UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT
OF 1934
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OR
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2010.
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report
For the transition period from
to
Commission file number: 001-34479
CHINA REAL ESTATE INFORMATION CORPORATION
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrants name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
No. 383 Guangyan Road
Shanghai 200072
Peoples Republic of China
(Address of principal executive offices)
Bin Laurence
China Real Estate Information Corporation
No. 383 Guangyan Road
Shanghai 200072
Peoples Republic of China
Phone: +86 21 6086 7500
Facsimile: +86 21 6086 7111
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
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Title of each class
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Name of exchange on which each class is to be registered
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American Depositary Shares, each representing one
ordinary share, par value $0.0002 per share
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NASDAQ Global Select Market
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the Issuers classes of capital or common
stock as of the close of the period covered by the annual report. 144,997,222 ordinary shares, par
value US$0.0002 per share, as of December 31, 2010.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
o
No
þ
If this report is an annual or transition report, indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
o
No
þ
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 whether the registrant has submitted electronically and posted on its Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period
that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
þ
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Non-accelerated filer
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
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US GAAP
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International Financial Reporting Standards as issued
by the
International Accounting Standards Board
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Other
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If Other has been checked in response to the previous question indicate by check mark which
financial statement item the registrant has elected to follow.
Item 17
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Item 18
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If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes
o
No
þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes
o
No
o
INTRODUCTION
Unless otherwise indicated and except where the context otherwise requires, references in this
annual report on Form 20-F to:
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China or PRC refers to the Peoples Republic of China, excluding, for the
purpose of this annual report only, Taiwan, Hong Kong and Macau;
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COHT refers to China Online Housing Technology Corporation, an entity that
had operated SINAs real estate online business prior to our initial public offering,
or IPO. We acquired SINAs equity interest in COHT concurrent with our IPO;
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CRIC system refers to our proprietary real estate information database and
analysis system;
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E-House refers to our parent company and controlling shareholder E-House
(China) Holdings Limited, a leading real estate services company in China listed on the
New York Stock Exchange;
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SINA refers to our shareholder SINA Corporation, a leading online media
company in China;
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shares or ordinary shares refers to our ordinary shares, par value $0.0002
per share; unless the context indicates otherwise, all share and per share data in this
annual report give effect to a 1-for-2 reverse share split that became effective on
August 29, 2009 and a new share issuance to our parent company, E-House, on September
28, 2009;
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Shanghai CRIC refers to Shanghai CRIC Information Technology Co., Ltd., one
of our main operating subsidiaries;
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ADSs refers to our American depositary shares, each of which represents one
ordinary share;
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all references to RMB or Renminbi are to the legal currency of China; all
references to $, dollars, US$ and U.S. dollars are to the legal currency of the
United States; and all references to HKD and Hong Kong dollars are to the legal
currency of the Hong Kong Special Administrative Region.
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Unless the context indicates otherwise, we, us, our company, our, and CRIC refer to
China Real Estate Information Corporation, a Cayman Islands company, its subsidiaries and
consolidated affiliated entities.
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that involve risks and
uncertainties. All statements other than statements of historical facts are forward-looking
statements. These statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially different from those
expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as may, will,
expect, anticipate, aim, estimate, intend, plan, believe, likely to or other
similar expressions. We have based these forward-looking statements largely on our current
expectations and projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial needs. These
forward-looking statements include:
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our anticipated growth strategies;
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our future business development, results of operations and financial condition;
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our ongoing relationships with E-House and SINA;
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expected changes in our revenues and certain cost or expense items;
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2
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our ability to attract clients and further enhance our brand recognition; and
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trends and competition in the real estate services, Internet and online
advertising industries.
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You should read thoroughly this annual report and the documents that we refer to in this
annual report with the understanding that our actual future results may be materially different
from and worse than what we expect. We qualify all of our forward-looking statements by these
cautionary statements. Other sections of this annual report include additional factors which could
adversely impact our business and financial performance. Moreover, we operate in an evolving
environment. New risk factors and uncertainties emerge from time to time and it is not possible for
our management to predict all risk factors and uncertainties, nor can we assess the impact of all
factors on our business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
A.
Selected Financial Data
Selected Consolidated Financial Data
The following selected consolidated statement of operations data for the three years ended
December 31, 2008, 2009 and 2010 and the selected consolidated balance sheet data as of December
31, 2009 and 2010 have been derived from our audited consolidated financial statements included
elsewhere in this annual report. The selected consolidated financial data should be read in
conjunction with our audited consolidated financial statements and related notes and Item 5.
Operating and Financial Review and Prospects in this annual report. Our consolidated financial
statements are prepared and presented in accordance with U.S. GAAP.
Our selected consolidated statement of operations data for the fiscal years ended December 31,
2006 and 2007 and our consolidated balance sheet data as of December 31, 2007 and 2008 have been
derived from our audited consolidated financial statements not included in this annual report.
Our financial statements before our IPO include allocations of costs from certain corporate
and shared services functions provided to us by E-House, including general corporate and shared
services and expenses. These allocations were made using a proportional cost allocation method
based on revenues, expenses and headcount as well as estimates of actual time spent on the
provision of services attributable to us, and have been included in our financial statements.
3
Our historical results do not necessarily indicate results expected for any future periods.
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For the Years Ended December 31,
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2006
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2007
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2008
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2009
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2010
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(in thousands of $, except share, per share and per ADS data)
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Consolidated Statement of Operations Data:
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Total revenues
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5,395
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8,195
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50,049
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95,654
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174,154
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Cost of revenues
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(214
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(895
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(2,897
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(12,810
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(41,010
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Selling, general and administrative expenses
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(2,198
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(4,985
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(19,820
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(48,049
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(109,089
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Gain from settlement of pre-existing relationship
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2,101
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Income from operations
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2,983
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2,315
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27,332
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36,896
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24,055
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Interest income
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23
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193
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420
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279
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1,727
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Other
income (expense), net
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(157
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(1,341
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2,725
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3,174
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Income before taxes and equity in affiliates
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3,006
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2,351
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26,411
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39,900
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28,956
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Income tax expense
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(894
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(285
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(4,721
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(6,307
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(2,791
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Income before equity in affiliates
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2,112
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2,066
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21,690
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33,593
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26,165
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Income (loss) from equity in affiliates
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154
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22,016
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(276
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Net income
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2,112
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2,066
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21,844
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55,609
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25,889
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Less: net
income (loss) attributable to non-controlling
interest
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(318
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7
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(52
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Net income attributable to CRIC shareholders
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2,112
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2,066
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22,162
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55,602
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25,941
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Earnings per
ordinary share
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Basic
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$
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0.03
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$
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0.03
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$
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0.31
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$
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0.64
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$
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0.18
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Diluted
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$
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0.03
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$
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0.03
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$
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0.31
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$
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0.63
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$
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0.18
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Earnings per ADS
1
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Basic
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$
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0.03
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$
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0.03
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$
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0.31
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$
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0.64
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$
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0.18
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Diluted
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$
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0.03
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$
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0.03
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$
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0.31
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$
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0.63
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$
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0.18
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Weighted average number of ordinary shares used
in per share calculations
2
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Basic
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71,522,222
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71,522,222
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71,522,222
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86,610,265
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143,288,987
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Diluted
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71,522,222
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71,522,222
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71,522,222
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88,264,301
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146,193,046
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(1)
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Each ADS represents one ordinary share.
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(2)
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Upon incorporation, we had 500,000,000 ordinary shares authorized, 1,000 ordinary shares
issued and outstanding with a par value of $0.0001 per share, all of which were held by
E-House. On January 1, 2009, we issued an additional 99,999,000 ordinary shares to E-House at
par value of $0.0001 per share. On August 29, 2009, we effected a reverse share split whereby
all of our issued and outstanding 100,000,000 ordinary shares of a par value of $0.0001 each
were converted into 50,000,000 ordinary shares of $0.0002 par value each and the number of our
authorized shares were reduced from 500,000,000 to 250,000,000. On September 28, 2009, we
issued 21,522,222 additional ordinary shares at par value of $0.0002 per share to E-House.
Both the reverse share split and the new share issuance to E-House have been retroactively
reflected for all periods presented herein.
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The following table presents as summary of our consolidated balance sheet data as of December
31, 2007, 2008, 2009 and 2010:
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As of December 31,
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2007
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2008
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2009
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2010
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(in thousands of $)
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Consolidated Balance Sheets Data:
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Cash and cash equivalents
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26,411
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25,791
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311,067
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340,720
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Total assets
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30,823
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83,750
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1,020,091
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1,083,923
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Total current liabilities
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1,105
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14,926
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35,638
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52,516
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Total equity
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29,718
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66,511
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942,421
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991,438
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Exchange Rate Information
Our reporting and financial statements are expressed in the U.S. dollar, which is our
reporting and functional currency. However, our business is conducted in China and substantially
all of our revenues are denominated in Renminbi. This annual report contains translations of RMB
amounts into U.S. dollars at specific rates solely for the convenience of the reader. The
conversion of RMB into U.S. dollars in this annual report is based on the certified exchange rate
published by the Board of Governors of the Federal Reserve Bank. Unless otherwise noted, all
translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made
at a rate of RMB6.6000 to US$1.00, the certified exchange rate in effect on December 30, 2010. We
make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted
into U.S. dollars or
RMB, as the case may be, at any particular rate, at the rates stated below, or at all. The PRC
government imposes control over its foreign currency reserves in part through direct regulation of
the conversion of RMB into foreign currencies and through
restrictions on foreign trade. On April 15, 2011, the certified exchange rate was RMB6.5317 to US$1.00.
4
The following table sets forth information concerning exchange rates between the RMB and the
U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are
not necessarily the exchange rates that we used in this annual report or will use in the
preparation of our periodic reports or any other information to be provided to you. The source of
these rates is the Federal Reserve Statistical Release.
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Exchange Rate
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Period
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Period End
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Average(
1
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Low
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High
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2006
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7.8041
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7.9579
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8.0702
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7.8041
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2007
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7.2946
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7.5806
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7.8127
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7.2946
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2008
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6.8225
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6.9193
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7.2946
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6.7800
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2009
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6.8259
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6.8295
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6.8470
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6.8176
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2010
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6.6000
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6.7603
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6.8102
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6.6000
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October
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6.6705
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6.6675
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6.6912
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6.6397
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November
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6.6670
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6.6537
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6.6906
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6.6233
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December
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6.6000
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6.6497
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6.6745
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6.6000
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2011
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January
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6.6017
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6.5964
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6.6364
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6.5809
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February
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6.5713
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6.5761
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6.5965
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6.5520
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March
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6.5483
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6.5645
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6.5743
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6.5483
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April
(through April 15, 2011)
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6.5317
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6.5382
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6.5477
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6.5310
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Source: Federal Reserve Statistical Release
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(1)
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Annual averages are calculated from month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period.
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A.
Capitalization and Indebtedness
Not Applicable.
B.
Reasons for the Offer and Use of Proceeds
Not Applicable.
C.
Risk Factors
Risks Related to Our Business
We are not likely to sustain the high growth rate we have experienced up to now; if we cannot
manage our growth effectively and efficiently, our results of operations and profitability could be
materially and adversely affected.
Our revenues have grown significantly in a relatively short period of time. We have
experienced substantial growth since 2006, when E-House began to commercialize the CRIC system to
provide real estate information services in select cities. Our revenues increased from $50.0
million in 2008 to $95.7 million in 2009 and $174.2 million in 2010. In October 2009, we completed
our IPO and acquisition of SINAs 66% equity interest in COHT, an entity that had operated SINAs
real estate online business. Our revenues in 2009 and 2010 included $13.8 million and $66.9 million
attributable to COHT, respectively. Over the same years, we increased the number of cities covered
by our CRIC system from 54 as of December 31, 2008 to 75 as of December 31, 2009 and 86 as of
December 31, 2010. COHT also increased the number of cities covered from 48 as of June 30, 2009 to
83 as of December 31, 2009 and 138 as of December 31, 2010.
5
We intend to continue to expand our operations. We are not likely, however, to sustain a
similar growth rate in revenues or net income in future periods due to a number of factors,
including, among others, the greater difficulty of growing at sustained rates from a larger revenue
base. Accordingly, our historical growth rate is not an indication of our future performance.
Our expansion has placed, and will continue to place, substantial demands on our managerial,
operational, technological and other resources. Our planned expansion will also place significant
demands on us to maintain the quality of our CRIC system and related services to ensure that our
brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of
our information and consulting services. In order to manage and support our growth, we must
continue to improve our existing operational, administrative and technological systems and our
financial and management controls. We must also recruit, train and retain additional qualified
personnel, particularly as we expand into new markets. With our operations expanding into more
cities throughout China, we will face increasing challenges in managing a large and geographically
dispersed group of employees. We may not be able to effectively and efficiently manage the growth
of our operations, recruit and retain qualified personnel and integrate new expansion into our
operations. As a result, our reputation, business and operations may suffer.
Our results of operations may fluctuate or otherwise be materially and adversely affected due to
seasonal variations and the project-by-project nature of some of our real estate consulting
services.
Our operating income and earnings have historically been substantially lower during the first
quarter than other quarters. This results from the relatively low level of real estate activities
during the winter and the Chinese New Year holiday period, which falls within the first quarter
each year. Similarly, our real estate online business is affected by the seasonality of the real estate market
and real estate consumers purchasing patterns.
We generated a majority of our total revenues from services provided to real estate developers
in 2008, 2009 and 2010. We expect to continue to rely on real estate developers to generate a
significant portion of our revenues for the foreseeable future. Revenues from our services to real
estate developers, especially revenues from our consulting services, are typically generated on a
project-by-project basis. For some of our consulting projects in relation to land acquisition and
property development, we agree to a fixed fee arrangement conditional upon the delivery of a final
product, such as closing a land acquisition transaction or providing a market study report. We
recognize revenues on this type of consulting project when we have completed our performance
obligations under the service contract, the customer accepts the contract deliverable and the
payment terms are no longer contingent. Because such projects may take anywhere from a month to a
year to perform, the timing of recognition may cause fluctuations in our quarterly revenues and
even our annual revenues. Furthermore, difficulty in predicting when these projects will begin and
how long it will take for us to complete them makes it difficult for us to forecast revenues.
We may not be able to successfully execute our strategy of expanding into new geographical markets
in China, which may have a material adverse effect on our business, results of operations and
prospects.
As of December 31, 2010, we provided real estate information, consulting and advertising
services in 159 cities in China. We may expand our operations to more cities in the future.
Expanding our real estate information, consulting and advertising services business into new
geographical markets imposes additional burdens on our research, systems development, sales,
marketing and general managerial resources. If we incur significant costs to expand data coverage
but are not successful in marketing and selling our services in these markets, our data expansion
efforts may have a material adverse effect on our financial condition by increasing our expenses
without increasing our revenues.
Our real estate online business, before being acquired from SINA, had historically relied on
the Beijing area for a substantial portion of its revenues. We have strived to expand our real
estate online business into geographical areas outside Beijing and changed our business model from
hosting arrangements to operating websites directly in several cities in order to increase the
revenues of our real estate online business. As part of our expansion strategy, we outsource the
operation of certain regional websites to local business partners. Actions by these business
partners, or a failure by them to comply with relevant laws and regulations, could materially and
adversely affect our ability to expand our business or the popularity and reputation of our real
estate Internet
operations. As we continue expanding into a greater number of small cities, we may be unable
to provide sufficient local content or maintain a sufficient number of local business hosting
partners.
6
As China is a large and diverse market, client trends and demands may vary
significantly by region. Our experience in the markets in which we currently operate may not be
applicable in other parts of China. As a result, we may not be able to leverage our experience to
expand into other parts of China. If we are unable to manage our expansion effectively, if our
expansion efforts take longer than planned or if our costs for such expansion exceed our
expectations, our results of operations may be materially and adversely affected.
We may not be able to successfully execute our growth strategy of expanding our client base and
increasing the average spending of our clients on our services, which could have a material adverse
effect on our results of operations and prospects.
To continue to grow our revenues derived from our services, we will need to expand our client
base and increase the average spending of our clients on our services. These efforts will involve
aggressively marketing our services to real estate developers and also other client groups such as
real estate suppliers, governmental agencies, universities, research institutes and financial
institutions. Meanwhile, we will also need to promote additional or premium services to our
existing clients. Our proprietary real estate information database and analysis system, which we
refer as the CRIC system, may not be well accepted by our targeted prospective clients, or we may
not be successful in selling additional or premium services to our existing clients. If our efforts
to expand our client base and increase the average spending of our clients on our services are not
successful, our results of operations and prospects could be materially and adversely affected.
Our business is susceptible to fluctuations in the real estate market of China, which may
materially and adversely affect our revenues and results of operations.
Our business depends substantially on the conditions of the real estate market in China.
Demand for private residential real estate in China has grown rapidly in the past decade but such
growth is often accompanied by volatility in market conditions and fluctuations in real estate
prices. For example, following a period of rising real estate prices and transaction volumes in
most major cities from 2003 to 2007, the industry experienced a downturn in 2008, with transaction
volumes in many major cities declining significantly compared to 2007. Average selling prices also
declined in many cities during 2008. Fluctuations of supply and demand in Chinas real estate
market are caused by economic, social, political and other factors.
In 2009, Chinas real estate market rebounded and many cities experienced increases in real
estate prices and transaction volumes. This rebound coincided with a sharp rise in the volume of
bank loans as part of Chinas response to the global economic crisis. Although overall transaction
volume and selling prices continued to increase in 2010, the market experienced high volatility,
with higher transaction volumes in certain months and lower transaction volume in others, mainly as
a result of stringent measures implemented by the Chinese government in an effort to curb perceived
unsustainable growth in the real estate market. These measures have affected and may continue to
affect the growth of the PRC real estate market. See Risks Related to Our BusinessOur business
may be materially and adversely affected by government measures affecting Chinas real estate
industry.
Such efforts by the government to slow property price appreciation could reduce the activities
in the real estate market, lessen real estate transaction volume and prevent developers from
raising capital they need or increase their costs to start new projects. To the extent fluctuations
in the real estate market significantly affect demand for real estate information and consulting
services from our clients, which are primarily real estate developers, our revenues and results of
operations may be materially and adversely affected.
Our business may be materially and adversely affected by government measures affecting Chinas real
estate industry.
The real estate industry in China is subject to government regulations, including measures
that are intended to affect the growth rate of the industry.
7
Before the global economic crisis in 2008, the PRC government had adopted a series of measures
to restrain what it perceived as unsustainable growth in the real estate market. For example, the
State Council and other related government agencies introduced regulations in 2006 that increased
mandatory minimum down payments from 20% to 30% of the purchase price for properties with a floor
area of more than 90 square meters and imposed a business tax on total proceeds from the resale of
properties held for less than five years.
In 2008, the PRC government relaxed some restrictions and introduced measures aimed at
stimulating residential property purchases by individuals and stabilizing the real estate market.
On October 22, 2008, for example, the Ministry of Finance, the State Administration of Taxation and
the Peoples Bank of China, which is Chinas central bank, lowered transaction taxes, minimum down
payment requirements, and the mortgage interest rate for certain residential real estate
transactions. In December 2008, the General Office of the State Council promulgated rules that
exempted certain residential real estate transactions from business tax and urban real estate tax.
In late 2009, the PRC government started tightening its real estate policies again in response
to rising property prices and perceptions of widespread property speculation. Certain exemptions or
reduced transaction taxes implemented in 2008 were allowed to expire on December 31, 2009 and, as a
result, the business tax on total proceeds from the resale of high-end and large-sized residential
properties held for less than five years was re-imposed. The China Banking Regulatory Authority
withdrew its earlier policy and emphasized the minimum 40% down payment requirement for mortgages
for second properties.
On March 8, 2010, the Ministry of Land and Resources issued a circular to further strengthen
the supervision of land supply, requiring a real estate developer to pay at least 50% of the land
premium within one month and 100% within one year after the land use right contract is executed. On
April 17, 2010, the State Council issued the Circular on Firmly Restraining Soaring Housing Prices
in Certain Cities. According to this circular,
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The down payment for the first self-use housing unit purchased by a family with a
gross construction area of more than 90 square meters must be no less than 30% of the
purchase price;
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The minimum down payment for the second housing unit purchased by a family is
increased from 40% to 50% and the loan interest rate must be no less than 110% of
benchmark lending interest rate;
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The down payment for the third or more housing unit purchased by any family and the
loan interest rate must be further increased significantly based on the rate for the
first and second housing units, as determined by commercial banks based on their
assessment of the risks;
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In regions where housing unit prices are too high or have risen too fast or
supply of housing units is insufficient, commercial banks may suspend extending loans
to families for their purchases of the third or more housing unit, and may suspend
extending loans to individuals for their purchase of housing units outside the region
where they reside if they cannot furnish evidence of their payment of tax or social
insurance premium for at least one year locally in the region where the subject housing
units are located; and
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Local governments are allowed to limit the total number of housing units one
can purchase during a certain period in light of the local situation.
