, the Company entered into lease agreements for new
premises in Beijing that it began to occupy in phases from November 2004 through middle of 2005.
The new lease agreements are for approximately three years expiring 2007. It is the Companys
intent to sublease its existing non cancelable facilities in Beijing. However, the Company may not
be successful in subleasing the facilities or subleasing at a rate that will cover its current
cost. Purchase obligations mainly include the commitments for Internet connection fees associated
with web sites production, content fees associated with web sites production and MVAS, advertising
serving services and marketing activities. Besides the above contractual obligations, the Company is also obligated to pay contingent
consideration on its acquisitions of Bravado, Crillion and Davidhill in addition to the initial
consideration with respect to each. The contingent consideration of the Bravado acquisition is
based on Bravados financial performance in 2004. The contingent consideration will be $303,000 or
$606,000 in cash, provided that Bravado achieves certain earnings targets for 2004. As of December
31, 2004, Bravado did not achieve the earning targets and no additional consideration was required.
The contingent consideration of the Crillion acquisition is based on Crillions financial
performances in 2004 and 2005. The contingent consideration would roughly be 1.5 to 2.0 times 2004
and 2005 earnings basis, respectively, provided that Crillions pretax net income for 2004 and 2005
is over $6.7 million and $13.3 million, respectively. The total consideration is subject to a cap
of $125.0 million and will be 60% in cash and 40% in SINA ordinary shares. As of December 31, 2004,
the Company estimated that the additional consideration related to the achievement of the 2004
performance target was approximately $28.1 million, which had not been paid as of year end. The
contingent consideration in the Davidhill acquisition is based on certain simultaneous online user
targets being reached by Davidhill in the 15 months after the agreement date. The contingent
consideration is subject to a cap of $21.0 million and will be 84% in cash and 16% in SINA ordinary
shares. Apart from the above, the Company did not have any other material long-term debt obligations,
capital lease obligations, operating lease obligations or purchase obligations as of December 31,
2004. There are uncertainties regarding the legal basis of the Companys ability to operate an
Internet business and provide telecom value-added services 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 there regulations in place, but it is
unclear under the regulations 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. - 96 -




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18. Subsequent Events In April 2004, the Company entered into several lease agreements with a PRC lessor as part of
the Companys initiative to consolidate its office premises in Beijing. The Company has begun
moving into the new premises starting in November 2004 and is expected to complete its move by the
middle of 2005. Certain vacated, and to be vacated, premises are under non cancellable operating
leases expiring through 2008. As of December 31, 2004, obligations from these existing leases are
$0.9 million, $0.9 million, $0.7 million and $0.2 million for fiscal 2005, 2006, 2007 and 2008,
respectively. It is the Companys intent to sublease existing facilities as they become vacant to
offset the lease obligations. Should the Company become unsuccessful in subleasing these
facilities or if the subleased rates are significantly lower than its lease rate, the Company would
be obligated to incur leasing expense from the new premises as well as the old premises. In
addition, the Company may incur additional costs in subleasing these facilities including the
write-off of existing leasehold improvements made to these premises, repairs to get the premises in
the condition for subleasing and professional fees. Such costs are accrued at the lease cease-used
date period. The Company does not expect the amount to be significant. In
February 2005, Shanda Interactive Entertainment Limited
(Shanda) and several
of its affiliates reported that they beneficially acquired approximately 19.5% of the Companys
outstanding ordinary shares. As a result, Shanda is able to substantially influence all matters
requiring the approval of the Companys shareholders, including the election of directors and the
approval of significant corporate transactions such as acquisitions. The Company has adopted a
shareholder rights plan pursuant to which the Companys existing shareholders would have the right
to purchase ordinary shares from the Company at half the market price then prevailing in the event
a person or group acquires more than 10% of the Companys outstanding ordinary shares (or an
additional 0.5% in the case of certain shareholders holding more than 10% at the time of the plan
adoption, including Shanda and its affiliates) on terms the Companys Board of Directors does not
approve. As a result, such rights could cause substantial dilution to the holdings of the person
or group which acquires more than 10% (or an additional 0.5% as the case may be). Accordingly, the shareholder rights plan may inhibit a change in control
or acquisition and could adversely affect a shareholders ability to realize a premium over the
then prevailing market price for the ordinary shares in connection with such a transaction. In
February 2005, multiple purported securities class action complaints
were filed against the Company and certain officers and directors, in
the United States District Court for the Southern District of New
York, following the Companys announcement of anticipated
financial results for the first quarter of 2005 ending on
March 31, 2005. The complaints seek unspecified damaged on
alleged violations of federal securities laws during the period from
October 26, 2004 to February 7, 2005. The complaints allege
violations of the federal securities laws through the issuance of
false or misleading statements during the class period covered.
Consolidation and the appointment of lead plaintiff are currently
pending in these purported class actions. The Company intends to take
all appropriate action in response to these lawsuits. - 97 -