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Later in 2010 and in early 2011, the PRC government issued various additional rules, orders
and notices to strengthen the regulation and control of the real estate market. Under these rules,
orders and notices, more stringent measures were implemented in order to effectively curb the
rise of housing prices. In particular,
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The minimum down payment for the second housing unit purchased by a family is
increased from 50% to 60% and the loan interest rate must be no less than 110% of
benchmark lending interest rate;
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The business tax is imposed and calculated on the full sales revenues for the
sale of all housing units held for less than five years, and on the difference between
the sales revenue and the amount paid for
the housing unit for the sale of non-ordinary housing units which were purchased five or
more years ago;
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8
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All municipalities directly under the central government, all provincial
capitals and other cities where the local housing prices are deemed to be too high or
to have risen too fast are required to temporarily suspend the sale of
housing units to families with registered local permanent residences that already own
two or more housing units, families without registered local permanent residences that
already own one or more housing units, and families without registered local
permanent residences that cannot provide evidence of their local payment of taxes or
social insurance premiums for a required period;
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Real property tax pilot projects were launched in Shanghai and Chongqing. Local
regulations require a real property tax to be imposed on certain local housing units
purchased on or after January 28, 2011, at a current tax rate of 0.6% in Shanghai and
at a tax rate ranging from 0.5% to 1.2% in Chongqing. In Chongqing, the real property
tax is also imposed on local independent houses owned by individuals; and
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In the circular promulgated by the General Office of the State Council on
January 26, 2011, each citys government is required to appropriately set up and make
public its target for controlling the price of local, newly built, residential housing
units in 2011. Accordingly, many cities, including Shanghai, Beijing, Chongqing and
Shenzhen, have already announced their respective price control targets for 2011.
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Such measures and policies by the government have negatively affected the real estate market
and caused a reduction in transactions in the real estate market. While these measures and policies
remain in effect, they may continue to depress the real estate market, dissuade would-be buyers
from making purchases, reduce transaction volume, cause a decline in average selling prices, and
prevent developers from raising the capital they need and increase developers' costs to start new projects.
In addition, we cannot assure you that the PRC government will not adopt new measures in the
future that may result in lower growth rates in the real estate industry. Frequent changes in
government policies may also create uncertainty that could discourage investment in real estate.
Our business may be materially and adversely affected as a result of decreased transaction volumes
or real estate prices that may result from government policies.
A severe or prolonged downturn in the global or Chinese economy could materially and adversely
affect our business and our financial condition.
The global financial markets experienced significant disruptions in 2008. While economic
growth has resumed in many major markets, the speed, strength and sustainability of the recovery is
uncertain. In particular, there is considerable uncertainty over the long-term effects of the
expansionary monetary and fiscal policies adopted by the central banks and financial authorities of
the worlds leading economies, including Chinas. Continued concerns about the systemic impact of
potential long-term and widespread recession, energy costs, geopolitical tensions, the
availability and cost of credit, and the global housing and mortgage markets have contributed to
increased market volatility and diminished expectations for economic growth around the world.
Global economic trends have a significant impact on the Chinese economy, and any severe or
prolonged slowdown in the Chinese economy may materially and adversely affect our business, results
of operations and financial condition. In addition, continued turbulence in the international markets may
adversely affect our ability to access capital markets to meet liquidity needs.
9
To date, a limited number of real estate developers have contributed a substantial portion of our
revenues due to the large size of their contracts with us; if we fail to continue to secure large
contracts from existing, new or former clients, this could materially and adversely impact our
revenues, results of operations and financial condition, or cause fluctuations in our revenues,
which may make it difficult to predict our future results of operations.
In the past, a limited number of real estate developers have contributed a substantial portion
of our revenues. Our top three developer clients in 2008, namely Evergrande Real Estate Group, or
Evergrande, Shanghai Urban Development (Group) Co., Ltd. and Sky East Resources Ltd. (including
their subsidiaries and branches),
accounted for 56.6%, 15.6% and 10.3%, respectively, of our total revenues in 2008, while no
other clients accounted for more than 10% of our total revenues during such period. Our top two
developer clients in 2009, namely Evergrande and Shanghai Jinluodian
Development Co., Ltd., accounted
for 29.7% and 11.3% of our total revenues for the year ended December 31, 2009, while no other
clients accounted for more than 10% of our total revenues during such period. Finally, our top
developer client in 2010, Evergrande, accounted for 13.6% of our total revenues for the year ended
December 31, 2010, while no other client accounted for more than 10% of our total revenues
during such period. There remains the risk that if we fail to continue to secure large contracts
from existing, new or former clients, our revenues, results of operations and financial condition
may be materially and adversely affected. In addition, our ability or inability to secure new large
contracts or renew existing large contracts may also cause fluctuations in our revenues, which may
make it difficult to predict our future results of operations.
Generally, we maintain business relationships with national and regional real estate
developers local subsidiaries or branches, and enter into individual contracts with each
subsidiary or branch. However, in limited cases, such as our relationship with Evergrande, we
maintain the business relationship with the headquarters of the real estate developer. We entered
into a strategic cooperation agreement in December 2007 with Evergrande. Under this agreement, we
were engaged as the exclusive provider of real estate information and market consulting services to
37 of Evergrandes real estate projects under development for one year. In December 2008,
Evergrande renewed the strategic cooperation agreement for 2009, again for 37 of Evergrandes real
estate projects under development. In December 2009, we were engaged to provide real estate
information and market consulting services to 48 of its real estate projects for 2010. In January
2011, we were again contracted to provide real estate information consulting and online services
for Evergrandes projects throughout China. Evergrande could refuse to renew the agreement with us
upon expiration of its term in January 2012, terminate the agreement before its expiration,
substantially reduce its business with us in the future, or become unable or refuse to pay our fees
or continue to engage our services due to financial difficulties it may experience or for other
reasons. If any of the foregoing occurs, our results of operations and financial condition would be
materially and adversely affected.
Our real estate online business has relied on a limited number of advertising agencies, which may
materially and adversely affect the results of operations and financial condition of our real
estate online business.
Historically SINAs real estate online business relied on a limited number of advertising
agencies for a significant majority of its revenues. For the nine months ended on December 31, 2008
and nine months ended September 30, 2009, the three largest advertising agencies of SINAs real
estate online business accounted for approximately 70% of its advertising revenues. From the date
when we acquired SINAs real estate online business in 2009 through the end of 2009, our real
estate online business continued to rely on these three advertising agents, which again accounted
for approximately 70% of the advertising revenues of our real estate online business. In 2010, we
discontinued our business with two of these agencies; the remaining advertising agency, Beijing Jiahua Hengshun Media Advertising
Co., Ltd., continued to account for approximately 23.6% of our advertising revenues from our real estate online
business, or 9.1% of our total revenues in 2010. We had a contract with Beijing Jiahua Hengshun Media
Advertising Co., Ltd. providing for its placement of real estate advertising with us in an aggregate amount of
RMB132 million for the year ended December 31, 2010. This contract has not been renewed, nor has a new contract with this
advertising agency been entered into. In the future, our
advertising agency clients may not continue to
engage our services at the same level, or at all. Should these
advertising agency clients terminate or
substantially reduce their business with our real estate online operations and we fail to find new
clients or they are unable to timely pay our receivables outstanding, the results of operations
and financial condition of our real estate online business may be materially and adversely
affected.
The real estate information and consulting service sector in China is relatively new and rapidly
evolving. If our business model proves to be inappropriate or suboptimal or if new competitors
emerge to better serve the real estate industry, our business may be materially and adversely
affected.
The real estate information and consulting service sector in China is relatively new and
rapidly evolving, and we cannot predict how this industry will develop in the future. The
development of the real estate information and consulting services sector will depend to a large
extent on continued and growing demand by real estate developers and other industry participants
for such services. Our business model may prove to be inappropriate or suboptimal as the industry
develops. In addition, new competitors that are better adapted to the changing real estate industry
may emerge, which could cause us to lose market share in key market segments. Any failure on our
part to adapt to changes in the real estate information and consulting services sector may
materially and adversely affect the growth of our business.
10
If we are not able to obtain and maintain accurate, comprehensive and reliable data in our
CRIC system, we could experience reduced demand for our services.
Our success depends on our clients confidence in the accuracy, comprehensiveness and
reliability of the data contained in our CRIC system. The task of establishing and maintaining
accurate and reliable data is challenging. We rely on third-party data providers for a significant
amount of the information in our CRIC system. While we attempt to ensure the accuracy of our data
by using multiple sources and performing quality control checks, some of the data provided to us
may be inaccurate. If our data, including the data we obtain from third parties, is not current,
accurate, comprehensive or reliable, we could experience reduced
demand for our services or be subject to legal
claims by our customers, which could adversely affect our business and financial performance. In
addition, our staff use integrated standard internal processes to update our CRIC system. Any
inefficiencies, errors or technical problems with related applications could reduce the quality of
our data, which may result in reduced demand for our services and a decrease in our revenues.
We have limited experience in operating a real estate online business as a stand-alone company. We
have relied and will continue to rely on SINA's cooperation with us to a large extent. If we fail to
maintain our relationship with SINA in relation to our real estate online operations, our business
and results of operations could be materially and adversely affected.
We did not have experience in operating a real estate online business as a stand-alone company
prior to our acquisition of SINAs real estate online business in October 2009. To a large extent,
the operations and revenues of our real estate online business rely
on SINA's cooperation with us.
Our real estate online operations generated $66.9 million revenues in 2010. The domain names
of the major websites of the acquired real estate online business are owned by SINA and licensed to
us. In addition, a significant proportion of users of these websites link to them through SINAs
other websites. Pursuant to an advertising agency agreement with SINA, we became the exclusive
agent of SINA for selling advertising to the real estate advertisers. Furthermore, COHT and SINA
have also entered into a domain name and content license
agreement, a trademark license agreement and a software license and support services agreement.
Despite all these arrangements, we may not continue to receive the same level of support from SINA as SINAs
real estate online business did prior to the acquisition. If for any reason SINA terminates the
advertising agency agreement or any of the other agreements or otherwise reduces its support for
our real estate online operations, our business and results of operations may be materially and
adversely affected.
If the online advertising market fails to grow as quickly as expected, or if we fail to implement
our growth strategies for our real estate online operations, our business will be materially and
adversely affected.
Our
real estate online operations rely on online advertising as their main source of revenue.
However, online advertising in China is still a relatively new business and many of our potential
advertising clients have limited experience using the Internet for advertising purposes. In
particular, advertisers in the real estate sector in China have traditionally relied more heavily
on other advertising media, such as newsprint, magazines and outdoor advertising. If the Internet
does not continue to develop as a viable marketplace for real estate and home-related contents and
information, our online advertising business may be negatively affected.
Even if the online advertising market in China does continue to grow, if we fail to implement
our growth strategies for our real estate online operations, our business may not grow as quickly
as we expect. Our future growth depends on our ability to attract and retain employees who
understand both the real estate industry and the online advertising industry, increase the user
traffic of our websites, develop new advertising offerings and increase marketing effectiveness,
increase the fees we can charge for online advertising, and maintain and enhance relationships
with our advertising clients. The current and potential clients of our real estate online business
may choose not to advertise on our websites if they do not perceive our online advertising services
to be effective or our user demographics to be desirable.
11
A decrease in demand for advertising services in general, and for our real estate advertising
services in particular, could materially and adversely affect our ability to generate advertising
revenues, which in turn could adversely affect our financial condition and results of operations.
Demand for our advertising services is particularly sensitive to changes in general economic
conditions and the real estate industry. Real estate advertising expenditures typically decrease
during economic downturns. Real estate developer advertisers may also reduce their spending on our
advertising services for a number of other reasons, including:
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a decline in the number of their new development projects or temporary or
permanent halts to development projects in the cities in which we operate;
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a slowdown in the economy in the cities in which we operate;
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a decision to shift advertising budget to other available advertising media; and
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a decrease in advertising spending in general.
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If we experience a decrease in demand for our advertising services, our business could be
materially and adversely affected.
We could face liability for information on our websites and for products and services sold over our
real estate Internet websites.
Our real estate Internet websites provide third-party content such as real estate listings,
links to third-party websites, online advertisements or content provided by users of
community-oriented services. China has enacted laws and regulations governing the distribution of
news, information or other content, as well as products and services, through the Internet. If any
Internet content we provide or will provide on our websites were deemed by the PRC government to
violate any such laws or regulations, we would not be able to continue providing such content and
could be subject to penalties, including confiscation of income,
fines, suspension of business or
revocation of required licenses. We could be held liable for defamation, negligence or other
similar actions brought by third parties providing such content or operating websites linked to our
websites. We may also face assertions that content on our websites or information contained in
websites linked to our websites contains errors or omissions, and consumers may seek damages for
losses incurred if they rely upon such information.
We have taken certain precautionary measures in this regard. However, such measures may not be
adequate to exonerate us from relevant civil, administrative or criminal liabilities. Any claims,
with or without merit, could be time-consuming to defend and result
in a significant diversion of
managements attention and resources. Even if these claims do not result in liability to us, we
could incur significant costs in investigating and defending against these claims.
Technical problems that affect our customers ability to access our services, or temporary or
permanent outages of our computers, software or telecommunications equipment, could lead to reduced
demand for our services, lower revenues and increased costs.
A significant portion of our business is conducted over the Internet and through the use of
software applications. As a result, our business depends upon the satisfactory performance,
reliability and availability of our software applications, especially our CRIC system software, and
the Internet and telecommunications services we use. Problems with our CRIC system, the Internet or
the services provided by our telecommunications service providers could result in slower Internet
connections for our customers or interruption in our customers access to our services. If we
experience technical problems in delivering our services, we could suffer from reduced demand for
our services, lower revenues and increased costs.
12
In addition, our operations depend on our ability to protect our database, computers and
software, telecommunications equipment and facilities against damage from potential dangers such as
fire, power loss, security breaches, computer viruses and telecommunications failures. Our computer
servers perform automatic data backups on a daily basis. Furthermore, we periodically conduct manual
backups of all data onto CDs and store the
CDs in a secured off-site location. We also monitor our CRIC system in an effort to detect and
prevent unauthorized access and to provide reliable access to our clients. Our main servers are
located in the Internet data centers of the local telecommunications carrier in Shanghai. If our
main servers go down, our backup servers are designed to be up and
running within 30 minutes. However, any
temporary or permanent loss of one or more of these systems or facilities from an accident,
equipment malfunction or other cause could harm our business. If we experience a failure that
prevents us from delivering our services to clients, we could experience reduced demand for our
services, lower revenues and increased costs.
Similarly, any system failure or performance inadequacy that causes interruptions in the
availability of our services or increases in the response time of our services could reduce the appeal of
our real estate online business to advertisers and consumers. Factors that could significantly
disrupt the operations of our real estate online business include: inadequate bandwidth, 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 the computer systems; and security breaches related to the storage and
transmission of proprietary information, such as credit card numbers or other personal information.
Our real estate online business has limited backup systems and redundancy. Repeated disruptions or
any of the foregoing factors could damage our real estate online businesss reputation, require us
to expend significant capital and other resources and expose us to a risk of loss or litigation and
possible liability. Accordingly, our revenues and results of operations may be materially and
adversely affected if any of the above disruptions should occur.
We may not be able to achieve the benefits we expect from recent and future acquisitions and
business partnerships, which may have an adverse effect on our ability to manage our business
prospects.
Strategic acquisitions and business partnerships have been, and may continue to be, an
important factor in the growth and success of our business.
In October 2009, we acquired SINAs 66% equity interest in COHT concurrent with our IPO and
became the sole shareholder of COHT. Since then, we have started to realize the expected synergies
between our operations and the real estate online business acquired from SINA. We are in the
process of fully integrating acquired operations, services, corporate culture and personnel into
our real estate information, consulting and advertising business and operations. These activities
have required, and will continue to require, significant management attention from our real estate
information, consulting and advertising business operations, which diversion may harm the effective
management of our business. Failure to generate the synergies we anticipate from the combination of
our pre-existing operations and SINAs real estate online business could materially and adversely
affect our business, results of operations and prospects.
Since completion of our IPO, we have completed a few other acquisitions of smaller scale and
established a few business partnerships. For example,
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in April 2010, we acquired 55% of the equity interests in Shanghai Dehu PR
Consulting Co., Ltd., or Shanghai Dehu, a public relations consulting company, by
subscribing for its increased registered capital;
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also in April 2010, we acquired a 60% interest in Beijing Advertising Age Lotte
Co., Ltd.;
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in August 2010, we established Beijing China Real Estate Research Association
Technology Ltd., and Beijing China Real Estate Research Association Information Ltd.,
together with certain third parties, and we hold 51% equity interests in each of these
two companies; and
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in October 2010, through Shanghai Dehu, we established Tianjin Taili Dongren
Culture and Communications Co., Ltd. together with a third party, and Shanghai Dehu
holds a 60% equity interest in it.
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13
These and any future acquisitions and business partnerships may expose us to potential risks,
including, among other things:
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unidentified issues not discovered in our due diligence process, such as hidden
liabilities and legal contingencies;
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distraction of managements attention from normal business operations during
the acquisition and integration process;
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failure to effectively integrate acquired assets and talent into our business
and culture;
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diversion of resources from our existing businesses and technologies; and
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failure to realize the synergies expected from the acquisitions or business
partnerships.
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In addition, in the future we may not be able to identify or secure suitable acquisition and
business partnership opportunities or our competitors may capitalize on such opportunities before
we do. Moreover, identifying such opportunities could demand substantial management time and
resources. Negotiating and financing acquisitions and business partnerships could also involve
significant costs and uncertainties. If we fail to continue to successfully source, execute and
integrate acquisitions and business partnerships in the future, our overall growth may be impaired,
and our results of operations may be adversely affected.
Any failure to protect our brand, trademarks, software copyrights, trade secrets and other
intellectual property rights could have a negative impact on our business.
We believe our brand, trademarks, software copyrights, trade secrets and other intellectual
property rights are critical to our success. Although we have applied for trademark registration of
CRIC and other related trademarks in China, we may not be able to register such trademarks, or
register them with the scope we seek. Any unauthorized use of our brand, trademarks, software
copyrights, trade secrets and other intellectual property rights could harm our competitive
advantages and business. Historically, China has not protected intellectual property rights to the
same extent as the United States, and infringement of intellectual property rights continues to
pose a serious risk of doing business in China. Monitoring and preventing unauthorized use is
difficult. The measures we take to protect our intellectual property rights may not be adequate.
Furthermore, the application of laws governing intellectual property rights in China is uncertain
and evolving, and could involve substantial risks to us. If we are unable to adequately protect our
brand, trademarks and other intellectual property rights, we may lose these rights and our business
may suffer materially.
The success of our business depends in large part on the intellectual property involved in our
methodologies, databases, services and software. We rely on a combination of trade secret,
copyright, trademark and other laws, nondisclosure and non- competition provisions, license
agreements and other contractual provisions and technical measures to protect our intellectual
property rights. However, current law may not provide adequate protection of our intellectual
property, including databases and the actual data.
In addition, legal standards relating to the validity, enforceability and scope of protection
of proprietary rights in Internet-related businesses are uncertain and evolving, and we cannot
assure you of the future viability or value of any of our proprietary rights in Internet-related
businesses. As the right to use Internet domain names is not rigorously regulated in China, other
companies have incorporated in their domain names elements similar in writing or pronunciation to
our trademarks and domain names. This may result in confusion between those companies and our
company and may lead to the dilution of our brand value, which could adversely affect our business.
Our business could be significantly harmed if we are not able to protect our proprietary rights in
Internet-related business and our other intellectual property.
14
Any negative development in SINAs market position, harm to SINAs brand or SINAs operations, or
regulatory actions or legal proceedings affecting SINAs
intellectual property on which our real
estate online business relies, could materially and adversely affect our business and results of
operations due to our dependence on SINA for our real estate online business.
The marketing and promotion of our real estate online business benefit significantly from our
association with the SINA brand. Any negative development in SINAs market position or brand
recognition may materially and adversely affect our marketing efforts and the popularity of our
real estate online business. We operate the two
real estate and home furnishing channels that we acquired from SINA, i.e.,
house.sina.com.cn
and
jiaju.sina.com.cn
, and generate a significant portion of our revenues from the sale of
advertising on these two channels. We and SINA have entered into (1) a domain name and content
license agreement, under which
house.sina.com.cn
and
jiaju.sina.com.cn,
among others, were licensed
to us, and (2) a trademark license agreement, under which we were granted a non-exclusive license
to use three SINA trademarks and an exclusive license to use two SINA Leju trademarks through
websites located at
www.leju.com
and the channels located at
house.sina.com.cn
and
jiaju.sina.com.cn.
Users may access the real estate and home furnishing channels through SINAs
home page at
www.sina.com.cn
. In addition, pursuant to our advertising agency agreement with SINA,
we have the exclusive right to sell advertising to real estate, home furnishing and construction
materials advertisers on SINAs non-real estate channels. We expect to derive a significant
proportion of the revenues of our real estate online business from operating the two real estate
and home furnishing channels associated with SINA brand and selling advertising on SINAs non-real
estate channels in the future. Any negative development in SINAs Internet operations or
attractiveness to users or advertisers may materially and adversely affect our business and results
of operations. Moreover, as our real estate online operations will continue to rely on the domain
names, trademarks, contents, software and other intellectual properties licensed to us by SINA, any
regulatory actions or legal proceedings against SINA related to such domain names, contents and
other intellectual property could have a significant negative impact on our ability to operate
our real estate online business.
We may face increased competition and, if we are unable to compete successfully, our financial
condition and results of operations may be harmed.
The real estate information and consulting service sector in China is at an early stage of
development and is highly fragmented. As the industry develops, we may face increased competition.
Competition in this industry is primarily based on the quality, breadth and depth of the underlying
database, client service and support, industry expertise and reputation of the research and
consulting professionals, brand recognition and overall client experience. In the real estate
information service sector, we compete with both national and local real estate information service
providers, including
soufun.com
, an Internet real estate portal that primarily targets consumers
but also provides real estate market data as part of its service offerings. In the real estate
consulting service market, we compete with international real estate consulting companies, such as
DTZ International, CB Richard Ellis, Jones Lang LaSalle and Savills PLC, domestic real estate
consulting companies, such as World Union Real Estate Consultancy (China) Ltd., and individual
consulting brands.
The
real estate online services market in China may become increasingly competitive. The
barriers to entry for establishing Internet-based businesses are low, making it possible for new
competitors to proliferate rapidly. We expect more companies to enter
the real estate online service industry in China and a wider range of real estate online services to be introduced. As the
real estate online services industry in China is relatively new and constantly evolving, existing
or future competitors of our real estate online business may be able to better position themselves
to compete as the industry matures. The current competitors of our real estate online business
include certain vertically integrated real estate websites, such as
soufun.com
and
anjuke.com
, and real estate channels of Internet portals in China, such as Sohu.com Inc.s
focus.cn
, which provide, among other things, competing real estate-related content and advertising
services. These websites may have a larger user base, better brand recognition or stronger market
influence. It is also possible that websites with large traffic may decide to provide real
estate-related listing and other advertising services. In addition, regionally and locally focused
websites providing regional real estate listings together with localized services have offered and
may continue to offer strong competition in the regions that we operate.
The advertising industry is relatively developed in China. Our real estate advertising
business faces intense competition in both advertising design and resale services areas. In the
area of advertising design services, we compete with local advertising design firms in places where
we have operations. In the area of advertising resale services, we compete with both national and
local advertising agencies.
Some of our competitors have more financial and other resources than we do. If we fail to
compete effectively, our business operations and financial condition will suffer.
15
Substantial defaults by our clients on accounts receivable could have a material adverse effect on
our business, results of operations and financial condition.
Our accounts receivable as of December 31, 2010 were $61.0 million, representing 35.0% of our
total revenues for the year ended December 31, 2010. Although the service agreements with our
developer clients are generally silent in this regard, we typically settle the payments for
consulting services with our developer clients after the completion of the consulting projects,
which generally last several months. Therefore, our working capital levels are affected by the time
lag between the time we provide services, bill our clients and collect the payments owed to us,
which is reflected in our accounts receivable and has from time to time resulted in negative
operating cash flows. Receivables from the two clients with the largest accounts receivable
outstanding as of December 31, 2010, namely Beijing Jia Hua Hengshun Media Advertising Co., Ltd.
and Shanghai Rongzhong Culture Communication Co., Ltd., accounted for 32.9% of our total accounts
receivable as of that date. If these or other clients who owe us significant accounts receivable
were to become insolvent or otherwise unable to pay for our services or make payments in a timely
manner, our liquidity would be adversely affected and we would have to write off certain accounts
receivable or increase provisions made against our accounts receivable, any of which could
adversely affect our business, results of operations and financial conditions.
If we fail to hire, train and retain qualified managerial and other employees, our business and
results of operations could be materially and adversely affected.
We place substantial reliance on the real estate industry experience and knowledge of our
senior management team as well as their relationships with other real estate industry participants.
Mr. Xin Zhou, our co-chairman and chief executive officer, is particularly important to our future
success due to his substantial experience and reputation in the real estate industry. Mr. Zuyu
Ding, our director and co-president, has also been instrumental in growing our business due to his substantial
experience in the areas of real estate-related research and technology. Mr. Jun Luo, who joined us
as co-president after our acquisition of SINAs real estate online business and is now our director as well, had been the general
manager of SINAs real estate online business since 2007 and has extensive experience in Chinas
Internet industry. We do not carry, and do not intend to procure, key person insurance on any of
our senior management team. The loss of services of one or more members of our senior management
team could significantly impair our ability to effectively manage our business and implement our
growth strategies. Finding suitable replacements for our current senior management could be
difficult, and competition for such personnel of similar experience
is intense. Accordingly, if we fail to
retain our senior management, our business and results of operations could be materially and
adversely affected.
Our information and consulting services are supported and enhanced by a team of research
staff. They are critical to maintaining the quality and consistency of our services and our brand
reputation. It is important for us to attract qualified employees who have experience in
real estate research, information and consulting, and are committed to our service approach. There
may be a limited supply of qualified individuals in some of the cities in China where we have
operations or into which we intend to expand. We must hire and train qualified
managerial and other employees on a timely basis to keep pace with our rapid growth while
maintaining consistent quality of services across our operations in various geographic locations.
We must also provide continuous training to our managerial and other employees so that they are
equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for
high-quality services. If we fail to do so, the quality of our services may deteriorate in one or
more of the markets where we operate, which may cause a negative perception of our brand and
adversely affect our business.
Failure to obtain or keep requisite licenses and permits for our business operations may subject us
to significant financial penalties and other government sanctions.
Due to the broad geographic scope of our operations and the variety of services we provide, we
are subject to numerous national, regional and local laws and regulations specific to the services
we perform, including laws and regulations that set forth requirements to hold various licenses and
permits. These laws and regulations are subject to interpretation and implementation by local
authorities that may vary from place to place and from time to time, and we may be required to
obtain licenses and permits we do not currently hold.
16
Currently we provide access to our CRIC database through the Internet. If relevant PRC
governmental authorities deem this to be provision of Internet information services under
applicable PRC laws and regulations,
they may require us to obtain a value-added telecommunications business operating license, or
ICP license, to continue to provide access to our CRIC database through the Internet. We believe,
based in part on communications with relevant Shanghai governmental authorities, that our current
real estate information services business does not require an ICP license because access to the
CRIC database is not offered to the general public. However, if relevant PRC governmental
authorities require us to obtain an ICP license for this business as currently conducted, Shanghai
CRIC could be subject to fines and penalties for operating this business without the proper
license. Moreover, because wholly foreign-owned enterprises such as Shanghai CRIC are not permitted
to obtain an ICP license, we would need to restructure our operations to carry out our real estate
information services business through the same type of contractual arrangements as we operate our
advertising services business. Our real estate information services business would then be subject
to the risks associated with this contractual arrangement structure described in Risks Related
to Our Corporate Structure.
In addition, relevant PRC authorities may deem certain of Shanghai CRICs business activities
that involve the collection of data for our CRIC database to be market survey activities. In
such a case, because wholly foreign-owned enterprises such as Shanghai CRIC are not permitted to
engage in market survey activities in China, Shanghai CRIC could be subject to fines and
penalties and we would be required to restructure our operations to have one of our consolidated
affiliated entities holding a business license covering such business scope undertake these
activities.
Moreover, Beijing Yisheng Leju Information Services Co., Ltd., or Beijing Leju, COHTs
consolidated affiliated entity operating our real estate online business, is required to obtain and
maintain applicable licenses or approvals from different regulatory authorities in order to provide
its current services, including an ICP license. These licenses are essential to the operation of
our real estate online business and are generally subject to annual review by the relevant
governmental authorities. Advertising is included in the business scope indicated in the business
license of Beijing Leju, which allows it to provide advertising services. This type of business
scope is also essential to the operations of our real estate online business. In addition, Beijing
Leju may be required to obtain additional licenses, such as an Internet publication license, an
Internet news information services license or an Internet and network transmission video and audio
program license, if it is deemed by the government authorities to conduct the relevant businesses.
If we fail to properly obtain or maintain the licenses and permits or complete the filing and
registrations required to conduct our business, our affected subsidiaries, consolidated affiliated
entities and branch offices in China may be warned, fined, have their licenses or permits revoked,
or ordered to suspend or cease providing certain services, or
subjected to other penalties, sanctions
or liabilities, which in turn could materially and adversely affect our business.
Copyright infringement and other intellectual property claims against us may adversely affect our
business and our ability to operate our CRIC system.
We have collected and compiled in our CRIC system real estate-related news articles, reports,
floor plans, architectural drawings, maps and other documents and information prepared by third
parties. Because the content in our database is collected from various sources and distributed to
others, we may be subject to claims for breach of contract, defamation, negligence, unfair
competition, copyright or trademark infringement, or claims based on other theories. Although we do
not use the information we obtain from clients during the course of providing real estate
consulting services, the same information derived from other sources may be found in our database.
In such cases, we could be subject to breach of confidentiality or similar claims, whether or not
having merit, by those clients. We could also be subject to claims based upon the content that is
displayed on our websites or accessible from our websites through links to other websites or
information on our websites supplied by third parties.
We have in the past been subject to claims by individuals claiming rights in certain of the
maps, drawings and documents made available on the CRIC system or otherwise provided to our
clients. Any lawsuits or threatened lawsuits in which we are involved, either as a plaintiff or as
a defendant, could cost us a significant amount of time and money and distract managements
attention from operating our business. Any judgments against us in such suits, or related
settlements, could have a material impact on our ability to operate or market our CRIC system, harm
our reputation and have a material adverse affect on our results of operations. If a lawsuit
against us is successful, we may be required to pay damages or enter into royalty or license
agreements that may not be based upon
commercially reasonable terms, or we may be unable to enter into such agreements at all. As a
result, the scope of the data we offer to our clients could be reduced, or our methodologies or
services could change, which may adversely affect the usefulness of our CRIC system and our ability
to attract and retain clients.
17
Failure to achieve and maintain effective internal controls over financial reporting could cause us
to inaccurately report our financial result or fail to prevent fraud and have a material adverse
effect on our business, results of operations and the trading price of our ADSs.
We are subject to the reporting obligations under U.S. securities laws. Section 404 of the
Sarbanes-Oxley Act of 2002 and related rules require public companies to include a report of
management on their internal control over financial reporting in their annual reports. This report
must contain an assessment by management of the effectiveness of a public companys internal
control over financial reporting. In addition, an independent registered public accounting firm for
a public company must attest to and report on managements assessment of the effectiveness of the
companys internal control over financial reporting. We sometimes hire a professional consultant to
assist us in such efforts. Our efforts to implement standardized internal control procedures and
develop the internal tests necessary to verify the proper application of the internal control
procedures and their effectiveness are a key area of focus for our board of directors, our audit
committee and senior management.
Our management has concluded that our internal control over financial reporting was effective
as of December 31, 2010. See Item 15. Control and Procedures. Our independent registered public
accounting firm has issued an attestation report, which concludes that our internal control over
financial reporting was effective in all material aspects as of December 31, 2010. However, if we
fail to maintain effective internal control over financial reporting in the future, our management
and our independent registered public accounting firm may not be able to conclude that we have
effective internal control over financial reporting at a reasonable assurance level. Moreover,
effective internal controls over financial reporting are necessary for us to produce reliable
financial reports and are important to help prevent fraud. As a result, our failure to achieve and
maintain effective internal controls over financial reporting could in turn result in the loss of
investor confidence in the reliability of our financial statements and negatively impact the
trading price of our ADSs. Furthermore, we have incurred and anticipate that we will continue to
incur considerable costs, management time and other resources in an effort to continue to comply
with Section 404 and other requirements of the Sarbanes-Oxley Act.
Any natural or other disasters, including outbreaks of health epidemics and other extraordinary
events could severely disrupt our business operations.
Our operations are vulnerable to interruption and damage from natural and other types of
disasters, including earthquakes, fire, floods, environmental accidents, power loss, communications
failures and similar events. On May 12, 2008, a severe earthquake occurred in Sichuan province of
China, resulting in significant casualties and property damage and a sharp decline in real estate
transactions in the affected areas. On April 14, 2010, another earthquake struck Chinas Qinghai
Province causing severe damage and casualties in the area. As we do not have operations in Qinghai,
the recent earthquake did not have material adverse impact on our company. However, if any other
similar disaster or extraordinary events were to occur in the area where we operate in the future,
our ability to operate our business could be seriously impaired.
Our business may also be materially and adversely affected by the outbreak of H1N1 influenza,
commonly referred to as swine flu, avian influenza, severe acute respiratory syndrome, or SARS,
or any other similar epidemic. Any future outbreak of swine flu, avian influenza, SARS or other
adverse public health developments in China could severely disrupt our staffing and otherwise
reduce the activity levels of our work force, thus causing a material and adverse effect on our
business operations.
We do not have any business liability, disruption or litigation insurance, and any business
disruption or litigation we experience might result in our incurring substantial costs and
diversion of resources.
The insurance industry in China is still at an early stage of development. Insurance companies
in China offer limited business insurance products and do not, to our knowledge, offer business
liability insurance. While business disruption insurance is available to a limited extent in China,
we have determined that the risks of disruption as compared to the cost of such insurance and the difficulties
associated with acquiring such insurance on commercially reasonable terms make it impractical for
us to have such insurance. As a result, except for fire insurance, we do not have any business
liability, disruption or litigation insurance coverage for our operations in China. Any business
disruption or litigation may result in our incurring substantial costs and diversion of resources.
Risks Related to Our Carve-out from E-House and Our Relationships with E-House
E-House will control the outcome of shareholder actions in our company.
As
of March 31, 2011, E-House
beneficially owned 53.0% of our outstanding ordinary shares and voting power. E-House has
advised us that it does not anticipate disposing of its voting control in us in the near future.
E-Houses voting power gives it the power to control actions that require shareholder approval
under Cayman Islands law, our memorandum and articles of association and NASDAQ requirements,
including the election and removal of a majority of our board of directors, significant mergers and
acquisitions and other business combinations, changes to our memorandum and articles of
association, the number of shares available for issuance under share incentive plans, and the
issuance of significant amounts of our ordinary shares in private placements.
E-Houses voting control may cause transactions to occur that might not be beneficial to you
as a holder of ADSs, and may prevent transactions that would be beneficial to you. For example,
E-Houses voting control may prevent a transaction involving a change of control of us, including
transactions in which you as a holder of our ADSs might otherwise receive a premium for your
securities over the then-current market price. In addition, E-House is not prohibited from selling
a controlling interest in us to a third party and may do so without your approval and without
providing for the purchase of your ADSs. If E-House is acquired or otherwise undergoes a change of
control, any acquirer or successor will be entitled to exercise the voting control and contractual
rights of E-House, and may do so in a manner that could vary significantly from that of E-House.
18
We may have conflicts of interest with E-House and, because of E-Houses controlling ownership
interest in our company, may not be able to resolve such conflicts on favorable terms for us.
Conflicts of interest may arise between E-House and us in a number of areas relating to our
past and ongoing relationships. Potential conflicts of interest that we have identified include the
following:
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Indemnification arrangements with E-House
. We have agreed to indemnify E-House
with respect to lawsuits and other matters relating to our real estate information and
consulting services business, including operation of that business when it was a
business unit of E-House. These indemnification arrangements could result in our having
interests that are adverse to those of E-House including, for example, different
interests with respect to settlement arrangements in a litigation matter. In addition,
under these arrangements, we have agreed to reimburse E-House for liabilities incurred
(including legal defense costs) in connection with any litigation, while E-House will
be the party prosecuting or defending the litigation.
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Non-competition arrangements with E-House
. We and E-House have each agreed not
to compete with the core business of each other. E-House has agreed not to compete with
us in the business of providing real estate information and consulting services, real
estate advertising services, and operating business-to-business and
business-to-consumer Internet websites targeting participants in the real estate
industry anywhere in the world. We have agreed not to compete with E-House in primary
real estate agency services, secondary real estate brokerage services and any other
businesses conducted by E-House, except real estate information and consulting services
and related support services.
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Employee recruiting and retention
. Because both E-House and we are based in
Shanghai and engage in real estate services in China, we may compete with E-house in
the hiring of new employees, in particular with respect to real estate information and
research. We have a non-solicitation arrangement with E-House that
restricts E-House and us from hiring any of the others employees.
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Our board members or executive officers may have conflicts of interest
. Mr. Xin
Zhou, our co-chairman and chief executive officer, is currently also serving as
E-Houses executive chairman. Some of our board members and executive officers also own
shares or options in E-House. E-House may continue to grant incentive share
compensation to our board members and executive officers from time to time. These
relationships could create, or appear to create, conflicts of interest when these
persons are faced with decisions with potentially different implications for E-House
and us.
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Sale of shares in our company
. E-House may decide to sell all or a portion of
our shares that it holds to a third party, including to one of our competitors, thereby
giving that third party substantial influence over our business and our affairs. Such a
sale could be contrary to the interests of certain of our shareholders, including our
employees or our public shareholders.
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Allocation of business opportunities
. Business opportunities may arise that
both we and E-House find attractive, and which would complement our respective
businesses. E-House may decide to take the opportunities itself, which would prevent us
from taking advantage of the opportunity ourselves.
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Developing business relationships with E-Houses competitors
. So long as
E-House remains as our controlling shareholder, we may be limited in our ability to do
business with its competitors, such as other real estate services companies in China.
This may limit our ability to market our services for the best interest of our company
and our other shareholders.
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Although our company has become a stand-alone public company, we expect to operate, for as
long as E-House remains our controlling shareholder, as an affiliate
of E-House. E-House may, from
time to time, make strategic decisions that it believes are in the best interests of its business as
a whole, including our company. These decisions may be different from the decisions that we would
have made on our own. E-Houses decisions with respect to us or our business may be resolved in
ways that favor E-House and its own shareholders, but which may not coincide with the interests of our
other shareholders. We may not be able to resolve any potential conflicts, and even if we do so,
the resolution may be less favorable to us than if we were dealing with an unaffiliated
shareholder. Even
if both parties seek to transact business on terms intended to approximate those that could
have been achieved among unaffiliated parties, this may not succeed in practice.
19
Our agreements with E-House may be less favorable to us than similar agreements negotiated between
unaffiliated third parties. In particular, our non-competition agreement with E-House limits the
scope of business that we are allowed to conduct.
We have entered into a series of agreements with E-House and the terms of such agreements may
be less favorable to us than would be the case if they were negotiated with unaffiliated third
parties. In particular, under the non-competition agreement we have entered into with E-House, we
have agreed during the non-competition period (which will end on the later of (i) three years after
E-House no longer owns in aggregate at least 20% of the voting power of our then outstanding voting
securities or (ii) September 29, 2014, the date five years after our registration statement on Form
F-1 was first publicly filed with the SEC) not to compete with E-House in the business of primary
real estate agency services, secondary real estate brokerage services and any other businesses
conducted by E-House, as described in its periodic filings with the SEC. Such contractual
limitations significantly affect our ability to diversify our revenue sources and may materially
and adversely impact our business and prospects should the growth of real estate information,
consulting and online services in China slow down. In addition, pursuant to our master transaction
agreement with E-House, we have agreed to indemnify E-House for, among other things, liabilities
arising from litigation and other contingencies related to our business and assumed these
liabilities as part of our carve-out from E-House. The allocation of assets and liabilities between
E-House and our company may not reflect the allocation that would have been reached by two
unaffiliated parties. Moreover, so long as E-House continues to control us, we may not be able to
bring a legal claim against E-House in the event of a contractual breach, notwithstanding our
contractual rights under the agreements described above and other inter-company agreements entered
into from time to time.
Our marketing and promotion have benefited significantly from our association with E-House. Any
negative development in E-Houses market position or brand recognition may materially and adversely
affect our marketing efforts and the popularity of our brand.