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Supplementary Financial Data (unaudited) 
 Quarterly financial result The following table reflects the Companys unaudited quarterly consolidated statement of
operations data for the quarters presented. The Company believes that the historical quarterly
information has been prepared substantially on the same basis as the audited consolidated financial
statements, and all necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts below to state fairly the unaudited quarterly results of operations
data. Please refer to the Companys consolidated financial statements and the notes thereto for an
explanation of the computation of basic and diluted net income (loss) per share. Quarterly Results for the Year Ended December 31, 2004Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    March 31,2004
    
    
    2004
    
    
    2004
    
    
    2004(In thousands, except per share amounts)Net revenues
    
    $
    56,899
    
    
    $
    52,505
    
    
    $
    49,195
    
    
    $
    41,388Gross profit
    
    
    38,966
    
    
    
    35,650
    
    
    
    34,898
    
    
    
    28,862Net income
    
    $
    17,433
    
    
    $
    14,503
    
    
    $
    18,018
    
    
    $
    16,042Basic net income per share
    
    $
    0.35
    
    
    $
    0.29
    
    
    $
    0.36
    
    
    $
    0.33Shares used in computing basic
net income per share
    
    
    50,967
    
    
    
    50,387
    
    
    
    50,257
    
    
    
    49,329Diluted net income per share
    
    $
    0.30
    
    
    $
    0.25
    
    
    $
    0.31
    
    
    $
    0.28Shares used in computing
diluted net income per share
    
    
    58,729
    
    
    
    57,763
    
    
    
    58,110
    
    
    
    57,826
 Quarterly Results for the Year Ended December 31, 2003Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    March 31,2003
    
    
    2003
    
    
    2003
    
    
    2003(In thousands, except per share amounts)Net revenues
    
    $
    38,270
    
    
    $
    31,914
    
    
    $
    25,987
    
    
    $
    18,114Gross profit
    
    
    27,608
    
    
    
    22,352
    
    
    
    17,881
    
    
    
    12,007Net income
    
    
    9,269
    
    
    
    11,657
    
    
    
    7,121
    
    
    
    3,376Basic net income per share
    
    $
    0.19
    
    
    $
    0.24
    
    
    $
    0.15
    
    
    $
    0.07Shares used in computing basic
net income per share
    
    
    48,647
    
    
    
    48,279
    
    
    
    47,661
    
    
    
    46,774Diluted net income per share
    
    $
    0.16
    
    
    $
    0.21
    
    
    $
    0.14
    
    
    $
    0.07Shares used in computing
diluted net income per share
    
    
    57,784
    
    
    
    57,622
    
    
    
    51,971
    
    
    