As a majority-owned subsidiary of E-House, we have benefited significantly from our
association with E-House in marketing our services. For example, we have provided services to
E-Houses clients. We also benefit from E-Houses strong brand recognition in China, which has
provided us credibility and a broad marketing reach. If E-House loses its market position, the
effectiveness of our marketing efforts through our association with E-House may be materially and
adversely affected. In addition, any negative publicity associated with E-House will likely have
an adverse impact on the effectiveness of our marketing as well as our reputation and our brand.
Risks Related to Our Corporate Structure
If the PRC government finds that the agreements with our consolidated affiliated entities that
establish the structure for operating our advertising services business and real estate online
business in China do not comply with applicable PRC governmental restrictions on foreign
investment, we could be subject to severe penalties.
PRC laws and regulations currently do not allow foreign entities with less than at least two
years of direct experience operating an advertising business outside of China to invest in an
advertising business in China. Because we have no direct experience operating an advertising
business outside of China, we may not invest directly in a PRC entity that provides advertising
services in China, and our PRC foreign-invested subsidiaries may not provide advertising services
in China. As such, our real estate advertising business is primarily provided through our
contractual arrangements with our consolidated affiliated entity in
China, Shanghai Tian Zhuo Advertising Co., Ltd., or Tian Zhuo, and its
subsidiaries. Tian Zhuo is 90% owned by Mr. Xin Zhou, our co-chairman and chief executive officer
and the executive chairman of E-House, and 10% owned by Mr. Xudong Zhu, our former director and
head of our advertising operations. Tian Zhuo and its subsidiaries provide real estate advertising
design services for real estate development projects and may enter into other services related to
real estate advertising. We have depended and expect to continue to depend on Tian Zhuo and its
subsidiaries to operate our real estate advertising business. We have entered into contractual
arrangements with Tian Zhuo, pursuant to which we, through our subsidiary Shanghai CRIC, provide
technical support and consulting services to Tian Zhuo. In addition, we have entered into
agreements with Tian Zhuo and its shareholders, which provide us with the substantial ability to
control Tian Zhuo and make us a primary beneficiary
of Tian Zhuo. For a description of these contractual arrangements,
see Item. 7 Major
Shareholder and Related Party TransactionsB. Related Party TransactionsContractual Arrangements
with Tian Zhuo.
20
Moreover, PRC laws and regulations currently prohibit foreign investors from holding more than
50% of a foreign-invested telecommunications enterprise that provides Internet information
services, which are one type of value-added telecommunications services. Because of such
restriction and the above-mentioned restrictions on foreign investment in advertising businesses,
COHT is operating
www.leju.com
and our real estate online business through Beijing Leju, a
consolidated affiliated entity in China. Beijing Leju was owned by two PRC citizens affiliated with
SINA prior to our acquisition of SINAs real estate online business. COHTs wholly-owned indirect
subsidiary, Shanghai SINA Leju Information Technology Co., Ltd., or Shanghai SINA Leju, has entered
into contractual arrangements with Beijing Leju, pursuant to which, Shanghai SINA Leju provides
technical support to Beijing Leju. In addition, Shanghai SINA Leju has entered into agreements with
Beijing Leju and its existing shareholders, which provide Shanghai SINA Leju with the substantial
ability to control Beijing Leju and make it a primary beneficiary of Beijing Leju. Upon completion
of our acquisition of SINAs real estate online business, Beijing Leju became 80% owned by Mr.
Xudong Zhu, our former director and head of our advertising operations, and 20% owned by Mr. Jun
Luo, our director and co-president. Shanghai SINA Leju, Beijing Leju, Mr. Xudong Zhu and Mr. Jun Luo have
entered into contractual arrangements which continue to provide Shanghai SINA Leju with the ability
to control Beijing Leju and make it a primary beneficiary of Beijing Leju. We operate our real
estate online business through our contractual arrangements with Beijing Leju and its shareholders.
In the opinion of Fangda Partners, our PRC legal counsel,
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The ownership structures of Tian Zhuo and Beijing Leju are in compliance with
existing PRC laws and regulations;
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The contractual arrangements governed by PRC law between Shanghai CRIC and Tian
Zhuo and its shareholders establishing the corporate structure for operating our PRC
advertising services business are valid, binding and enforceable in accordance with
their terms based on the currently effective PRC laws and regulations, and will not
result in any violation of current PRC laws or regulations; and
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The contractual arrangements governed by PRC law among Shanghai SINA Leju,
Beijing Leju, Mr. Xudong Zhu and Mr. Jun Luo establishing the corporate structure for
operating our real estate online business are valid, binding and enforceable in
accordance with their terms based on the currently effective PRC laws and regulations,
and will not result in any violation of current PRC laws or regulations.
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Our PRC legal counsel has also advised us, however, that there are substantial uncertainties
regarding the interpretation and application of current and future PRC laws and regulations and
there can be no assurance that the relevant PRC regulatory authorities will not in the future take
a view that is contrary to the opinion of our PRC legal counsel.
As part of the contractual arrangements described above, we entered into an equity pledge
agreement pursuant to which the two shareholders of Tian Zhuo pledged their respective equity
interests in Tian Zhuo to Shanghai CRIC. According to the PRC Property Rights Law, effective as of
October 1, 2007, such pledge will only be effective upon registration with the relevant local
office for the administration for industry and commerce. Shanghai CRIC is in the process of
registering the equity interest pledge with the local office for the administration for industry
and commerce. Before a successful registration of the equity pledge, we cannot assure you that the
effectiveness of such pledge can be recognized in PRC courts if disputes arise regarding the
pledged equity interest or that Shanghai CRICs interests as pledgee will prevail over those of
third parties.
In addition, we entered into an equity pledge agreement pursuant to which the two shareholders
of Beijing Leju pledged their respective equity interests in Beijing Leju to Shanghai SINA Leju.
These pledges were registered with the local office for the administration for industry and
commerce in January 2010. However, such registration did not cover the pledge of the recently
increased registered capital of Beijing Leju and we are in the process of amending the
registration. Until completion of the amended registration, we cannot assure you that the
effectiveness
of such pledge with respect to the newly increased registered capital would be recognized in
PRC courts if disputes arise regarding such pledged equity interest.
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If we, Shanghai CRIC, Tian Zhuo, Shanghai SINA Leju or Beijing Leju are found to be in
violation of any existing or future PRC laws or regulations or fail to obtain or maintain any of
the required permits or approvals, the relevant PRC regulatory authorities, including the State
Administration for Industry and Commerce, which regulates advertising companies, and the Ministry
of Industry and Information Technology, which regulates Internet information services companies,
would have broad discretion in dealing with such violations, including:
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revoking the business and operating licenses of our PRC subsidiaries and
affiliates;
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discontinuing or restricting our PRC subsidiaries and affiliates operations;
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imposing fines or confiscating the income of our PRC subsidiaries or
affiliates;
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imposing conditions or requirements with which we or our PRC subsidiaries and
affiliates may not be able to comply;
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requiring us or our PRC subsidiaries and affiliates to restructure the relevant
ownership structure or operations; or
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taking other regulatory or enforcement actions that could be harmful to our
business.
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The
imposition of any of these penalties could have a material and adverse effect on our
ability to conduct our business, and adversely affect our financial condition and results of
operations.
We rely on contractual arrangements with Tian Zhuo, Beijing Leju and their respective shareholders
for a portion of our operations, which may not be as effective as direct ownership in providing
operational control.
We rely on contractual arrangements with Tian Zhuo and its shareholders to operate our real
estate advertising business, and rely on those with Beijing Leju and its shareholders to operate
our real estate online business. For a description of these
contractual arrangements, see Item. 7
Major Shareholders and Related Party TransactionsB. Related Party TransactionContractual
Arrangements with Tian Zhuo and Contractual Arrangements with Beijing Leju. These contractual
arrangements may not be as effective as direct ownership in providing us with control over Tian
Zhuo or Beijing Leju. Under these contractual arrangements, as a legal matter, if any consolidated
affiliated entity in the PRC or its shareholders fail to perform their respective obligations under
these contractual arrangements, we may have to incur substantial costs and resources to enforce
such arrangements, and rely on legal remedies under PRC law, including seeking specific performance
or injunctive relief, or claiming damages, which we cannot assure you will be effective.
These contractual arrangements are governed by PRC law and provide for the resolution of
disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would be
interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC
legal procedures. The legal environment in the PRC is not as developed as in the United States. As
a result, uncertainties in the PRC legal system could limit our ability to enforce these
contractual arrangements, which may make it difficult to exert effective control over Tian Zhuo and
Beijing Leju. As a result, our ability to conduct our business may be negatively affected.
The shareholders of Tian Zhuo and Beijing Leju may have potential conflicts of interest with us,
which may materially and adversely affect our business and financial condition.
Tian Zhuo is jointly owned by Mr. Xin Zhou, our co-chairman and chief executive officer, and
the founder and executive chairman of E-House, and Mr. Xudong Zhu, our former director and head of
our advertising operations. Conflicts of interests between Mr. Zhous and Mr. Zhus roles as shareholders of Tian
Zhuo and their duties to our company as management may arise. We cannot assure you that when
conflicts of interest arise, such individuals will act in the best interests of our company or that
conflicts of interests will be resolved in our favor. In addition, they may breach or cause
Tian Zhuo and its subsidiaries to breach or refuse to renew the existing contractual arrangements
that allow us to effectively control Tian Zhuo and its subsidiaries as well as receive economic
benefits from them. Currently, we do not have existing arrangements to address potential conflicts of
interest between Mr. Zhou or Mr. Zhu and our company.
22
In addition, the laws of the Cayman Islands and China both provide that a director or member
of management owes a fiduciary duty to the company he directs or manages. Mr. Zhou is the executive
chairman of our parent company, E-House. Mr. Zhou must therefore act in good faith and in the best
interests of E-House and must not use his position for personal gain. Conflicts of interest may
arise between his role as a director of E-House and his duties to our company as a director and
chief executive officer. If we cannot resolve any conflicts of interest described above, we would
have to rely on legal proceedings, which could result in disruption of our business and substantial
uncertainty as to the outcome of any such legal proceedings.
Beijing Leju is 80% owned by Mr. Xudong Zhu, our former director and head of our advertising
operations, and 20% owned by Mr. Jun Luo, our director and co-president. Similar conflicts of interests between
their role as the shareholders of Beijing Leju and their duties to our company as a director or a
member of management may arise.
Contractual arrangements we have entered into or may enter into with Tian Zhuo and Beijing Leju may
be subject to scrutiny by the PRC tax authorities and a finding that we, Tian Zhuo or Beijing Leju
owe additional taxes could reduce our net income and the value of your investment.
Under PRC laws and regulations, arrangements and transactions among related parties may be
audited or challenged by the PRC tax authorities. We could face material and adverse consequences
if the PRC tax authorities determine that the contractual arrangements we have entered into with
Tian Zhuo or Beijing Leju do not represent an arms-length price and adjust the taxable income of
Tian Zhuo, Beijing Leju or their subsidiaries in the form of a transfer pricing adjustment. A
transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes,
of expense deductions recorded by Tian Zhuo, Beijing Leju or their subsidiaries, which could in
turn increase their PRC tax liabilities. In addition, the PRC tax authorities may impose late
payment fees and other penalties on our consolidated affiliated entities for under-paid taxes. Our
consolidated net income may be materially and adversely affected if our consolidated affiliated
entities tax liabilities increase or if they are found to be subject to late payment fees or other
penalties.
Risks Related to Doing Business in China
Adverse changes in economic and political policies of the PRC government could have a material and
adverse effect on overall economic growth in China, which could adversely affect our business.
We conduct substantially all of our business operations in China. As the real estate industry
is highly sensitive to business spending, credit conditions and personal discretionary spending
levels, it tends to decline during general economic downturns. Accordingly, our results of
operations, financial condition and prospects are subject, to a significant degree, to economic
developments in China. Chinas economy differs from the economies of most developed countries in
many respects, including with respect to the amount of government involvement, level of
development, growth rate, control of foreign exchange and allocation of resources. While the PRC
economy has experienced significant growth in the past 30 years, growth has been uneven across
different periods, regions and among various economic sectors of China. The PRC government may
implement measures that are intended to benefit the overall economy even if they would be expected
to have a negative effect on the real estate industry. For example, on January 3, 2008, the State
Council issued a Notice on Promoting Economization of Land Use, which urges the full and effective
use of existing construction land and the preservation of farming land.
The real estate industry is particularly sensitive to credit policies. From late 2003 to
mid-2008, the PRC government implemented a number of measures, such as increasing the Peoples Bank
of Chinas statutory deposit reserve ratio and imposing commercial bank lending guidelines, which
had the effect of slowing the growth of credit, which in turn may have slowed the growth of the
Chinese economy. In response to the global and Chinese economic downturn in 2008, the PRC
government promulgated several measures aimed at stimulating economic growth. Chinas central bank
decreased the statutory deposit reserve ratio and lowered benchmark interest rates several times in
late 2008 and kept them unchanged in 2009. Total outstanding RMB loans grew by 31.7% in 2009 to
RMB40.0 trillion, and broad money supply (M2) grew by 27.2%. In 2010, the central bank raised the
statutory deposit reserve ratio six times in an effort to curb credit expansion. Nevertheless,
total outstanding RMB loans still grew by 19.9%
in 2010, to RMB47.9 trillion, and broad money supply (M2) grew by 19.7%. The central bank
again raised the statutory deposit reserve ratio in January, February, March and April of 2011.
While these rate increases could potentially slow the growth of the Chinese real estate industry,
they have limited direct impact on our company as we currently do not have any loans outstanding. We cannot assure you that
China will continue to have rapid or stable economic growth in the future or that changes in credit
policies that are intended to create stable economic growth will not adversely impact the real estate industry.
23
Uncertainties with respect to the Chinese legal system could adversely affect us.
We conduct our business primarily through our subsidiaries and consolidated affiliated
entities in China. Our operations in China are governed by PRC laws and regulations. Our
subsidiaries are generally subject to laws and regulations applicable to foreign investments in
China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is
based on written statutes. Prior court decisions may be cited for reference but have limited
precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the
protections afforded to various forms of foreign investments in China. However, China has not
developed a fully integrated legal system and recently enacted laws and regulations may not
sufficiently cover all aspects of economic activities in China. In particular, because these laws
and regulations are relatively new, the interpretation and enforcement of these laws and
regulations involve uncertainties. Furthermore, the PRC legal system is based in part on government
policies and internal rules, some of which are not published on a timely basis or at all, which may
have a retroactive effect. As a result, we may not be aware of our violation of these policies and
rules until some time after the violation. In addition, any litigation in China may be protracted
and result in substantial costs and diversion of resources and management attention.
PRC governmental restrictions on currency conversion may limit our ability to utilize our revenues
and funds effectively and the ability of our PRC subsidiaries and consolidated affiliated entities
to obtain financing.
The PRC government imposes controls on the convertibility of RMB into foreign currencies and,
in certain cases, the remittance of currency out of China. Restrictions on currency exchanges
between RMB and other currencies may limit our ability to utilize our revenues and funds, in
particular in relation to capital account transactions such as investments and loans. We receive
substantially all of our revenues in RMB. Under our current structure, our income will be primarily
derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign
currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit
sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their
foreign currency denominated obligations.
Under current PRC regulations, RMB is convertible for current account transactions, which
include among other things dividend payments and payments for the import of goods and services,
subject to compliance with certain procedural requirements. Although the RMB has been fully
convertible for current account transactions since 1996, we cannot assure you that the relevant PRC
government authorities will not limit or eliminate our ability to purchase and retain foreign
currencies for current account transactions in the future.
Conversion of RMB into foreign currencies and of foreign currencies into RMB, for payments
relating to capital account transactions, which principally include investments and loans,
generally requires the approval of the State Administration of Foreign Exchange, or SAFE, and other
relevant PRC governmental authorities. Restrictions on the convertibility of the RMB for capital
account transactions could affect the ability of our PRC subsidiaries and affiliated PRC operating
companies to make investments overseas or to obtain foreign exchange through debt or equity
financing, including by means of loans or capital contributions from us.
Fluctuation in the value of the RMB may have a material adverse effect on your investment.
The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates
set by the Peoples Bank of China. The PRC government allowed the RMB to appreciate by more
than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010,
this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained
within a narrow band. Since June 2010, the PRC government has allowed the RMB to appreciate
slowly against the U.S. dollar again. It is difficult to predict how market forces or PRC or U.S.
government policy may impact the exchange rate between the RMB and the U.S. dollar in the
future.
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As our costs and expenses are mostly denominated in RMB, a resumption of the appreciation of
the RMB against the U.S. dollar would further increase our costs in U.S. dollar terms. In addition,
as our operating subsidiaries and consolidated affiliated entities in China receive substantially
all of their revenues in RMB, any significant depreciation of the RMB against the U.S. dollar may
have a material adverse effect on our revenues in U.S. dollar terms and financial condition, and
the value of, and any dividends payable on, our ordinary shares. For
example, to the extent that we need to convert U.S. dollars into RMB for our operations,
appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we
receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the
purpose of making payments for dividends on our ordinary shares or for other business purposes,
appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar
amount available to us.
In addition, because the RMB is the functional currency of our PRC
operating subsidiaries and consolidated affiliated entities, fluctuations in the RMB-U.S. dollar
exchange rate could cause us to incur foreign exchange losses to the extent these operating
subsidiaries and consolidated affiliated entities hold U.S. dollar cash balances. The foreign
exchange losses of $1.3 million we incurred in 2008, the foreign exchange gain of $0.2 million in
2009 and the foreign exchange loss of $0.6 million in 2010 were primarily due to this reason. These
and other effects on our financial data resulting from fluctuations in the value of the RMB against
the U.S. dollar could have a material adverse effect on the market price of our ADSs and your
investment. See "Item 11. Quantitative and Qualitative Disclosures
about Market RiskForeign Exchange Risk."
PRC regulations relating to the establishment of offshore special purpose companies by PRC
residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or
penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC
subsidiaries ability to increase their registered capital or distribute profits to us, or may
otherwise adversely affect us.
The SAFE issued a public notice in October 2005 requiring PRC residents to register with the
local SAFE branch before establishing or controlling any company outside of China for the purpose
of capital financing with assets or equities of PRC companies, referred to in the notice as a
special purpose company. PRC residents who are beneficial owners of special purpose companies and
have completed round trip investments but did not make foreign exchange registrations for overseas
investments before November 1, 2005 were retroactively required to register with the local SAFE
branch before March 31, 2006. PRC resident beneficial owners of special purpose companies are also
required to amend their registrations with the local SAFE branch in certain circumstances. See
Item 4. Information on the CompanyB. Business OverviewRegulationRegulations on Foreign
Exchange Registrations of Offshore Investment by PRC Residents.
We have requested our beneficial owners who are PRC residents to make the necessary
applications, filings and amendments as required by the SAFE. However, we cannot provide any
assurances that all of our beneficial owners who are PRC residents will make or obtain any
applicable registrations or approvals required by these SAFE regulations. The failure or inability
of our PRC resident beneficial owners to comply with SAFE rules and the registration procedures set
forth therein may subject these beneficial owners or our PRC subsidiaries to fines and legal
sanctions; restrict our cross-border cash flows; limit our PRC subsidiaries ability to distribute
dividends, repay foreign loans or make other outbound payments; limit our ability to make capital
contributions, or foreign exchange-denominated loans to our PRC subsidiaries or other inbound
payments; or otherwise adversely affect our business. Moreover, failure to comply with SAFE
registration requirements could result in liability under PRC laws for evasion of foreign
exchange restrictions.
As it is uncertain how the SAFE regulations will be interpreted or implemented, we cannot
predict how these regulations will affect our business operations or future strategy. For example,
we may be subject to more stringent review and approval process with respect to our foreign
exchange activities, such as remittance of dividends and foreign currency-denominated borrowings,
which may adversely affect our results of operations and financial condition. In addition, if we
decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such
company, as the case may be, will be able to obtain the necessary approvals or complete the
necessary filings and registrations required by the SAFE regulations. This may restrict our ability
to implement our acquisition strategy and could adversely affect our business and prospects.
25
Failure to comply with PRC regulations regarding the registration requirements for employee stock
ownership plans or share option plans may subject the PRC plan participants or us to fines and
other legal or administrative sanctions.
Under the applicable regulations and SAFE rules, PRC citizens who participate in an employee
stock ownership plan or a stock option plan in an overseas publicly listed company are required to
register with SAFE and complete certain other procedures. For participants of an employee stock
ownership plan, an overseas custodian bank should be retained by the PRC agent, which could be the
PRC subsidiary of such overseas publicly listed
company, to hold on trusteeship all overseas assets held by such participants under the
employee share ownership plan. In the case of a stock option plan, a financial institution with
stock brokerage qualification at the place where the overseas publicly listed company is listed or
a qualified institution designated by the overseas publicly listed company is required to be
retained by the PRC agent to handle matters in connection with the exercise or sale of stock
options for the stock option plan participants. We and our PRC employees who have been granted
stock options are subject to this rule. We are in the process of registering our employee stock
options plan with the competent foreign exchange authority; however, we cannot assure you that we
and our PRC optionees will complete such registration procedures in a timely manner, or at all. If
we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be
subject to fines and legal sanctions. See Item 4. Information on the CompanyB. Business
Overview RegulationRegulations on Employee Share Options.
PRC regulations relating to foreign acquisitions may subject us to requisite approval by the
Ministry of Commerce, and the failure to obtain such approval could have a material and adverse
effect on our business, operating results, reputation and trading price of our ADSs.
The
Regulations on Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors,
or the M&A Regulation, promulgated by six PRC regulatory agencies on August 8, 2006 and amended on
June 22, 2009 includes provisions that purport to require approval of the Ministry of Commerce for
acquisitions by offshore entities established or controlled by domestic companies, enterprises or
natural persons of onshore entities that are related to such domestic companies, enterprises or
natural persons. In December 2008, the Ministry of Commerce circulated an updated handbook on its
guidance on the administration of foreign investment access. This handbook includes provisions that
tentatively limit the acceptance by the Ministry of Commerce of applications for the approval of
such foreign acquisitions among related parties under the M&A Regulation to those in which the
offshore company is either a listed company or a company duly established overseas that conducts
the acquisition with the profit generated from its own operation. However, the interpretation and
implementation of the M&A Regulation remain unclear with no consensus currently existing regarding
the scope and applicability of the Ministry of Commerce approval requirement on such foreign
acquisitions among related parties.
In 2008, for the purpose of a series of our acquisitions of advertising services and future
businesses that may otherwise have been restricted for foreign investments, we, through Shanghai CRIC,
entered into contractual arrangements with Tian Zhuo, our consolidated affiliated entity, and its
shareholder, which provide us with substantial ability to control Tian Zhuo. After the transfer of
10% equity interests in Tian Zhuo from Mr. Xin Zhou to Mr. Xudong Zhu in July 2009, we entered into
a series of new or amended contractual arrangements with Tian Zhuo and its shareholders, which
continue to provide us with substantial ability to control Tian Zhuo. See Item 7. Major
Shareholders and Related Party TransactionsContractual Arrangements with Tian Zhuo.
Our PRC legal counsel, Fangda Partners, has advised us, based on their understanding of the
current PRC laws, rules, regulations and administrative practices under the M&A Regulation up to
the date of this annual report, that neither the M&A Regulation itself nor the PRC laws, rules,
regulations and administrative practices under the M&A Regulation made public as of the date of
this annual report have clearly indicated the application of the M&A Regulation in connection with
the contractual arrangements between Shanghai CRIC and Tian Zhuo and its shareholders, and it is
not necessary for us to submit an application to the Ministry of Commerce for its approval in
connection with such contractual arrangements.
We have been advised by our PRC legal counsel, however, that there are still uncertainties as
to how the M&A Regulation will be interpreted or implemented. If the Ministry of Commerce
subsequently determines that Ministry of Commerce approval was required for such contractual
arrangements, we may need to apply for a remedial approval from the Ministry of Commerce. There can
be no assurance that we will be able to obtain such approval or waiver of such approval from the
Ministry of Commerce. Our inability to obtain such approval or waiver from the Ministry of Commerce
may have material adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as the trading price of our ADSs. Further, we may be subject to
certain administrative punishments or other sanctions from the Ministry of Commerce. The Ministry
of Commerce or other regulatory agencies may impose fines and penalties on our operations in the
PRC, limit our operating privileges in the PRC, or take other actions that could have further
material adverse effect on our business, financial condition, results of operations, reputation and
prospects, as well as the trading price of our ADSs.
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Failure to comply with PRC laws and regulations relating to the advertising industry may subject us
to fines and legal or administrative sanctions, government actions and civil claims, or otherwise
adversely affect our operation.
PRC advertising laws and regulations require advertisers, advertising agencies and advertising
distributors to ensure that the contents of the advertisements they prepare or distribute are fair
and accurate and are in full compliance with applicable laws. Violation of these laws or
regulations may result in penalties, including fines, confiscation of advertisement fees, orders to
cease dissemination of the advertisements and orders to publish an announcement correcting the
misleading information. In circumstances involving serious violations, the PRC government may
revoke a violators license for advertising business operations and the violator may even be
subject to criminal prosecutions. We are obligated under PRC laws and regulations to monitor the
content of advertisements that we serve onto print media, websites or other media for compliance
with applicable laws. In addition, where special government review or government approval is
required for specific product advertisements, we are separately obligated to confirm that such
review has been performed and approval has been obtained. We have taken measures to comply with
such requirements, including requesting relevant documents from the advertisers. Our reputation
will be damaged and our results of operations may be materially and adversely affected if
advertisements served by us are in violation of relevant PRC advertising laws and regulations or
have not received required approval from the relevant government authorities or are not compliant
in contents. If we are found to be liable in any government proceedings or civil actions against
us, our business could be materially and adversely affected.
Our holding company relies principally on dividends and other distributions on equity paid by our
PRC subsidiaries to fund any cash and financing requirements it may have, and any limitation on the
ability of our PRC subsidiaries to make payments to our holding company could have a material
adverse effect on its ability to fund our operations, make investments or acquisitions, or pay
dividends.
China Real Estate Information Corporation is a holding company, and it relies principally on
dividends from its subsidiaries in China to fund any cash and financing requirements it may have,
including the funds necessary to pay dividends and other cash distributions to the shareholders and
service any debt it may incur. Current PRC regulations permit our PRC subsidiaries to pay dividends
only out of their accumulated profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, each of our subsidiaries in China is required to set aside
a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves.
These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China
incur debt on their own behalf in the future, the instruments governing the debt may restrict their
ability to pay dividends or make other payments to our holding company. In addition, the PRC tax
authorities may require us to adjust our taxable income under the contractual arrangements we
currently have in place in a manner that would materially and adversely affect our PRC
subsidiaries ability to pay dividends and other distributions to our holding company. Any
limitation on the ability of our PRC subsidiaries to distribute dividends or other payments to our
holding company could materially and adversely limit its ability to fund our business operations,
make investments or acquisitions that could be beneficial to our businesses or pay dividends.
PRC regulation of loans and direct investment by offshore holding companies to PRC entities may
delay or prevent us from making loans or additional capital contributions to our PRC operating
subsidiaries.
As an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC
subsidiaries. Any loans to our PRC subsidiaries are subject to approval by relevant governmental
authorities in China and other requirements under relevant PRC regulations. See Item 4.
Information on the CompanyB. Business OverviewRegulationRegulations on Loans to and Direct
Investment in PRC Entities by Offshore Holding Companies.
We may also decide to finance our PRC subsidiaries by means of capital contributions.
According to the relevant PRC regulations on foreign-invested enterprises in China, depending on
the amount of total investment and the type of business in which a foreign-invested enterprise is
engaged, capital contributions to foreign-invested enterprises in China are subject to approval by
the Ministry of Commerce or its local branches. We may not obtain these government approvals on a
timely basis, if at all, with respect to future capital contributions by us to our PRC
subsidiaries. If we fail to obtain such approvals, our ability to capitalize our PRC operations may
be negatively affected, which could materially and adversely affect our liquidity and our ability
to fund and expand our business.
27
The discontinuation of any of the preferential tax treatments currently available to us in the PRC
or imposition of any additional PRC taxes on us could adversely affect our financial condition and
results of operations.
Pursuant to a Circular on Enterprise Income Tax Preferential Treatments issued by the State
Administration of Taxation, a qualified software enterprise is eligible to be exempted from income
tax for its first two profitable years, followed by a 50% reduction in income tax, to a rate of
12.5%, for the subsequent three years. Shanghai SINA Leju was recognized as a qualified software
enterprise in February 2009 and was further approved by the local tax authority in June 2009 and,
thus, became eligible to be exempted from income tax for 2009, followed by a 50% reduction in
income tax from 2010 through 2012. Shanghai CRIC was also recognized as a qualified software
enterprise in September 2008 and was further approved by the local tax authority in May 2010 and,
thus, it is likewise eligible to be exempted from income tax for 2009, followed by a 50% reduction
in income tax from 2010 through 2012. However, the qualified software enterprise status is subject
to annual review. If Shanghai SINA Leju or Shanghai CRIC fails to maintain software enterprise
status in any annual review, their applicable enterprise income tax rate may increase to up to 25%,
which could have a material adverse effect on our financial condition and results of operations.
Preferential tax treatment granted to our subsidiaries by the local governmental authorities
is subject to review and may be adjusted or revoked at any time. The discontinuation of any
preferential tax treatments currently available to us and our wholly-owned subsidiaries will cause
our effective tax rate to increase, which could have a material adverse effect on our financial
condition and results of operations. We cannot assure you that we will be able to maintain our
current effective tax rate in the future.
Our business benefits from tax-related government incentives and discretionary policies. Expiration
of, or changes to, these incentives or policies could have a material adverse effect on our
operating results.
Since 2009, Shanghai CRIC has been granted certain governmental financial subsidies by the
Zhabei District government in Shanghai. Local governments may decide to reduce or eliminate
subsidies at any time. In addition, we cannot assure you of the continued availability of the
government incentives and subsidies currently enjoyed by some of our PRC subsidiaries and
consolidated affiliated entities. Furthermore, local implementations of tax laws may be found in
violation of national laws or regulations, and as a consequence, we may be subject to retroactive
imposition of higher taxes. Since 2007, we have been required under U.S. GAAP to accrue
taxes for these contingencies. Any change in accounting requirements for reporting tax
contingencies, any reduction or elimination of subsidies or any retroactive imposition of higher
taxes could have an adverse effect on our results of operations.
Dividends payable to us by our PRC subsidiaries may be subject to PRC withholding taxes, we may be
subject to PRC taxation on our worldwide income, and dividends distributed to our non-PRC investors
may be subject to PRC withholding taxes under the PRC Enterprise Income Tax Law.
Under the PRC Enterprise Income Tax Law and its implementation rules, all domestic and
foreign-invested companies in China are subject to a uniform enterprise income tax at the rate of
25% and dividends from a PRC subsidiary to its foreign parent company are subject to a withholding
tax at the rate of 10%, unless such foreign parent companys jurisdiction of incorporation has a
tax treaty with China that provides for a reduced rate of withholding tax, or the tax is otherwise
exempted or reduced pursuant to the PRC tax laws.
Under the Administrative Measures for Non-Residents Enjoying Tax Treaty Benefits (Trial
Implementation), effective on October 1, 2009, our Hong Kong subsidiaries need to obtain approval
from the competent local branch of the State Administration of Taxation in order to enjoy the
preferential withholding tax rate of 5% in accordance with the Arrangement between Mainland China
and Hong Kong for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to
Taxes on Income. The State Administration of Taxation further promulgated a circular on October 27,
2009, which provides that tax treaty benefits will be denied to conduit or shell companies
without business substance and that a beneficial ownership analysis will be used based on a
substance-over-form principle to determine whether or not to grant the tax treaty benefits.
It is unclear at this stage whether this circular applies to dividends from our PRC subsidiaries
paid to us through our Hong Kong subsidiaries. However, it is possible that our Hong Kong
subsidiaries might not be considered as beneficial owners of any dividends from their PRC
subsidiaries and as a result would be subject to withholding tax
at the rate of 10%. As a result, there is no assurance that our Hong Kong subsidiaries will be
able to enjoy the preferential withholding tax rate.
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Under the PRC Enterprise Income Tax Law, enterprises organized under the laws of jurisdictions
outside China with their de facto management bodies located within China are considered PRC
resident enterprises and therefore be subject to PRC enterprise income tax at the rate of 25% on
their worldwide income. Under the implementation rules of the PRC Enterprise Income Tax Law, de
facto management bodies are defined as bodies that have material and overall management and
control over the manufacturing and business operations, personnel and human resources, finances and
treasury, and acquisition and disposition of properties and other assets of an enterprise. In
addition, a circular issued by the State Administration of Taxation on April 22, 2009 provides that
a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a
resident enterprise with its de facto management bodies located within China if the following
requirements are satisfied: (i) the senior management and core management departments in charge of
its daily operations function mainly in the PRC; (ii) its financial and human resources decisions
are subject to determination or approval by persons or bodies in the PRC; (iii) its major assets,
accounting books, company seals, and minutes and files of its board and shareholders meetings are
located or kept in the PRC; and (iv) more than half of the enterprises directors or senior
management with voting rights reside in the PRC.
The PRC Enterprise Income Tax Law and its implementation rules are relatively new and
ambiguities exist with respect to the interpretation of the provisions relating to resident
enterprise issues. Although our offshore holding companies are not controlled by any PRC company or
company group, we cannot assure you that we will not be deemed to be a PRC resident enterprise
under the PRC Enterprise Income Tax Law and its implementation rules. If we are deemed to be a PRC
resident enterprise, we will be subject to PRC enterprise income tax at the rate of 25% on our
worldwide income. In that case, however, dividend income we receive from our PRC subsidiaries may
be exempted from PRC enterprise income tax because the PRC Enterprise Income Tax Law and its
implementation rules generally provide that dividends received by a PRC resident enterprise from
its directly invested entity that is also a PRC resident enterprise
are exempted from enterprise
income tax. However, as there is still uncertainty as to how the PRC Enterprise Income Tax Law and
its implementation rules will be interpreted and implemented, we cannot assure you that we are
eligible for such PRC enterprise income tax exemptions or reductions.
In
addition, ambiguities exist with respect to interpretation of the provisions
relating to identification of PRC-sourced income. If we were considered a PRC resident enterprise,
dividends distributed by us to our offshore investors that are non-resident enterprises, or the
gains such investors may realize from the transfer of our ordinary shares or ADSs, may be treated
as PRC-sourced income and therefore be subject to a 10% PRC withholding tax, unless otherwise
exempted or reduced pursuant to treaties or applicable PRC law.
If we became a PRC resident enterprise under the new PRC tax system and received income other
than dividends, our profitability and cash flows would be adversely affected due to our worldwide
income being taxed in China under the PRC Enterprise Income Tax Law. Additionally, we would incur
an incremental PRC dividend withholding tax cost if we distributed our profits to our ultimate
shareholders. There is, however, not necessarily an incremental PRC dividend withholding tax on the
piece of the profits distributed from our PRC subsidiaries, since they would have been subject to
PRC dividend withholding tax even if we were not a PRC tax resident.
Risks Related to Our ADSs
The market price for our ADSs has been and may continue to be volatile.
The market price for our ADSs has been and may continue to be volatile and subject to wide
fluctuations in response to factors including the following:
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actual or anticipated fluctuations in our quarterly operating results;
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changes in financial estimates by securities research analysts;
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conditions in the real estate and/or advertising industries in China;
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changes in the economic performance or market valuations of other real estate
services companies;
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announcements by us or our competitors of new products, acquisitions, strategic
partnerships, joint ventures or capital commitments;
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addition or departure of key personnel;
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fluctuations of exchange rates between the RMB and U.S. dollar or other foreign
currencies;
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sales or repurchases of our ADSs or ordinary shares; and
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general economic or political conditions in China.
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In addition, the securities markets in the United States, China and elsewhere have from time
to time experienced significant price and volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may also materially and adversely
affect the market price of our ADSs. In 2010, the closing price of our ADSs on NASDAQ varied from a
high of $11.74 to a low of $7.47.
We may need additional capital, and the sale of additional ADSs or other equity securities could
result in dilution to our shareholders.
We believe that our current cash, cash equivalents and cash flow from operations will be
sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require
additional cash resources due to changed business conditions or other future developments,
including any investments or acquisitions we may decide to pursue. If these resources are
insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt
securities or obtain a credit facility. The sale of additional equity securities could result in
dilution to our shareholders. The incurrence of indebtedness would result in increased debt service
obligations and could result in operating and financing covenants that would restrict our
operations. It is uncertain whether financing will be available in amounts or on terms acceptable
to us, if at all.
Substantial future sales of our ADSs in the public market, or the perception that these sales could
occur, could cause the price of our ADSs to decline.
Additional sales of our ordinary shares in the public market, or the perception that these
sales could occur, could cause the market price of our ADSs to decline. As of March 31, 2011, we
had 145,059,722 ordinary shares outstanding, 1,141,064 of which have been issued to our depositary
and reserved for future grants under our share incentive plan, and more than 84% of which are
available for sale, subject to volume and other restrictions as applicable under Rule 144 under the
Securities Act.
In addition, we, E-House and SINA have entered into an agreement which provides E-House and
SINA certain rights to cause us to register the sale of shares held by E-House and SINA.
Registration of the sale of these shares under the Securities Act would result in these shares
becoming freely tradable without restriction under the Securities Act immediately upon the sale of
such shares pursuant to the effective registration. Sales of these registered shares in the public
market could cause the price of our ADSs to decline.
We are a controlled company within the meaning of the NASDAQ Stock Market Rules and, as a result,
we are exempted from certain corporate governance requirements that provide protection to
shareholders of other companies.
Currently, E-House owns more than 50% of the total voting power of our company and thus making
our company a controlled company under the NASDAQ Stock Market Rules. As a controlled company, we
are exempted from certain NASDAQ corporate governance requirements, including the requirement that
a majority of our board of directors consist of independent directors. We are not required to and
will not voluntarily meet these requirements. As a result of our use of the controlled company
exemptions, you will not have the same protection afforded to shareholders of companies that are
subject to all of NASDAQs corporate governance requirements.
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You may not have the same voting rights as the holders of our ordinary shares and may not receive
voting materials in time to be able to exercise your right to vote.
Except as described in this annual report and in the deposit agreement, holders of our ADSs
cannot exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis.
Holders of our ADSs appoint the depositary or its nominee as their representative to exercise the
voting rights attaching to the shares represented by the ADSs. You may not receive voting materials
in time to instruct the depositary to vote, and it is possible that you, or persons who hold their
ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a
right to vote. Furthermore, neither the depositary nor its agents are responsible for any failure
to carry out any voting instructions, for the manner in which any vote is cast or for the effect of
any vote.
You may not be able to participate in rights offerings and may experience dilution of your holdings
as a result.
We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. Under the deposit agreement for the ADSs, the depositary will not offer those
rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS
holders are either registered under the Securities Act, or exempt from registration under the
Securities Act with respect to all holders of ADSs. We are under no obligation to file a
registration statement with respect to any such rights or underlying securities or to endeavor to
cause such a registration statement to be declared effective. In addition, we may not be able to
take advantage of any exemptions from registration under the Securities Act. Accordingly, holders
of our ADSs may be unable to participate in our rights offerings and may experience dilution in
their holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close
its transfer books at any time or from time to time when it deems expedient in connection with the
performance of its duties. In addition, the depositary may refuse to deliver, transfer or register
transfers of ADSs generally when our books or the books of the depositary are closed, or at any
time if we or the depositary deem it advisable to do so because of any requirement of law or of any
government or governmental body, or under any provision of the deposit agreement, or for any other
reason.
You may face difficulties in protecting your interests, and your ability to protect your rights
through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands
law, conduct substantially all of our operations in China and all of our officers reside outside
the United States.
We are incorporated in the Cayman Islands. We conduct substantially all of our operations
through our subsidiaries outside of the United States and in China. In addition, all of our
officers reside outside the United States and some or all of the assets of those persons are
located outside of the United States. As a result, it may be difficult for you to bring an original
action against us or against these individuals in the event that you believe that your rights have
been infringed under U.S. federal securities laws or otherwise. Even if you are successful in
bringing an action of this kind, the laws of the Cayman Islands and China may render you unable to
enforce a judgment against our assets or the assets of our directors and officers. There is no
statutory recognition in the Cayman Islands of judgments obtained in the United States, although
the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a
foreign court of competent jurisdiction without retrial on the merits. PRC courts may recognize and
enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based
either on treaties between China and the country where the judgment is made or on principles of
reciprocity between jurisdictions. However, China does not have any treaties or other agreements
with the United States that provide for the reciprocal recognition and enforcement of foreign
judgments.
Our corporate affairs are governed by our memorandum and articles of association and by the
Companies Law (2010 Revision) and the common law of the Cayman Islands. The rights of
shareholders to take legal action against our directors and us, actions by non-controlling
shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are
to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman
Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as
well as from English common law, which has persuasive, but not binding, authority on a court in the
Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors
under Cayman Islands law are not as clearly established as they would be under statutes or judicial
precedents in some jurisdictions in the United States. In particular, the Cayman Islands has a less
developed body of securities laws as compared to the United States, and provides significantly less
protection to investors. In addition, Cayman Islands companies may not have standing to initiate a
shareholder derivative action before the federal courts of the United States.