    50,844
 - 98 -




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Item 9:Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A:Controls and Procedures Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this annual report, we carried out an evaluation, under
the supervision of, and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange
Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K
our disclosure controls and procedures (as defined in Rules 13a-15(e) under the
Securities Exchange Act of 1934, as amended) were effective to enable us to record, process,
summarize and report information required to be included in our periodic SEC filings within the
required time period. Managements Report on Internal Control over Financial Reporting Our
managements annual report on internal control over financial
reporting and the related report of our independent registered public accounting
firm are included in this Report on pages 62 and 63, respectively. Evaluation of Changes in Internal Control over Financial Reporting There
were no significant changes in our internal control over financial reporting (as
defined in Rule 13a-15(f)) under the Securities Exchange Act of 1934) during the quarter ended December 31, 2004 that
have materially affected, or are reasonably likely to materially affect our internal control over
financial reporting. 
 Item 9B:Other information None 
 PART III 
 Item 10.Directors and Executive Officers of the Registrant We incorporate the information required by this item by reference to our Proxy Statement for our
2005 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the
fiscal year ended December 31, 2004. We refer to this proxy statement as the 2005 Proxy Statement. 
 Item 11.Executive Compensation We incorporate the information required by this item by reference from our 2005 Proxy Statement. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management We incorporate the information required by this item by reference from our 2005 Proxy Statement. 
 Item 13.Certain Relationships and Related Transactions We incorporate the information required by this item by reference from our 2005 Proxy Statement. 
 Item 14.Principal Accountant Fees and Services We incorporate the information required by this item by reference from our 2005 Proxy Statement. - 99 -




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##### Table of Contents



PART IV 
 Item 15.Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: (1) Consolidated Financial Statements: See Index to the Consolidated Financial Statements
under Item 8 on page 61 of this report. (2) Financial Statement Schedules: See Index to the Consolidated Financial Statements under
Item 8 on page 61 of this report. (3) Exhibits are incorporated herein by reference or are filed with this report at Exhibit
Index(numbered in accordance with Item 601 of Regulation
S-K). 
 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934,
SINA Corporation has duly caused this report to be signed on its behalf by the undersigned, thereto
duly authorized. SINA CorporationBy:
    /s/ Charles ChaoCharles ChaoChief Financial Officer Date: March 15, 2005 - 100 -




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POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Yan Wang and Charles Chao, jointly and severally, as his attorneys-in-fact, each with
the power of substitution, for him 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 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 Form 10-K has been
signed by the following persons in the capacities and on the dates indicated: Signature
    
    Title
    
    Date/s/ YAN WANG
    
    Chief Executive Officer and Director
    
    March 15, 2005(Principal Executive Officer)Yan Wang/s/ CHARLES CHAO
    
    Chief Financial Officer
    
    March 15, 2005(Principal Financial and Accounting Officer)Charles Chao/s/ DANIEL CHIANG
    
    Co-Chairman of the Board
    
    March 15, 2005Daniel Chiang/s/ YONGJI DUAN
    
    Co-Chairman of the Board
    
    March 15, 2005Yongji Duan/s/ PEHONG CHEN
    
    Director
    
    March 15, 2005Pehong Chen/s/ LIP-BU TAN
    
    Director
    
    March 15, 2005Lip-Bu Tan/s/ TER-FUNG TSAO
    
    Director
    
    March 15, 2005Ter-Fung Tsao/s/ YICHEN ZHANG
    
    Director
    
    March 15, 2005Yichen Zhang/s/ XIAOTAO CHEN
    
    Director
    
    March 15, 2005Xiaotao Chen/s/ SONGYI ZHANG
    
    Director
    
    March 15, 2005SongYi Zhang
 - 101 -




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EXHIBIT INDEX ExhibitNumber
    
    Description2.1
    
    Share Purchase Agreement dated January 3, 2003 among SINA.com, Memestar
Limited and the Shareholders of Memestar Limited (Filed as Exhibit 10.64
to the Companys Report on Form 10-K for the transition period ended
December 31, 2002, as amended, and incorporated herein by reference.)2.2
    
    Letter dated January 6, 2003 regarding Amendment to Share Purchase
Agreement dated January 3, 2003 among SINA.com, Memestar Limited and the
Shareholders of Memestar Limited (Filed as Exhibit 10.70 to the Companys
Report on Form 10-K for the transition period ended December 31, 2002, as
amended, and incorporated herein by reference.)2.3
    