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As a result of all of the above, our public shareholders may have more difficulty in
protecting their interests through actions against our management, directors or major shareholders
than would shareholders of a public company incorporated in a jurisdiction in the United States.
We may be classified as a passive foreign investment company, which could result in adverse United
States federal income tax consequences to U.S. Holders.
A non-United States corporation, such as our company, will be classified as a passive foreign
investment company, or PFIC, for United States federal income tax purposes, for any taxable year
if either (i) 75% or more of its gross income consists of certain types of passive income or (ii)
50% or more of the value of its assets (determined on the basis of a quarterly average) produce or
are held for the production of passive income. Based on the price of our ADSs and ordinary shares
and the composition of our income and assets, we do not believe that we were a PFIC for United
States federal income tax purposes for the taxable year ended December 31, 2010. Although we do
not currently expect that our assets or activities will change in a manner that would cause us to
become a PFIC for the current taxable year, ending December 31, 2011, there can be no assurance our
business plans will not change in a manner that will affect our PFIC status. Because the value of
our assets for purposes of the PFIC test will generally be determined by reference to the market
price of our ADSs and ordinary shares, fluctuations in the market price of our ADSs and ordinary
shares may cause us to become a PFIC. In addition, the composition of our income and assets will
be affected by how, and how quickly, we use the cash we generate from our operations and raise in
any offering. Because there are uncertainties in the application of the relevant rules and PFIC
status is a fact-intensive determination made on an annual basis, no assurance can be given that we
are not or will not become classified as a PFIC. We must make a separate determination after the
close of each taxable year as to whether we were a PFIC for that year. If we are a PFIC for any
taxable year during which U.S. Holders (as defined in Item 10. Additional
InformationTaxationUnited States Federal Income Taxation) hold ADSs or ordinary shares,
certain adverse United States federal income tax consequences could apply to U.S. Holders. See
Item 10. Additional InformationTaxationUnited States Federal Income TaxationPassive Foreign
Investment Company.
ITEM 4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
Our company was incorporated on August 21, 2008 in the Cayman Islands as an exempted company
with limited liability under the Companies Law of the Cayman Islands.
Our
parent company, E-House, began developing the CRIC system in 2002, initially to support
services to its clients. In April 2006, E-House incorporated a subsidiary, CRIC (China) Information
Technology Co., Ltd., or CRIC BVI, in the British Virgin Islands. In July 2006, E-House, through
CRIC BVI, established a new PRC subsidiary, Shanghai CRIC, and transferred its assets and staff
relating to the CRIC system to Shanghai CRIC. Shanghai CRIC began commercializing the CRIC system
and offering real estate information and consulting services in 2006.
Shanghai CRIC began offering real estate advertising services in 2008 through a newly acquired
consolidated affiliated entity in China, Tian Zhuo, and its subsidiaries. Shanghai CRIC gained
control and became the primary beneficiary of Tian Zhuo through a series of contractual
arrangements with Tian Zhuo and its then sole shareholder, Mr. Xin Zhou, who is also our
co-chairman and chief executive officer and the executive chairman of E-House.
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In April 2008, CRIC BVI, through our subsidiary E-House (China) Information Technology Service
Limited, or EIT, together with SINA, formed a joint venture, COHT, to build and operate a leading
real estate website in China. EIT held 34% of the equity interest in the joint venture.
E-House incorporated our company in the Cayman Islands in August 2008 and transferred all of
the outstanding shares of CRIC BVI to our company in October 2008.
On July 23, 2009, we entered into a share purchase agreement with SINA, as amended on
September 29, 2009, pursuant to which we acquired SINAs 66% equity interest in COHT in exchange
for issuing to SINA 47,666,667 shares.
On October 16, 2009, our ADSs began trading on the NASDAQ Global Select Market under the
ticker symbol CRIC. Including the exercise of an over-allotment option, we issued a total of
20,700,000 ADSs, representing 20,700,000 ordinary shares, at an initial offering price of $12.00
per ADS. Concurrent with completion of the IPO, we also completed the merger with SINAs real
estate online business. Following these transactions, E-House remained the majority shareholder of
CRIC holding 50.04% of CRICs total outstanding shares, and SINA became CRICs second
largest shareholder holding 33.35% of our total outstanding shares. As
of March 31, 2011, E-House beneficially
owned 53.0% of our total outstanding shares.
Our principal executive offices are located at No. 383 Guangyan Road, Shanghai 200072,
Peoples Republic of China. Our telephone number at this address is (86-21) 6086-7500. In addition,
we have offices in 33 other cities in China. Our registered office in the Cayman Islands is located
at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman
KY1-1104, Cayman Islands. Our agent for service of process in the United States is Law Debenture
Corporate Services Inc. located at 400 Madison Avenue, 4th Floor, New York, New York 10017.
B.
Business Overview
Overview
We are a leading provider of real estate information, consulting, advertising
and promotional event services in China. We also operate a leading real estate online business in
China, which, prior to our IPO in October 2009, was majority-owned and operated by SINA, a leading online media company in China. We are a subsidiary of E-House, a leading real estate services company in China listed on the
New York Stock Exchange.
We operate our proprietary CRIC system, which is an advanced and
comprehensive real estate information database and analysis system, which had been used as an
internal resource to support E-Houses real estate agency and
brokerage services as well as our
information and consulting services prior to July 2006. We began to commercialize the CRIC system
by selling subscriptions in July 2006 and have generated revenues from our real estate information
services since then. We began offering and generating revenues from real estate consulting services
in 2002. Such services were provided through various subsidiaries of E-House prior to 2006 and,
since 2006, have been provided through our main operating subsidiary, Shanghai CRIC.
We began to provide real estate advertising services in 2008. In
April 2010, Shanghai CRIC acquired 55% of the equity of Shanghai
Dehu, a promotional event provider and we began offering real estate
promotional event services. Our major clients for these services primarily include real estate
developers in China.
In October 2009, we acquired SINAs real estate online business and SINA became a significant
shareholder of our company. We operate a leading real estate online
business in China that provides region-specific real estate news and information, property data and
access to online communities via local websites covering 138 cities across China as of December 31,
2010. Our acquisition of SINAs real estate online business and our business partnership with SINA
has created and is expected to continue to create substantial synergies by, among other things,
providing our real estate developer clients with access to SINAs large Internet user base and
leveraging our established relationships with real estate developers to attract more advertising
clients for our real estate websites. We believe that the combination of our CRIC system, our
extensive experience and knowledge in the real estate services industry, our business partnership
with SINA, and the support of both E-House and SINA are high entry barriers for our competitors.
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Our real estate online operations serve multiple participants in the real estate industry
value chain, including developers, suppliers, agents, brokers, service providers and individual
consumers, allowing us to further capitalize on our CRIC system and the knowledge and experience we
and SINA have gained in serving Chinas real estate industry and expand our revenue streams. We
intend to continue to leverage the scale of our combined real estate online operations and SINAs
large Internet user base to generate more revenues in the future.
Our total revenues grew from $8.2 million in 2007 to $50.0 million in 2008, $95.7 million in
2009 and $174.2 million in 2010. Our operating costs and expenses increased from $5.9 million in
2007 to $22.7 million in 2008, $60.9 million in 2009 and $150.1 million in 2010. Our net income
attributable to CRIC shareholders was $2.1 million in 2007, and increased to $22.2 million in 2008,
$55.6 million in 2009 and $25.9 million in 2010.
Our CRIC System
Our parent company, E-House, began developing the CRIC system in 2002, initially to support
its primary and secondary real estate agency services. Over the years, we have compiled vast
amounts of real estate-related information in the CRIC system, including data on specific real
estate development projects and parcels of land, real estate-related news, macroeconomic,
demographic and real estate industry-specific statistics, and research reports about the real
estate industry in China. We built the CRIC system using in-house capabilities and hold copyright
registrations in China that cover the core software developed by us. We believe our CRIC system is
the most comprehensive real estate information database and analysis system in China.
Structure and Functionality
Information in the CRIC system is organized into four broad categories: data on specific
developments, research reports, statistics and news. Each category has its separate searchable
database. In addition, we have created sub-databases to cover specific subject matters, such as an
enterprise database, a project database and a media database. In the first quarter of 2010, we also
developed a derivative product of the CRIC system, the CRIC Investor Edition, which provides
information on publicly traded developers, macro real estate data and reports. In addition, we
improved the pre-existing CRIC land database in 2010 and separated it into a stand-alone database
product, which aims to provide up-to-date information on land transactions nationwide.
Data on Specific Developments.
For each real estate development covered in the CRIC system,
the database contains some or all of the following types of information:
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Detailed information about the development itself
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the development as residential, office or commercial, this type of information may
cover the developments location, including street address, names of the roads
surrounding it, and marking on a two-dimensional digital map, number and type of
buildings in the development, total construction area, property developer, sales
agents, property manager, monthly management fee, construction start date, sale start
date, average selling or rental price per square meter, construction materials, plot
ratio, percentage of green space, number of parking spaces, key equipment used in the
building, key tenants, and other information.
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Primary sales information
. For residential developments and some office and
commercial developments, our database contains transaction information on the initial
sales of the units in a development. Such information generally includes total gross
floor area sold, number of units sold, average selling price per square meter,
transaction dates and prices of individual units and total transaction value on a
monthly basis during the primary sales period.
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Photographs
. Depending on the nature of the development, the database generally
contains photographs of the development, model units, public space inside and outside a
building, and the surrounding areas. For some residential developments, there are also
scanned images of floor plans of the units within the building. In addition, we have
satellite images for each city covered by our database.
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Advertising spending
. For many developments, the database includes data on the
developers advertising spending in connection with the marketing of the projects,
including statistics on spending on print, television and outdoor media advertising.
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Surrounding areas
. The database also allows users to search for other real
estate developments, land for development and certain facilities, such as mass transit
stations, retail establishments, hospitals and schools, in the surrounding area of a
development.
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Users
can search for information on a particular development either through
a keyword search or,
if the user knows the approximate location of the development, by clicking on the corresponding
marking of the development on a satellite image. Once a particular development has been identified,
our CRIC system allows users to search for other real estate developments, land for development and
certain facilities in the surrounding area of the development. Using the advanced search function,
users can also search for and obtain a list of all properties in a particular city that meet
various standards set by the user. In addition, users can use an assortment of tools built into the
software, and can sort and generate reports based on an array of search fields.
Research Reports
. There are two principal types of research reports in our CRIC system: (i)
topical studies that focus on specific topics in the real estate industry, such as general market
conditions, case studies of specific development projects, marketing and advertising analyses,
regulatory developments, and consumer studies, and (ii) periodic reports that generally focus on
market conditions in specific cities during the reporting period and are issued on a daily, weekly,
monthly, quarterly or annual basis. The research reports in our CRIC system have been written
either by our own research staff or by the researchers at the E-House Research and Training
Institute and licensed for use in our database. Users can conduct keyword searches in the research
report database.
Statistics
. The statistics contained in our CRIC system include various macroeconomic and
demographic data at both the national level and the city level, such as population, gross domestic
product, per capita disposable income, per capita consumption and savings. The database also
contains a wide variety of statistics specifically related to the real estate industry, at both the
national level and the city level. The real estate-related statistics include (i) investment data,
such as total investment in fixed assets, total amount and average price of land sold through
public bidding, auction and listing, and total amount of foreign investments in real estate assets
or properties, and (ii) transaction data, such as total gross floor area, total transaction value
and average selling price per square meter of residential, office and commercial developments.
Users can generate statistical reports by selecting various criteria from a menu of options and
then download the report directly into a spreadsheet file.
News
. The news articles in our database cover a wide range of real estate-related topics from
general economic, market and regulatory environments to specific development projects and real
estate companies. Users can browse the news by topics or conduct keyword searches in the database.
Data Collection
We have a team of dedicated data collection employees and have developed standardized data
collection procedures to ensure the accuracy, consistency and timeliness of the data entered into
our CRIC system. As of December 31, 2010, we had 271 data collection employees. Our data collection
employees undergo extensive training so that we can consistently implement standardized methods and
processes in our data collection efforts across different developments in different cities.
We collect data for the CRIC system from multiple sources. Detailed information about specific
developments or parcels of land is generally obtained from the developers or through on-site
inspections conducted by our data collection team. We purchase most photographs of the developments
and the surrounding areas from third-party providers and, as part of their on-site inspections, our
data collection staff also take some photographs of the developments and the surrounding areas. We
collect primary sales information either from public records, such as publications by local
government agencies, or from third-party service providers or other sources. The two-dimensional
digital maps used in our CRIC system are licensed from third-party service providers. The licensing
agreements grant us a non-exclusive license to use the maps in our database in connection with the
provision of our services. The satellite images used in our CRIC system were purchased from
third-party service providers. We
purchase the statistical data included in our CRIC system from independent service providers,
who generally compile the data based on publicly available statistics published by relevant
governmental agencies.
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While we strive to obtain the rights to use and reproduce copyrighted materials in our CRIC
system from the copyright holders, we cannot assure you that we are always able to do so. See Item
3. Key InformationD. Risk FactorsRisks Related to Our BusinessCopyright infringement and
other intellectual property claims against us may adversely affect our business and our ability to
operate our CRIC system.
Quality Controls and Data Updating
We use both automated and non-automated quality control procedures to ensure the accuracy of
the data entered into our CRIC system. Our proprietary software
tools automatically check for
outdated information, incomplete data fields or conflicting data entries. We also monitor entries
to critical fields of information to ensure all information is kept in compliance with our standard
definitions and methodology. Our non-automated quality control procedures primarily consist of
daily audits of a sample of data entered into our system. We provide ongoing training to our data
collection team to ensure that they collect and compile data in accordance with our standardized
procedures. In addition, one of the most important and effective quality control measures we rely
on is feedback provided by our subscriber clients.
We update the information in the CRIC system from time to time in order to maintain the
accuracy of such information. The frequency of the updates generally varies from daily to quarterly
depending on the type of the information, availability of updated information and clients demands.
We have also developed software tools to automate the updating process for primary sales
information in certain major cities. These data, which our software tools can automatically scan
and upload into the CRIC system, are usually published online by the local government agencies.
Shanghai CRIC, our principal operating subsidiary, was granted ISO 9001:2000 certification
for its systems and services in 2008. This certification is valid from 2008 to 2011 and certifies
that Shanghai CRIC applies formalized business processes that meet the ISO 9001:2000 standard
maintained by the International Organization for Standardization.
System Protection
We maintain a comprehensive information technology manual that provides for detailed policies
and procedures for the protection of our information technology system, including data backup
procedures, anti-virus and anti-hacking procedures, procedures for dealing with emergencies and
catastrophes, and network and hardware maintenance policies. Our computer servers perform automatic
data backups on a regular basis. In addition, we periodically conduct
manual backups of all data onto
CDs and store the CDs in a secure off-site location. We continually monitor our CRIC system in an
effort to detect and prevent unauthorized access while ensuring fast and reliable access by our
clients. Our main servers are located in the Internet data centers of a local telecommunications
carrier in Shanghai. In the event of a system breakdown of our main servers, our backup servers can
be operational within 30 minutes.
Our Services
We
provide the following principal types of services: subscription-based real estate
information services, project-based real estate consulting services, real estate advertising
services, real estate promotional event services and real estate online services. Over time, we intend to enhance our existing services and offer additional services that further
capitalize on our CRIC system to serve the evolving needs of our existing and new clients. As of
December 31, 2010, our network consisted of our headquarters in Shanghai and branch offices in 40
cities. In addition, we collect data in 42 additional cities.
Real Estate Information Services
We provide two levels of real estate information services relying upon our CRIC system: data
subscription services and data integration services.
36
Data Subscription Services
. We market and sell, on a subscription basis, the use of our CRIC
system. Because information in our CRIC system is organized by cities, clients can tailor
subscriptions to their own needs by subscribing only to information relating to particular cities.
Under our agreements with clients for data subscription services, clients typically agree to pay a
fixed annual subscription fee at the beginning of the contract term in exchange for a non-exclusive
right to use our CRIC system during the term of the agreement, generally one year. Upon the
expiration of an agreement, we negotiate with the client for a new agreement, which may include new
pricing terms and different coverage. The amount of the subscription fee under an agreement depends
on the number of cities and the number of subscription accounts covered under the agreement. For
some valued clients whose subscriptions cover multiple cities, we offer a discount from the amount
that we otherwise would charge for similar coverage on an individual city basis.
Prior to 2009, clients could only access our CRIC system through terminals installed on their
premises. At the beginning of 2009, we stopped using terminals and launched an upgraded version of
the CRIC system, CRIC 2009, which allows subscribers to access the CRIC system via the Internet
from their own computers by installing a logon interface software. Once the installation is
completed, the subscriber can access our CRIC system using an assigned user ID and password. Each
subscriber account can only be used on one computer. Therefore, clients that want access to our
system from multiple computers need to set up and pay for multiple subscription accounts.
Data Integration Services
. In addition to basic subscriptions, we also offer data integration
services by leveraging the information and data contained in our CRIC system and its flexible
design and analytical capabilities. These premium services include, in addition to access to our
CRIC system, periodic research reports and analysis that suit the specific needs and requirements
of individual clients. These reports are delivered in electronic or paper format on a daily,
weekly, monthly, quarterly or annual basis and may include analysis of real estate developments and
transactions for a city, a district, or individual developers and projects, or analysis of periodic
trends in transaction volume and price.
We believe our data integration services create value for our clients by helping them monitor
competitors development projects, gather market intelligence needed for their decision-making
process, and otherwise follow the latest developments in the real estate industry. Our agreements
with clients for data integration services generally have a minimum term of three months and
require the clients to pay a fixed monthly or quarterly subscription fee. The amount of the
subscription fee under an agreement depends on the type and frequency of the reports required by
the client. We often offer our data integration services together with our solution consulting
services described below as a bundled package.
Real Estate Consulting Services
We provide real estate consulting services tailored to meet the needs of real estate developer
clients at various stages of the project development and sales process and other clients with
particular requests and needs. Our consulting services include services designed to help real
estate developer clients formulate solutions to meet their specific needs and services designed to
facilitate large-scale land or development project purchase and sale transactions. In certain
instances, we agree to a consulting arrangement wherein payment is contingent upon the delivery of
a final product, such as closing a land acquisition transaction or providing a market study report.
In other instances, we provide services periodically during the development stage of a real estate
project, such as monthly market updates. We offer our services for a wide range of developments,
including residential, commercial, office, lodging, industrial, tourism, and cultural developments.
The following is a description of some principal types of consulting services we provide.
Land Acquisition Consulting.
Under applicable PRC law, all usage rights for land to be
developed for commercial uses must be granted by way of public bidding, auction or listing. Real
estate developers retain us in connection with their proposed acquisition of properties that are in
the public bidding, auction or listing process or through negotiated transfers. We provide
developers with development potential and risk analysis reports for the properties under
consideration, including information such as comparable real estate transaction histories,
potential target market for the development project or projected price. We also provide consultancy
services to land owners to market the land to developers and introduce developers to land owners.
37
Real Estate Development Consulting
. We offer a variety of services to developers who have
obtained land development rights. We provide project feasibility studies that include general
information on market conditions and trends and information concerning the demographics and the
existing and projected amenities in the area where the project will be located. We also provide a
comprehensive analysis of the real estate transaction history of nearby development projects,
including average selling price and sales activities, marketing and advertising campaigns employed,
amenities and services offered, and demographics targeted by these projects. We work with
developers to define the targeted demographic and determine the floor plan, optimal unit size,
price schedule, interior and landscaping design criteria, construction material, and the services
and amenities for each development phase.
Marketing Consulting
. We offer marketing and advertising consulting services, either on a
stand-alone basis or as part of a comprehensive consulting services package, to developers. Under
these engagements, we analyze the characteristics of the development project and the target market
and prepare a report that describes our advice on both overall marketing and advertising strategy,
and specific marketing and advertising plans for various phases of the development. If requested,
we can also assist the developer client in selecting and supervising third-party marketing and
advertising companies to implement the marketing and advertising plans.
Comprehensive Solution Consulting
. We offer consulting services that aim to help clients
develop comprehensive plans for their development projects. In these engagements, we work closely
with designated client staff to prepare a detailed consulting report that sets forth our advice on
the entire development and, if applicable, the post-completion operation process, ranging from
overall development strategies and plans to architectural design, marketing and advertising
strategies to operating and profit models.