    Letter dated January 7, 2003 regarding Amendment to Share Purchase
Agreement dated January 3, 2003 among SINA.com, Memestar Limited and the
Shareholders of Memestar Limited (Filed as Exhibit 10.71 to the Companys
Report on Form 10-K for the transition period ended December 31, 2002, as
amended, and incorporated herein by reference.)2.4
    
    Stock Purchase Agreement dated February 24, 2004, among SINA, Crillion,
the shareholders of Crillion listed on Part I of Exhibit A of the Stock
Purchase Agreement and the individuals listed on Part II of Exhibit A of
the Stock Purchase Agreement (Filed as Exhibit 2.1 to the Companys
Report on Form 8-K filed on April 7, 2004, and incorporated herein by
reference).2.5
    
    Amendment Agreement dated March 23, 2004, among SINA, Crillion, the
shareholders of Crillion listed on Part I of Exhibit A of the Stock
Purchase Agreement and the individuals listed on Part II of Exhibit A of
the Stock Purchase Agreement (Filed as Exhibit 2.2 to the Companys
Report on Form 8-K filed on April 7, 2004, and incorporated herein by
reference).2.6
    
    Equity Transfer Agreement dated February 24, 2004, among the individuals
listed on Schedule A attached to the Equity Transfer Agreement, Shenzhen
Wang Xing Technology Co., Ltd., a limited liability company organized and
existing under the laws of the Peoples Republic of China, and the
individuals listed on Schedule B attached to the Equity Transfer
Agreement (Filed as Exhibit 2.3 to the Companys Report on Form 8-K filed
on April 7, 2004, and incorporated herein by reference).2.7
    
    Stock Purchase Agreement dated July 1, 2004 among SINA Corporation,
Davidhill Capital Inc., the shareholders of Davidhill Capital Inc. listed
on Part I of Exhibit A to such agreement, and the company and individuals
listed on Part II of Exhibit A to such agreement. (Filed as Exhibit 2.1
to the Companys Report on Form 8-K filed on October 22, 2004, and
incorporated herein by reference).2.8
    
    Amendment Agreement dated October 13, 2004 among SINA Corporation,
Davidhill Capital Inc., the shareholders of Davidhill Capital Inc. listed
on Part I of Exhibit A to the Stock Purchase Agreement, and the company
and individuals listed on Part II of Exhibit A to the Stock Purchase
Agreement. (Filed as Exhibit 2.2 to the Companys Report on Form 8-K
filed on October 22, 2004, and incorporated herein by reference).2.9
    
    Asset Purchase Agreement dated July 1, 2004 by and between Guiyang
Longmaster Information Technology Co., Ltd. and Beijing Davidhill
Internet Technology Service Co., Ltd. (Filed as Exhibit 2.3 to the
Companys Report on Form 8-K filed on October 22, 2004, and incorporated
herein by reference).3.1*
    
    Amended and Restated Articles of Association of SINA Corporation.3.2*
    
    Amended and Restated Memorandum of Association of SINA.com.4.1
    
    Amended and Restated Investors Rights Agreement dated October 19, 1999
among SINA.com and certain holders of SINA.coms securities (Filed as
Exhibit 4.2 to the Companys Registration Statement on Form F-1,
Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)4.2
    
    Form of Subordinated Note due July 15, 2023 (Filed as Exhibit 4.1 to the
Companys Report on Form 10-Q for the three month period ended June 30,
2003, and incorporated herein by reference).4.3
    
    Indenture, dated as of July 7, 2003, by and between the Company and the
Bank of New York (Filed as Exhibit 4.2 to the Companys Report on Form
10-Q for the three month period ended June 30, 2003, and incorporated
herein by reference).




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##### Table of Contents



ExhibitNumber
    
    Description4.4
    
    Registration Rights Agreement, dated as of July 7, 2003, by and between
the Company and Credit Suisse First Boston LLC (Filed as Exhibit 4.3 to
the Companys Report on Form 10-Q for the three month period ended June
30, 2003, and incorporated herein by reference).4.5
    
    Rights Agreement dated as of February 22, 2005 between SINA Corporation
and American Stock Transfer & Trust Company, as Rights Agent (Filed as
Exhibit 4.1 to the Companys Report on Form 8-K filed on February 24,
2005, and incorporated herein by reference).10.1#
    
    Form of Indemnification Agreement between SINA.com and each of its
officers and directors (Filed as Exhibit 10.1 to the Companys
Registration Statement on Form F-1, Registration No. 333-11718, filed on
March 27, 2000, as amended, and incorporated herein by reference.)10.2#
    
    SRS International Ltd. 1997 Stock Option Plan and form of incentive stock
option agreement (Filed as Exhibit 10.2 to the Companys Registration
Statement on Form F-1, Registration No. 333-11718, filed on March 27,
2000, as amended, and incorporated herein by reference.)10.3#
    
    Sinanet.com 1997 Stock Plan and form of stock option agreement (Filed as
Exhibit 10.3 to the Companys Registration Statement on Form F-1,
Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)10.4#
    
    Amended SINA.com 1999 Stock Plan and form of share option agreement
(Filed as Exhibit 10.4 to the Companys Registration Statement on Form
F-1, Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)10.5#*
    
    Form of share option agreement under the amended SINA.com 1999 Stock Plan.10.6#
    
    1999 Employee Stock Purchase Plan (Filed as Exhibit 10.5 to the Companys Registration Statement on Form
F-1, Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)10.7#
    
    Form of subscription agreement under the 1999 Employee Stock Purchase Plan. (Filed as Exhibit 10.5 to the Companys Registration Statement on Form
F-1, Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)10.8#
    
    1999 Directors Stock Option Plan (Filed as Exhibit 10.6 to the Companys Registration Statement
on Form F-1, Registration No. 333-11718, filed on March 27, 2000, as
amended, and incorporated herein by reference.)10.9#
    
    Form of nonstatutory stock option
agreement under the 1999 Directors Stock Option Plan (Filed as Exhibit 10.6 to the Companys Registration Statement
on Form F-1, Registration No. 333-11718, filed on March 27, 2000, as
amended, and incorporated herein by reference.)10.10
    
    Lease Contract dated September 2003 between Guangzhou Urban Construction
& Development Co., Ltd and Guangzhou Media Message Technologies, Inc. for
offices located at Floor 10, No. 123, Tiyu West Street, Tianhe District,
Guangzhou (Filed as Exhibit 10.7 to the Companys Report on Form 10-K for
the year ended December 31, 2003, as amended, and incorporated herein by
reference).10.11
    
    Supplements to Lease Contract dated September 2003 between Guangzhou
Urban Construction & Development Co., Ltd and Guangzhou Media Message
Technologies, Inc. for offices located at Floor 10, No. 123, Tiyu West
Street, Tianhe District, Guangzhou (Filed as Exhibit 10.8 to the
Companys Report on Form 10-K for the year ended December 31, 2003, as
amended, and incorporated herein by reference).10.12
    
    Lease Contract dated September 29, 2003 between Beijing Wanyujiaye Real
Estate Agency Co., Ltd and Beijing Sina Information Technology Co., Ltd
for offices located at Floor 16, Building C, Area A, SOHO, No. 88,
Jianguo Street, Chaoyang District, Beijing (Filed as Exhibit 10.9 to the
Companys Report on Form 10-K for the year ended December 31, 2003, as
amended, and incorporated herein by reference).10.13
    
    Office Lease dated December 31, 2003 between Lee, Po-Hu and SINA.Com
Online for offices located at 3F, No.29 An Ho Road, Section 1, Ta An
District, Taipei, Taiwan (Filed as Exhibit 10.10 to the Companys Report
on Form 10-K for the year ended December 31, 2003, as amended, and
incorporated herein by reference).10.14
    
    First Amendment to Sublease dated November 24, 2003 between E.PIPHANY,
Inc. and SINA.com Online for offices located at 2988 Campus Drive, Suite
100, San Mateo, California (Filed as Exhibit 10.11 to the Companys
Report on Form 10-K for the year ended December 31, 2003, as amended, and
incorporated herein by reference).10.15
    