Real Estate Advertising Services
We began to offer real estate advertising design and sales services primarily to real estate
developers in 2008 through our consolidated affiliated entity in China, Tian Zhuo, and its
subsidiaries. In September 2008, we acquired a 60% interest in
Wushi Consolidated (Beijing) Advertising Media Co., Ltd. or
Wushi Advertising, which provides
real estate advertising design services to developers.
We currently provide real estate advertising design services in 14 cities in China. In
addition, starting in 2009 in Shanghai, we make wholesale purchases of advertising space in print
and other media and resell them to our developer clients. We plan to offer real estate advertising
services in more cities and expand our operations in the cities in which we currently offer such
services. We believe our entry into the real estate advertising market provides us with an
additional tool to offer integrated services to our real estate developer clients and enable us to
capitalize on a growing demand by real estate developers for advertising services.
Real Estate Promotional Event Services
In April 2010, we injected $0.8 million in Shanghai Dehu, a public relations consulting
company, in exchange for a 55% equity interest. Through Shanghai Dehu, we offer real estate promotional event
services to our various clients. Our promotional event services
include securing venues, hiring caterers and other service providers,
formulation event themes and inviting speakers and guests for real
estate promotional events.
Real estate online services
History
Our
real estate online services originated primarily from real estate-focused channels
originated under SINA, a leading online media company in China, which is independent from us. On
January 1, 2008, SINA started to reorganize its real estate and home furnishing channels and online
real estate advertising business into a separate unit with its own legal entities, management team,
advertising operations, systems and physical facilities. The reorganization was completed on April
1, 2008 with the formation of a joint venture, COHT, between SINA and us. SINA contributed $2.5
million in cash, certain assets and the rights to operate its real estate and home furnishing
channels for a period of ten years. The rights include the licenses granted to COHT to use SINAs
trademark, domain name, portal technologies and certain software. We contributed $2.5 million in
cash and a ten-year license to use the database in our CRIC system. We and SINA beneficially owned
34% and 66% of COHT, respectively.
38
SINA entered into an agency agreement with COHT under which, for three years starting from
April 1, 2008, COHT would be the exclusive advertising agent of SINAs channels other than its real
estate and home furnishing channels, or SINAs non-real estate channels, for advertising sold to
real estate advertisers. Under the agency agreement, COHT provided SINA a minimum guarantee for
advertising sold from SINAs non-real estate channels.
On July 23, 2009, we and SINA entered into a share purchase agreement, as amended on September
29, 2009, pursuant to which we acquired SINAs 66% equity interest in COHT in exchange for issuing
to SINA 47,666,667 of our ordinary shares. We, E-House and SINA also entered into a shareholders
agreement and a registration rights agreement in October 2009. SINA and COHT entered into an
amended and restated advertising agency agreement, a domain name and content license agreement, a
trademark license agreement and a software license and support services agreement, which became
effective after the completion of our acquisition of SINAs equity interests in COHT. See Item 7.
Major Shareholders and Related Party TransactionsB. Related Party TransactionsTransactions and
Agreements with SINA and COHT.
Since completion of our acquisition of SINAs real estate online business in October 2009, we,
through COHT, have been operating our real estate online business as described below and SINA has
stopped independently operating a real estate online business.
Apart from the real estate online business acquired from SINA, we also developed our own real
estate online business. In 2008, we began assembling an Internet business targeting different
participants in the real estate industry in China, through both self development and acquisitions.
We believe that our Internet operations will allow us to further capitalize on our CRIC system and
the knowledge and expertise we have developed in the real estate services industry to explore new
growth opportunities.
The online real estate channels we acquired from SINA, combined with our previously
self-developed real estate online business, comprise a leading real estate online business in China
and provide region-specific real estate news and information, property data and access to online
communities to real estate consumers and participants via local websites covering 138 cities across
China as of December 31, 2010. Leveraging SINAs strong brand recognition and market influence in
Chinas online space and its large user base, our real estate online business enables real estate
advertisers to reach target audiences in most of Chinas major cities. Our real estate online
business derives substantially all of its revenues from sales of online advertising.
As of December 31, 2010, our real estate online services business directly operated offices in
35 major cities that have relatively large populations and good potential for real estate
advertising. In addition, we cooperate with local hosting partners to operate local real estate
websites in 103 other cities across China. Our local presence in each of these cities allows us to
tailor our advertising offerings to local conditions and the needs of local real estate developers,
agents, brokers, suppliers, service providers and individual consumers. We intend to continue to
expand the real estate online advertising business into more cities across China.
Real Estate Websites
We entered into a domain name and content license agreement with SINA under which
house.sina.com.cn
and
jiaju.sina.com.cn,
among others, were licensed to us. We also entered into a
trademark license agreement with SINA under which we were granted a non-exclusive license to use
three SINA trademarks and an exclusive license to use two SINA Leju trademarks through websites
located at
www.leju.com
and the channels located at
house.sina.com.cn
and
jiaju.sina.com.cn.
SINA
launched the SINA Leju brand after the formation of the joint venture and
www.leju.com
is currently
a gateway to our real estate and home furnishing channels, as well as the gateway to SINAs real
estate online communities. Users may also directly access the real estate channel via
house.sina.com.cn
and the home furnishing channel via
jiaju.sina.com.cn
. In addition, users may
access the real estate and home furnishing channels through SINAs home page at
www.sina.com.cn
.
Users can access the content on these websites using their computers or other Internet-enabled
devices.
39
The real estate channel licensed to us by SINA provides news, information and property data
for the primary, secondary and rental real estate markets covering 138 cities across China as of
December 31, 2010. In addition to offering a large portfolio of news content from well-known
Chinese media as well as local media, the
real estate channel also provides other useful information in the form of published content,
such as how-to guides for buyers, sellers and owners of properties, and user-generated contents
from online communities such as discussion forums. Leveraging the database from our proprietary
CRIC system, the real estate channel also enables real estate consumers to readily access certain
property data and real estate transaction information through a user-friendly search tool. The home
furnishing channel licensed to us by SINA contains information on suppliers and providers of home
furnishing and improvement products and services as well as do-it-yourself projects related to home
furnishing, decoration and remodeling. It also provides search tools that allow users to search for
specific businesses by area of expertise or product or service category.
In addition, we have integrated our previously owned real estate online business, including
the following websites, with those licensed from SINA:
dichan.sina.com.cn
. Previously known as
www.dichan.com
, this website was launched in January
2009. It leverages the information in our CRIC system and the expertise of our research staff, and
is designed to be an online information center for real estate industry professionals. It provides
real estate-related news and statistical data, a real estate knowledge library that contains
various research reports, an online community that includes both interest-based forums and blogs,
and an online business-to-business marketplace. Much of the information presented on this website,
such as real estate-related news, statistical data and research reports, comes from the CRIC
system. A number of our research professionals also write regular columns and blogs for this
website.
fangyou.sina.com.cn and www.fangyou.com
. SINA Fangyou Online, previously known as Fangyou
Online, at
fangyou.sina.com.cn
and
www.fangyou.com
, is designed specifically for real estate agents
and brokers to establish online shop fronts, list secondary properties for sale or for rent, manage
their listings and exchange information with each other. The
www.fangyou.com
website was initially
developed by Shenzhen Fangyou Software Technology Co., Ltd., or Fangyou Software, a software company specializing in the development of software
management systems for real estate agencies and brokerages. We acquired Fangyou Software in July
2009. Its software management systems are being used by approximately 20,000 real estate agencies
and brokerages in China. Leveraging its existing user base, Fangyou Software launched Fangyou
Online in 2008. In addition to allowing registered users to list secondary property information, we
have also built our own database of secondary properties for sale or for rent and post such
information on the website. Since being integrated with the real estate online business we acquired
from SINA, we have set up additional functions to allow individual consumers to post their
secondary properties for sale on the website, and added Q&A contents relating to real estate
purchase, sale and rental to help users understand local real estate rules and regulations, obtain
mortgage rate information and provide tools for mortgage and tax calculations.
business.dichan.com
. This website, previously known as
www.winfang.com
, is designed to be an
online business-to-business marketplace primarily for suppliers and service providers to the real
estate industry. Registered users can post information about their products and services, including
written descriptions, pictures and photographs. Real estate developers can browse or conduct
searches on the website looking for potential suppliers and service providers. This website was
previously operated by Guangzhou Integrated Residential Building
Industry Facility Co., Ltd., or Guangzhuo Integrated, a provider of real estate consulting and training
services that we acquired in October 2008, and has now been integrated into
dichan.sina.com.cn
.
In
May 2010, we entered into a strategic cooperation agreement with
Baidu, Inc., or Baidu, pursuant to
which we obtain the exclusive right to build and operate all of Baidus web channels related to
real estate and home furnishing, including among others,
house.baidu.com
,
leju.baidu.com
and
jiaju.baidu.com
, and the right to retain all revenues generated from these channels. The term
of the strategic cooperation agreement is four years after the launch of such real estate channels
on Baidu in August 2010.
40
Services and Features for Users
News and Media
Our real estate websites offer an extensive source of news and other content related to
Chinas real estate industry, consolidating news feeds from sources such as China Beijing TV
Station, China News, China Daily, Nanfang Daily Group, Xinhua Net and Xinhua News Agency. Through
our real estate websites, users have easy access to regularly updated real estate-related news from
a large portfolio of reliable national and local sources and
varying points of view. In addition, we produce online shows with industry celebrities,
featuring discussions with business leaders, government officials and
scholars on trends and current events
in Chinas real estate industry. Internet users can interact with program guests on a real-time
basis through our real estate websites. We believe these online shows provide an effective way to
enhance the our SINA Leju brand and leadership in the real estate industry while attracting
interested consumers to our real estate websites.
Real Estate Property Database and Search Tools
With on-the-ground capabilities across China and database support from our CRIC system, we
have developed a comprehensive nationwide database of online real estate property listings covering
over 138 cities in China as of December 31, 2010.
Various query criteria, such as pull-down lists for city, district, price range and
number of rooms, help users narrow their search to specific types of properties. Upon specifying
the query parameters and hitting the search button, users are directed to a webpage listing
available properties as well as basic information about each individual property, including the
location, average quoted selling prices, number of rooms and source of the listing. Users may also
access the detailed information on a particular real estate property by clicking on the location of
such development on an electronic map of the relevant city.
The comprehensive property listing database provides individual consumers a valuable source of
real estate information regarding primary, secondary and rental properties by allowing individual
consumers interested in a specific real estate property to self-appraise the value of such
property and retrieve price information of comparable properties located in the same or similar
neighborhood in which such property is located. Since most cities in China lack residential
appraisal services through which individual consumers can obtain the appraised value of a specific
real estate property, we believe that our offering of CRICs comprehensive property database
contributes to the attractiveness of our real estate websites, which in turn increases website
traffic and our ability to sell more online advertising to real estate advertisers. Since the
formation of our alliance with Baidu, we have leveraged Baidus search technology and large user
base to allow individual consumers targeted access to the particular real estate properties that
they are searching for, connecting potential buyers or renters with our developer and broker/agent
clients.
Online Interactive Community-Oriented Services
Our real estate websites offer various online interactive community-oriented services that
allow users to share personal, anecdotal and other information regarding different aspects of the
real estate industry, specific development projects and residential communities, and other
subjects. Such services include, among others, electronic bulletin board service forums, a blog
platform for users interested in Chinas real estate market to read and publish original writings,
and a podcasting platform allowing users to upload, publish and manage their audio-visual
information. We believe that the online interactive community-oriented services offered by the real
estate websites are an effective way to create virtual communities of users with a common interest
in real estate-related topics and offer more view points on various residential properties and
communities across the country, which help foster user loyalty and increase website page views.
Offline Events, Activities and Leju Elite Club Membership
We periodically organize offline events and activities for buyers and potential buyers of real
estate properties, furniture and home decoration materials, such as site visits to development
projects and bulk purchases of real estate properties, furniture and home decoration materials.
Participants often enjoy discounts or other preferential treatment from developers and suppliers.
Such interactive activities can effectively enhance our relationship with the real-estate
participants as well as increase the attractiveness of our websites. In addition, we offer a Leju
Elite Club membership, a free registration service that allows members to receive regular
newsletter via email or short messages on real estate news and promotional updates. We collaborate
with commercial banks in the issuance of credit cards to Leju Elite Club members. We also offer an
online user hotline to respond to questions from Leju Elite Club members.
41
Advertising Offerings for Clients
Our real estate online business generates substantially all of the revenues from sales of
online advertising. Our real estate advertising offerings are targeted at participants in Chinas
real estate industry. Real estate advertisers on our real estate websites primarily include real
estate developers, agents and brokers as well as suppliers and providers of home furnishing and
improvement products and services.
Our real estate advertising offerings include online advertising, sponsorship arrangements and
virtual showroom. Online advertising arrangements allow advertisers to place advertisements on
particular areas of SINAs websites, in particular formats, such as banners and logos, and over
particular periods of time. Sponsorship arrangements allow advertisers to sponsor a particular area
on our websites in exchange for a fixed payment over the contract period. Virtual showroom is a
product that allows Internet users to navigate through a virtual
version of a property for sale
and access live pre-sales support from the developer from our real estate websites. Online
advertising and sponsorship arrangements account for the majority of
our online advertising revenues from our real estate websites. In
addition, our real estate online advertising revenues also
include revenue from hosting arrangements, which are derived from outsourcing certain regional
sites to local business partners. Revenues from hosting arrangements
are on a fixed fee basis and
recognized ratably over the term of the contract. Furthermore, since the establishment of our Baidu
channels through our cooperation agreement with Baidu, we have
started offering search results based
advertising to our developer clients, whereby our clients pay us based on the number of phone calls
generated from our websites to their sales offices and for setting up relevant website content.
Clients
Clients for our data subscription services primarily consist of real estate developers. In
addition, we also serve banks, institutional investors and other financial
institutions and appraisers that require real estate market and transaction information to provide
their services. Other subscribers include academic and research institutes and national and local
governmental agencies that are interested in the macroeconomic implications of our data, and those
in the home design industry or the media industry that are interested in the demographics and real
estate statistics and data for a targeted area. Clients for our data integration services and
consulting services are primarily real estate developers.
For national and regional real estate developers, we have generally maintained business
relationships with their local subsidiaries or branches. We enter into different contracts with the
local subsidiaries or branches of a developer. The formation or termination of a contract between
us and a local subsidiary or branch of a developer generally would have no significant impact on
our business relationships with the other subsidiaries or branches of the same developer. In
limited cases, such as our relationship with Evergrande that is described below, our business
relationships are maintained primarily with the headquarters of the real estate developers.
We have been working with Evergrande, a large developer in China, since December 2007, when we
entered into a strategic cooperation agreement with Evergrande with a term of one year. We renewed
the agreement for another one year term in December 2008. In December 2009, we were engaged as the
exclusive provider of real estate information system and market consulting services to 47 of
Evergrandes real estate projects under development and a certain land acquisition project. For
each of the projects for which Evergrande has engaged us for information and market consulting
services or land acquisition consulting services, our subsidiary, Shanghai CRIC, entered into a
real estate information and market consulting service agreement with a project development company
owned by or affiliated with Evergrande. In January 2011, we were again contracted to provide real
estate information, consulting and online services for Evergrandes projects throughout China.
Our top developer client in 2010 was Evergrande, which accounted for 13.6% of our 2010 total
revenues. No other clients accounted for more than 10% of our total revenues during such
period. See Item 3. Key InformationD. Risk FactorsRisks Related to Our Business To date, a
limited number of real estate developers have contributed a substantial portion of our revenues due
to the large size of their contracts with us; if we fail to continue to secure large contracts from
existing, new or former clients, this could materially and adversely impact our revenues, results
of operations and financial condition, or cause fluctuations in our revenues, which may make it
difficult to predict our future results of operations.
42
We sell online advertising through both advertising agencies and our direct sales force. A
significant majority of our online advertising revenues have been derived from sales through
advertising agencies. In 2010, our largest advertising agency client contributed approximately 9.1%
of our total revenues.
Sales and Marketing
As of December 31, 2010, we had 879 sales, marketing and customer support employees located in
our head office in Shanghai and branch offices in 40 cities. The sales staff, which also include
customer support employees, are responsible for selling to prospective clients, training new and
existing clients, providing ongoing customer support to CRIC database subscribers, renewing
existing client contracts, and identifying cross-selling opportunities. In addition, our sales
staff has primary front line responsibility for customer care. We achieve sales primarily through
the direct one-on-one sales efforts of our sales employees, who conduct targeted visits to
potential clients located in their cities on a daily basis. For large developers, our sales staff
in the head office and in branch offices in cities where a targeted developer has, or is
contemplating to start, active projects often make joint efforts to promote our services. We set
sales targets for the head office and each branch office and set aside a portion of our annual
revenue as bonuses to reward our sales staff.
Our sales strategy is to aggressively attract new clients, while promoting additional,
value-added services to existing clients. For example, for those clients that have subscribed only
to our data subscription services, we actively promote our data integration services and related
consulting services. Our online sales strategies include leveraging SINAs strong brand name, our
strength in new and other editorial contents, and our excellent full suite client services. In
addition, we also provide intensive training to our sales force so that they can possess and
demonstrate the industry expertise necessary to win the confidence of prospective clients.
As we further expand our operations, we plan to engage in additional marketing and advertising
activities to promote our brand recognition and attract new clients, including advertising in real
estate industry publications and key word advertising with leading Internet search providers in
China.
Seasonality
Our
revenues and net income from our real estate information, consulting,
advertising, promotional event and online services have historically been substantially lower during the first quarter than
other quarters due to the relatively low level of real estate activity during the winter and the
Chinese New Year holiday period.
Competition
The real estate information and consulting services sector in China is at an early stage of
development and is highly fragmented. While we face competition in each line of real estate
information and consulting services we offer, we believe none of our competitors possesses as
comprehensive a real estate information database or as large a team of real estate research
professionals as we do.
In the real estate information services sector, we compete with both national and local real
estate information service providers, including
soufun.com
, an Internet real estate portal that
primarily targets consumers but also provides real estate market data as part of its service
offerings. In the real estate consulting services market, we compete with international real estate
consulting companies, such as DTZ International, CB Richard Ellis, Jones Lang LaSalle and Savills
PLC, domestic real estate consulting companies, such as World Union Real Estate Consultancy (China)
Ltd., and individual consulting brands. Competition in the real estate information and consulting
services sector is primarily based on:
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quality and depth of the underlying database, including the accuracy and
timeliness of the data, breadth of geographic coverage, its ease of use, flexibility
and functionality, and services offered;
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industry expertise and reputation of the research and consulting professionals;
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quality and breadth of the services offered;
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client service and support;
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overall client experience.
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While some of our competitors may have more financial and other resources than we do, we
believe the combination of our proprietary CRIC system and our team of experienced and dedicated
research staff distinguishes us from our existing and potential competitors and allows us to
compete effectively in the marketplace.
With regard to our real estate advertising design business, we compete primarily with local
advertising design companies. Our real estate advertising resale business competes primarily with
national and local advertising agencies.
We currently operate one of the largest real estate online businesses in China. The main
existing and potential competitors of our real estate online business include:
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other general Internet portals, such as
sohu.com
, that offer competing real
estate-related content and that compete for online real estate advertising spending;
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vertically integrated real estate Internet portals such as
soufun.com
and
anjuke.com
;
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specialized websites focusing on real estate agents, brokers, suppliers and
service providers;
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local websites focusing on the real estate market in single cities;
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traditional advertising media such as general purpose newspapers, magazines,
television and outdoor advertising that compete for overall advertising spending; and
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specialized media such as real estate magazines and newspapers that focus on,
or have sections on, real estate-related products and services.
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Our real estate online business competes with its competitors primarily based on the volume of
website traffic, the quality and quantity of real estate listings and other information content,
geographic coverage, service offerings and online advertising clients. We also compete for
qualified employees with experience in sales, real estate, home products and services, and Internet
industries. Some of our competitors may have a longer operating history, more human and financial
resources, and greater access to capital markets. See Item 3. Key InformationD. Risk
FactorsRisks Related to Our Business We may face increased competition and, if we are unable to
compete successfully, our financial condition and results of operations may be harmed.
Employees and Training
We had 947 and 1,907 employees as of December 31, 2008 and 2009, respectively. As of December
31, 2010, we had 3,712 employees, including 879 employed in sales and marketing, 1,356 in research
and technical services, and 1,477 in general and administrative services. We consider our relations
with our employees to be good.
We have established policies and procedures for the recruitment, training and evaluation of
our employees. We place special emphasis on the training of our employees, whom we consider to be
our most valuable assets. All newly hired employees must undergo intensive training during their
three-month probation period. We also invite outside experts, including experts from the E-House
Research and Training Institute, to provide ongoing classroom training to our employees. Each
department must prepare detailed annual training plans for its employees based on the particular
needs of such department. The human resources department is responsible for implementing the
training plans, including engaging trainers, preparing training materials, selecting training
venues and collecting feedback. We conduct annual performance evaluations for all employees and use
both performance-based bonuses and job promotions as incentives to encourage good performance.