    Sublease dated January 11, 2002 between E.PIPHANY, Inc. and SINA.com
Online for offices located at 2988 Campus Drive, Suite 100, San Mateo,
California (Filed as Exhibit 10.56 to the Companys Report on Form 10-Q
for the three month period ended March 31, 2002, and incorporated herein
by reference.)10.16
    
    Office Lease dated July 18, 2002 between Shanghai Four Seasons Tong Ren
Real Estate Developing Co., Ltd and Beijing Stone Rich Sight Information
Technology Co., Ltd for office located at Suite 1802-5 United Plaza, 1468
Nanjing West Street, Jingan District, Shanghai, China (Filed as Exhibit
10.61 to the Companys Report on Form 10-K for year ended June 30, 2002,
and incorporated herein by reference.)10.17
    
    Lease Agreement and supplemental agreements of Modern City dated June 6,
2003 and July 23, 2003 among Li Yanping, Wei Yingkui and Beijing Sina
Information Technology Co., Ltd. for offices located at 18th Floor, Block




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##### Table of Contents



ExhibitNumber
    
    DescriptionC, SOHO Modern City, 88 Jianguo Road, Chaoyang District, Beijing, China
(Filed as Exhibit 10.2 to the Companys Report on Form 10-Q for the three
month period ended June 30, 2003, and incorporated herein by reference.)10.18
    
    Office Lease dated December 19, 2002 between Man Hing Hong Land
Investment Company Limited and Sina.com (Hong Kong) Limited for the
office located at Room 1003-4, 10/F, Manyee Building, 68 Des Voeux Road
Central, Hong Kong (Filed as Exhibit 10.69 to the Companys Report on
Form 10-K for the transition period ended December 31, 2002, as amended,
and incorporated herein by reference.)10.19
    
    Lease agreements between Beijing Stone Rich Sight Information Technology
Co. Ltd. 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 (Filed as Exhibit 10.9 to the Companys Registration
Statement on Form F-1, Registration No. 333-11718, filed on March 27,
2000, as amended, and incorporated herein by reference.)10.20#
    
    SINA.com 1999 Executive Stock Plan (Filed as Exhibit 10.19 to the
Companys Registration Statement on Form F-1, Registration No. 333-11718,
filed on March 27, 2000, as amended, and incorporated herein by
reference.)10.21
    
    Purchase Agreement, dated as of June 30, 2003, by and between the Company
and Credit Suisse First Boston LLC (Filed as Exhibit 10.3 to the
Companys Report on Form 10-Q for the three month period ended June 30,
2003, and incorporated herein by reference.)10.22
    
    Business Cooperation Agreement dated March 7, 2000 between Beijing SINA
Internet Information Services Co., Ltd. and BSRS (Filed as Exhibit 10.23
to the Companys Registration Statement on Form F-1, Registration No.
333-11718, filed on March 27, 2000, as amended, and incorporated herein
by reference.)10.23
    
    Equipment and Leased Line Transfer Agreement dated March 7, 2000 between
Beijing SINA Internet Information Services Co., Ltd. and BSRS (Filed as
Exhibit 10.23 to the Companys Registration Statement on Form F-1,
Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)10.24
    
    Advertising Agency Agreement dated March 7, 2000 between Beijing SINA
Internet Information Services Co., Ltd. and SINA.com (Filed as Exhibit
10.26 to the Companys Registration Statement on Form F-1, Registration
No. 333-11718, filed on March 27, 2000, as amended, and incorporated
herein by reference.)10.25
    
    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 (Filed as Exhibit 10.27
to the Companys Registration Statement on Form F-1, Registration No.
333-11718, filed on March 27, 2000, as amended, and incorporated herein
by reference.)10.26
    
    Advertising Publication and Cooperation Agreement dated March 7, 2000
between Beijing SINA Internet Information Services Co., Ltd. and Beijing
SINA Interactive Advertising Co., Ltd (Filed as Exhibit 10.28 to the
Companys Registration Statement on Form F-1, Registration No. 333-11718,
filed on March 27, 2000, as amended, and incorporated herein by
reference.)10.27
    
    Amendment to Advertising Agency Agreement dated April 1, 2000 between
Beijing SINA Interactive Advertising Co., Ltd. and SINA.com (Filed as
Exhibit 10.37 to the Companys Registration Statement on Form F-1,
Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)10.28
    
    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 (Filed as Exhibit
10.38 to the Companys Registration Statement on Form F-1, Registration
No. 333-11718, filed on March 27, 2000, as amended, and incorporated
herein by reference.)10.29
    
    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 (Filed as
Exhibit 10.39 to the Companys Registration Statement on Form F-1,
Registration No. 333-11718, filed on March 27, 2000, as amended, and
incorporated herein by reference.)10.30
    
    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 (Filed as Exhibit 10.40 to the
Companys Registration Statement on Form F-1, Registration No. 333-11718,
filed on March 27, 2000, as amended, and incorporated herein by
reference.)10.31#
    
    Change of Control Agreement dated November 27, 2000 with Hurst Lin (Filed
as Exhibit 10.46 to the Companys




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##### Table of Contents



ExhibitNumber
    
    DescriptionReport on Form 10-Q for the three month period ended December 31, 2000, and incorporated herein by reference.)10.32#
    
    Change of Control Agreement dated November 27, 2000 with Yan Wang (Filed
as Exhibit 10.47 to the Companys Report on Form 10-Q for the three month
period ended December 31, 2000, and incorporated herein by reference.)10.33#
    
    Change of Control Agreement dated February 1, 2001 with Charles Chao
(Filed as Exhibit 10.48 to the Companys Report on Form 10-Q for the
three month period ended March 31, 2001, and incorporated herein by
reference.)10.34#
    
    Employment Agreement dated June 1, 2002 between Charles Chao and SINA.com
(Filed as Exhibit 10.60 to the Companys Report on Form 10-K for the year
ended June 30, 2002, and incorporated herein by reference.)10.35
    
    Agreement and Mutual Release, dated as of May 11, 2003, by and between
the Company and Daniel Mao (Filed as Exhibit 10.1 to the Companys Report
on Form 10-Q for the three month period ended June 30, 2003, and
incorporated herein by reference.).10.36
    
    Agreement on Short Message Service Cooperation dated November 12, 2002
between Guangzhou Media Message Technologies Inc. and Guangdong Mobile
Communications Corporation (Filed as Exhibit 10.37 to the Companys
Report on Form 10-K for the year ended December 31, 2003, as amended, and
incorporated herein by reference).10.37
    
    Monternet Short Message Cooperation Agreement dated April 28, 2003
between Beijing SINA Internet Information Services Co., Ltd. and Beijing
Mobile Communications Corporation (Filed as Exhibit 10.38 to the
Companys Report on Form 10-K for the year ended December 31, 2003, as
amended, and incorporated herein by reference).10.38
    
    Form of Loan Agreement between Beijing Sina Information Technology Co.,
Ltd (a subsidiary of the Company) and the Companys employees for funding
the Variable Interest Entities controlled by the Company (Filed as
Exhibit 10.39 to the Companys Report on Form 10-K for the year ended
December 31, 2003, as amended, and incorporated herein by reference).10.39
    
    Form of Agreement on Authorization to Exercise Shareholders Voting Power
between Beijing Sina Information Technology Co., Ltd (a subsidiary of the
Company) and the Companys employees in relation to Variable Interest
Entities controlled by the Company (Filed as Exhibit 10.40 to the
Companys Report on Form 10-K for the year ended December 31, 2003, as
amended, and incorporated herein by reference).10.40
    
    Technical Services Agreement dated September 1, 2003 between Beijing New
Media Information Technology Co., Ltd. and Guangzhou Media Message
Technologies Inc (Filed as Exhibit 10.41 to the Companys Report on Form
10-K for the year ended December 31, 2003, as amended, and incorporated
herein by reference).10.41
    
    Technical Cooperation Agreement dated September 28, 2003 between Beijing
New Media Information Technology Co., Ltd. and Guangzhou Media Message
Technologies Inc (Filed as Exhibit 10.42 to the Companys Report on Form
10-K for the year ended December 31, 2003, as amended, and incorporated
herein by reference).10.42
    
    Technical Services Agreement dated September 1, 2003 between Beijing New
Media Information Technology Co., Ltd. and Guangdong SINA Internet
Information Services Co., Ltd (Filed as Exhibit 10.43 to the Companys
Report on Form 10-K for the year ended December 31, 2003, as amended, and
incorporated herein by reference).10.43
    
    Technical Services Agreement dated January 10, 2003 between
Star-Village.com (Beijing) Internet Technology Limited and Guangzhou
Media Message Technologies Inc (Filed as Exhibit 10.44 to the Companys
Report on Form 10-K for the year ended December 31, 2003, as amended, and
incorporated herein by reference).10.44
    
    Technical Services Agreement dated January 1, 2003 between Beijing SINA
Internet Technology Services Co., Ltd. and Beijing SINA Internet
Information Services Co., Ltd (Filed as Exhibit 10.45 to the Companys
Report on Form 10-K for the year ended December 31, 2003, as amended, and
incorporated herein by reference).10.45
    
    Technical Services Agreement dated February 24, 2004 between Beijing New
Media Information Technology Co., Ltd. and Shenzhen Wang Xing Technology
Co., Ltd Ltd (Filed as Exhibit 10.1 to the Companys Report on Form 10-Q
for the three month period ended March 31, 2004, and incorporated herein
by reference).10.46
    
    Lease Agreement of Ideal International Plaza dated April 16, 2004 between
SINA Information Technology Company Limited and Beijing Zhongwu Ideal
Real Estate Development Co., Ltd. for the office located in Suite 01 
12, Floor 20, Ideal International Plaza, 2 Zhongguancun High-Tech Square,
Beijing, PRC (Filed as Exhibit 10.1 to the Companys Report on Form 10-Q
for the three month period ended June 30, 2004, and




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##### Table of Contents



ExhibitNumber
    
    Descriptionincorporated herein by reference).10.47
    
    Form Lease Agreement of Ideal International Plaza between the
Registrants subsidiaries or VIEs and Beijing Zhongwu Ideal Real Estate
Development Co., Ltd. for the office located in Ideal International
Plaza, 2 Zhongguancun High-Tech Square, Beijing, PRC, and the list of the
lease agreements (Filed as Exhibit 10.1 to the Companys Report on Form
10-Q for the three month period ended September 30, 2004, and
incorporated herein by reference).10.48*
    
    Translation of Monternet Short Message Cooperation Agreement dated March
23, 2004 between Beijing SINA Internet Information Services Co., Ltd. and
Guangdong Mobile Communications Corporation10.49*
    
    Office Lease dated November 20, 2004 between Huang Xu, Xiu-Xiang and
SINA.Com Online for offices located at 5F, No. 362, Dun-Hua S.Rd., Sec.
1, Ta An District, Taipei City Taiwan10.50*
    
    Office Lease dated November 11, 2004 between Man Hing Hong Land
Investment Company Limited and Sina.com (Hong Kong) Limited for the
office located at Room 1003-4, 10/F, Manyee Building, 68 Des Voeux Road
Central, Hong Kong21.1*
    
    List of Subsidiaries.23.1*
    
    Consent of Independent Registered
Public Accounting Firm.23.2*
    
    Consent of Jun He Law offices.24.1*
    
    Power of Attorney (appears on the signature page of this report).31.1*
    
    Certificate of Chief Executive Officer pursuant to Securities Exchange
Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2*
    
    Certificate of Chief Financial Officer pursuant to Securities Exchange
Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1*
    
    Certificate of Chief Executive Officer pursuant to 18 U.S.C. section 1350.32.2*
    
    Certificate of Chief Financial Officer pursuant to 18 U.S.C. section 1350.
   *
    
    Filed herewith.#
    
    Indicates a management contract or compensatory plan or arrangement, as required by Item
15(a)3.