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Facilities
Our headquarters are located in Shanghai, China, where we lease approximately 12,600 square
meters of office space. As of December 31, 2010, our subsidiaries and branches in 40 cities leased
an aggregate of 28,500 square meters of office space.
Legal Proceedings
We are subject to legal proceedings, investigations and claims incidental to the conduct of
our business from time to time. We are not currently a party to, nor are we aware of, any legal
proceeding, investigation or claim which, in the opinion of our management, is likely to have a
material adverse effect on our business, financial condition or results of operations.
Regulation
We are subject to a number of laws and regulations in China relating to real estate service
companies. This section summarizes the principal current PRC laws and regulations relevant to our
business and operations.
Regulation of Real Estate Services Industry
The principal regulation governing the real estate services industry in China is the Law on
Administration of Urban Real Estate issued by the Standing Committee of the National Peoples
Congress in July 1994, as amended. Under this law, real estate services providers include real
estate consulting services providers, real estate appraisal services providers and real estate
brokerage services providers.
Establishment and Operation of Real Estate Consulting Services Companies
Under PRC laws, a real estate consulting service company is required to obtain a business
license from the State Administration for Industry and Commerce or its competent local branch
before it can commence business. In addition, a real estate consulting services company is required
to meet certain basic requirements including having fixed premises for providing services,
necessary assets and funds and sufficient professional staff.
Foreign Investments in the Real Estate Consulting Business
Pursuant to the Foreign Investment Industrial Guidance Catalogue, which became effective on
December 1, 2007, the real estate intermediary services industry
which includes the real estate
consulting business, is among the restricted foreign investment industries. The categorization of a
business among the restricted foreign investment industries subjects the business to enhanced
regulatory requirements. A real estate consulting business may be 100% foreign-owned.
Regulations on Internet Information Services
The provision of content on Internet websites is subject to PRC laws and regulations relating
to the telecommunications industry and the Internet, and regulated by various government
authorities, including the Ministry of Industry and Information Technology and the State
Administration for Industry and Commerce.
Pursuant to the PRC Regulations on Telecommunication and the more recent Administrative
Measures on Operation Licenses for Telecommunication Businesses, which took effect on April 10,
2009, telecommunication services are divided into two categories, namely basic telecommunication
services and value-added telecommunication services. Internet information services are classified
as value-added telecommunication services and a commercial operator of such services must obtain a
value-added telecommunication business operating license from the relevant governmental authorities
in order to conduct any commercial Internet content provision operations in China.
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Internet information services are regulated by the Administrative Measures on Internet
Information Services, which define Internet information services as services that provide
information to online users through
the Internet. Internet information services are divided into commercial services and
non-commercial services. Internet information service providers that provide commercial services
are required to obtain an operating license, or ICP license, from the Ministry of Industry and
Information Technology or its relevant provincial counterparts. The Administrative Measures on
Internet Information Services also provide that anyone who intends to provide Internet information
services relating to news, publication, education, medical and health care, pharmaceuticals or
medical equipment and certain other matters shall first obtain approval from or make a filing with
the competent governmental authorities of the relevant industry as required by relevant laws and
regulations.
Pursuant to the Circular on Strengthening the Administration of Foreign Investment in
Value-added Telecommunication Services issued by the predecessor of the Ministry of Industry and
Information Technology, a PRC entity engaged in Internet information services, or its shareholders,
must be the owner of the domain names and trademarks it uses for its Internet information services.
Limitations on Foreign Investments in Internet Information Services
The Rules for the Administration of Foreign Investment in Telecommunication Enterprises set
forth detailed requirements with respect to capitalization, investor qualifications and application
procedures in connection with the establishment of a foreign-invested telecommunications
enterprise. Pursuant to these rules, the ultimate capital contribution ratio of the foreign
investor or investors in a foreign-invested telecommunications enterprise that provides value-added
telecommunications services shall not exceed 50%. In addition, pursuant to the Foreign Investment
Industrial Guidance Catalogue, the permitted foreign investment ratio of value-added
telecommunications services is no more than 50%. However, for a foreign investor to hold any equity
interest in a value-added telecommunication business in China, it must satisfy a number of
stringent performance and operational experience requirements, including demonstrating a track
record and experience in operating value-added telecommunication business overseas. Moreover,
foreign investors that meet these requirements must obtain approval to hold any equity interest in
a value-added telecommunication company in China from the Ministry of Industry and Information
Technology and the Ministry of Commerce or their authorized local counterparts, which retain
considerable discretion in granting approvals.
The Circular on Strengthening the Administration of Foreign Investment in Value-added
Telecommunication Services reiterates certain provisions under the Rules for the Administration of
Foreign Investment in Telecommunications Enterprises. According to the circular, if any foreign
investor intends to invest in a PRC telecommunications business, a foreign-invested
telecommunications enterprise shall be established and such enterprise shall apply for the relevant
telecommunications business licenses. Under the circular, domestic telecommunications enterprises
are prohibited from renting, transferring or selling a telecommunications license to foreign
investors in any form, and from providing any assistance, including providing resources, sites or
facilities, to foreign investors to conduct telecommunications business illegally in China.
Our PRC subsidiaries, which are foreign-invested enterprises under the PRC law, may not carry
out commercial operation of Internet information services in China. We currently provide real
estate-related Internet information services through our contractual arrangements with Beijing Leju
and its shareholders. See Item 7. Major Shareholders and Related Party TransactionsContractual
Arrangements with Beijing Leju.
In the opinion of Fangda Partners, our PRC legal counsel,
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The ownership structure of Beijing Leju is in compliance with existing PRC laws
and regulations; and
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The contractual arrangements governed by PRC law among Shanghai SINA Leju,
Beijing Leju, Mr. Xudong Zhu and Mr. Jun Luo, which establish the corporate structure
for operating our real estate online business, are valid, binding and enforceable in
accordance with their terms based on currently effective PRC laws and regulations and
will not result in any violation of current PRC laws or regulations.
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However, the enforceability of the pledge of the newly increased registered capital of Beijing
Leju under the equity pledge agreement among Shanghai SINA Leju, Beijing Leju and its shareholders
is subject to completion of the amended registration with the relevant government authorities. In
addition, we have been advised by our PRC
legal counsel that there are substantial uncertainties regarding the interpretation and
application of current and future PRC laws and regulations and there can be no assurance that the
relevant PRC regulatory authorities, in particular the Ministry of Industry and Information
Technology, will not in the future take a view that is contrary to the opinion of our PRC legal
counsel. We have been further advised by our PRC legal counsel that if the PRC government
determines that the agreements which establish the structure for operating our real estate online
business do not comply with PRC government restrictions on foreign investment in the Internet
information services industry, we could be subject to severe penalties. See Item 3. Key
InformationD. Risk FactorsRisks Related to Our Corporate StructureIf the PRC government finds
that the agreements with our consolidated affiliated entities that establish the structure for
operating our advertising services business and real estate online business in China do not comply
with applicable PRC governmental restrictions on foreign investment, we could be subject to severe
penalties.
Information Security and Confidentiality of User Information
Internet activities in China are also regulated and restricted from a state security
standpoint. Pursuant to the Decision Regarding the Protection of Internet Security, activities
conducted through the Internet are subject to the PRC Criminal Law.
The Ministry of Public Security has promulgated measures that prohibit use of the Internet in
ways that, among other things, result in leaks of government secrets or the spread of socially
destabilizing content. The Ministry of Public Security and its local counterparts have authority to
supervise and inspect domestic websites in this regard. If an Internet information service provider
violates these measures, the PRC government may revoke its license and shut down its website.
The security and confidentiality of Internet users information are also regulated in China.
The Administrative Measures on Internet Information Service require Internet information service
providers to maintain an adequate system that protects the security of users information. The
Regulations on Technical Measures of Internet Security Protection require Internet information
service providers to utilize certain technical measures for Internet security protection.
Certain Licenses and Approvals Required for Internet-Based Businesses
Internet-based businesses in China are highly regulated by the PRC government. Various PRC
regulatory authorities, such as the State Council, the Ministry of Industry and Information
Technology, the State Administration for Industry and Commerce, the State Press and Publication
Administration, the State Administration of Radio, Film and Television and the Ministry of Public
Security, are empowered to issue and implement regulations governing various aspects of the
Internet-based businesses.
Internet Publishing
The Provisional Rules for the Administration of Internet Publishing 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 (i) content or articles formally
published by press media such as books, newspapers, periodicals, audio-visual products and
electronic publications; and (ii) literature, art and articles on natural science, social science,
engineering and other topics that have been edited. Under these rules, web portals operators are
required to apply to and register with the General Administration for Press and Publication before
distributing Internet publications.
Online News Publishing
The Provisional Regulations for the Administration of Website Operation of News Publication
Services and the Provisions for the Administration of Internet News Information Services stipulate
that general websites set up by non-news organizations may list news released by certain
governmental news agencies if they satisfy the requirements set forth in the foregoing two
regulations, but may not publish news items produced by themselves or news sources from elsewhere.
The regulations also require the general websites of non-news organizations to be approved by the
State Council Information Office before they commence their news-publishing services.
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Online Transmission of Audio-Visual Programs
The Measures for the Administration of Transmission of Audio-Visual Programs through Internet
or Other Information Network apply to the opening, broadcasting, integration, transmission or
download of audio-visual programs through the Internet. An applicant who is engaged in the business of
transmitting audio-visual programs through the Internet shall apply for a license from the State
Administration of Radio, Film and Television. Foreign-invested enterprises are not allowed to
engage in the above business.
Pursuant to the Administrative Provisions on Internet Audio-Visual Program Service, which went
effective on January 31, 2008, any entity engaged in Internet audio-visual program services must
obtain a license from the State Administration of Radio, Film and Television or register with the
State Administration of Radio, Film and Television. An applicant for engaging in Internet
audio-visual program services must be a state-owned entity or a state-controlled entity with full
corporate capacity, and the business to be carried out by the applicant must satisfy the overall
planning and guidance catalogue for Internet audio-visual program service determined by the State
Administration of Radio, Film and Television. The State Administration of Radio, Film and
Television and the Ministry of Industry and Information Technology later clarified in a press
conference in February 2008 that privately owned website operators are eligible to apply for
Internet audio-visual program service licenses from the State Administration of Radio, Film and
Television, if they have been engaged in Internet audio-visual program services since before
December 20, 2007, and they had before that date either obtained an operating license for
commercial Internet information services or filed for non-commercial Internet information services.
The Notice on Relevant Issues Concerning Application and Approval of License for Online
Transmission of Audio-visual Programs issued on May 21, 2008 further sets forth detailed provisions
concerning the application and approval process regarding Internet audio-visual program service
licenses.
Online Cultural Activities
The Provisional Measures on Administration of Internet Culture promulgated by the Ministry of
Culture classify online cultural products as cultural products developed, published and
disseminated via the Internet, which mainly include: (i) online cultural products particularly
developed for publishing via Internet, such as, among other things, online music and entertainment
files, network games, online performing arts and artworks and online animation features and
cartoons; and (ii) online cultural products converted from music entertainment products, games,
performing arts, artworks and animation features and cartoons, and published via the Internet.
Entities are required to obtain permits from a provincial counterpart of the Ministry of Culture if
they intend to commercially engage in any of the following types of activities: (i) production,
duplication, import, sale or broadcasting of online cultural products; (ii) publishing of cultural
products on the Internet or transmission thereof through information networks such as Internet and
mobile network to computers, fixed-line or mobile phones, television sets, gaming consoles or
Internet access service sites including Internet cafes for the purpose of browsing, reviewing,
using or downloading such products by online users; or (iii) exhibitions or contests related to
online cultural products.
Regulations on Advertising Services
Limitations on Foreign Investments in Advertising
Under the regulations governing foreign investment in the advertising industry, there is no
longer any maximum foreign shareholding percentage restriction applicable to foreign-invested
advertising enterprises. However, foreign investors are required to have at least three years prior
experience operating an advertising business outside of China as their main business before they
may receive approval to directly own a 100% interest in an advertising company in China. Foreign
investors with at least two years prior experience operating an advertising business outside China
are allowed to establish a joint venture with domestic advertising enterprises to operate an
advertising business in China.
Since we have not been involved in advertising outside of China for the required number of
years, our domestic PRC operating subsidiaries are currently ineligible to apply for the required
advertising services licenses in China. Our real estate advertising business is currently mainly
provided through our contractual arrangements with our consolidated affiliated entity, Tian Zhuo,
and its subsidiaries in China. Our subsidiary, Shanghai CRIC, has entered into a series of
contractual arrangements with Tian Zhuo and its shareholders. See Item 7. Major
Shareholders and Related Party TransactionsContractual Arrangements with Tian Zhuo. We also
provide real estate advertising business through our contractual arrangements with Beijing Leju and
its shareholders. See Item 7. Major Shareholders and Related Party TransactionsContractual
Arrangements with Beijing Leju.
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In the opinion of Fangda Partners, our PRC legal counsel,
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The ownership structure of Tian Zhuo is in compliance with existing PRC laws
and regulations;
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The ownership structure of Beijing Leju is in compliance with existing PRC laws
and regulations;
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The contractual arrangements governed by PRC law between Shanghai CRIC and Tian
Zhuo and its shareholders establishing the corporate structure for operating our PRC
advertising services business are valid, binding and enforceable in accordance with
their terms based on currently effective PRC laws and regulations, and will not result
in any violation of current PRC laws or regulations; and
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The contractual arrangements governed by PRC law among Shanghai SINA Leju,
Beijing Leju, Mr. Xudong Zhu and Mr. Jun Luo, which establish the corporate structure
for operating our real estate online business, are valid, binding and enforceable in
accordance with their terms based on the currently effective PRC laws and regulations,
and will not result in any violation of current PRC laws or regulations.
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However, the enforceability of the equity pledge agreement under which the shareholders of
Tian Zhuo pledged their equity interests in Tian Zhuo is subject to registration with the relevant
government authority, and we cannot assure you that Shanghai CRIC will ever be able to complete
such registration procedures. In addition, we are in the process of amending the registration of
the newly increased registered capital of Beijing Leju under the equity pledge agreement among
Shanghai SINA Leju, Beijing Leju and its shareholders. The enforceability of the amended pledge
remains subject to completion of the amended registration with the relevant government authority.
In
addition, we have been advised by our PRC legal counsel that there are substantial
uncertainties regarding the interpretation and application of current and future PRC laws and
regulations and there can be no assurance that the relevant PRC regulatory authorities, in
particular the State Administration for Industry and Commerce (which regulates advertising
companies), will not in the future take a view that is contrary to the opinion of our PRC legal
counsel. We have been further advised by our PRC legal counsel that if the PRC government
determines that the agreements establishing the structure for operating our PRC advertising
business do not comply with PRC government restrictions on foreign investment in the advertising
industry, we could be subject to severe penalties. See Item 3. Key InformationD. Risk
FactorsRisks Related to Our Corporate StructureIf the PRC government finds that the agreements
with our consolidated affiliated entities that establish the structure for operating our
advertising services business and real estate online business in China do not comply with
applicable PRC governmental restrictions on foreign investment, we could be subject to severe
penalties.
Advertising Services
The State Administration for Industry and Commerce is responsible for regulating advertising
activities in China. The applicable regulations stipulate that companies that engage in advertising
activities must obtain from the State Administration for Industry and Commerce or its local
branches a business license which specifically includes operating an advertising business within
its business scope. As to placing advertisements on the Internet,
certain local administrations for
industry and commerce may require such companies to apply for a
license which includes within its business scope placing online
advertisements on the Internet. Companies conducting advertising activities without such a license
may be subject to penalties, including fines, confiscation of advertising income and orders to
cease advertising operations. The business license of an advertising company is valid for the
duration of its existence, unless the license is suspended or revoked due to a violation of any
relevant law or regulation.
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Advertising Content
PRC advertising laws, rules and regulations set forth certain content requirements for
advertisements in China including, among other things, prohibitions on false or misleading content,
superlative wording, socially destabilizing content or content involving obscenities, superstition,
violence, discrimination or infringement of the public interest. Advertisers, advertising agencies,
and advertising distributors are required by PRC advertising laws
and regulations to ensure that the content of the advertisements they prepare or distribute is
true and in full compliance with applicable law. In providing advertising services, advertising
operators and advertising distributors must review the supporting documents provided by advertisers
for advertisements and verify that the content of the advertisements complies with applicable PRC
laws, rules and regulations. Prior to distributing advertisements that are subject to government
censorship and approval, advertising distributors are obligated to verify that such censorship has
been performed and approval has been obtained. Violation of these regulations may result in
penalties, including fines, confiscation of advertising income, orders to cease dissemination of
the advertisements and orders to publish an advertisement correcting the misleading information. In
circumstances involving serious violations, the State Administration for Industry and Commerce or
its local branches may revoke violators licenses or permits for their advertising business
operations. Furthermore, advertisers, advertising agencies or advertising distributors may be
subject to civil liability if they infringe on the legal rights and interests of third parties in
the course of their advertising business.
Operational Matters of the Advertising Business
Under
the PRC Advertising Law entities engaged in the advertising business,
must establish and maintain registration, review and filing systems. Advertising fees
must be reasonable and rates and fee collection methods must be filed with the PRC Commodity Price
Administration and the State Administration for Industry and Commerce for records. Under the
Implementation Rules for the Administrative Regulations for Advertising, promulgated by the State
Administration for Industry and Commerce, as amended, the advertising agent fee shall not be more
than 15% of the advertising fees. The advertising customer must provide relevant documents,
including certificates rendered by relevant supervisory
administrations before an advertising services provider can deliver or
place its advertisements.
Regulations on Software Development Activities
The Administrative Measures on Software Products, promulgated by the Ministry of Industry and
Information Technology on March 1, 2009, which became effective on April 10, 2009, regulate the
development and sale of computer software, software embedded in information systems or equipment
provided to users, and computer software in conjunction with computer information systems
integration or application services or other technical services in China. The measures prohibit the
development, production, sale, export or import of software products that infringe third-party
intellectual property rights, contain computer viruses, endanger the safety of computer systems, do
not comply with applicable software standards of the PRC, or contain content prohibited by PRC laws
and administrative regulations. Software registration institutions entrusted by the local software
industry administrative departments are in charge of examining applications for software
registration before submitting the application materials to the local software industry
administrative department and the Ministry of Industry and Information Technology for filing. The
Ministry of Industry and Information Technology will make an announcement regarding software
products that have undergone filing and recordation formalities. If no objection is raised during
the announcement period, the software product will be registered. The registration is valid for a
five-year period and can be renewed.
Regulations on Intellectual Property Rights
Trademarks
The PRC Trademark Law and its Implementation Regulation give protection to the holders of
registered trademarks. The Trademark Office, under the authority of the State Administration for
Industry and Commerce, handles trademark registrations and grants rights for a term of ten years
for registered trademarks, which may be renewed by the Trademark Office. The PRC Trademark Law has
adopted a first-to-file principle with respect to trademark registration. Where a trademark for
which a registration has been made is identical or similar to another trademark which has already
been registered or been subject to a preliminary examination and approval for use on the same kind
of or similar commodities or services, the application for registration of such trademark may be
rejected. Any person applying for the registration of a trademark may not prejudice the existing
right first obtained by others, nor may any person register in advance a trademark that has already
been used by another party and has already gained a sufficient degree of reputation through such
partys use. Trademark license agreements must be filed with the Trademark Office or its regional
offices.
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Copyrights
The PRC Copyright Law extends copyright protection to cover Internet activities and products
disseminated over the Internet. Copyrighted software is protected under the Copyright Law and other
regulations. In addition, there is a voluntary registration system administered by the China
Copyright Protection Center. Pursuant to the Regulations on the Protection of Computer Software,
anyone who publishes, revises or translates computer software without the owners approval is
subject to civil liability. For the software copyrights of legal persons or other organizations,
the term of protection for the software copyright is 50 years, ending on December 31 of the
fiftieth year after the first publication of the software. The software copyright owner may follow
registration procedures with the software registration institution authorized by the State Bureau
of Copyright and obtain a Registration Certificate of Software Copyright, which is prima facie
proof of registered copyright ownership.
Trade Secrets
Under the PRC Anti-Unfair Competition Law, trade secrets refer to technical and business
information which are not known to the public, capable of bringing economic benefits to the
information proprietor, of utility to the information proprietor, and under confidentiality
measures taken by the information proprietor. It will be an infringement on trade secrets if a
person: (i) obtains trade secrets by theft, inducement by benefits, duress or other improper means;
(ii) discloses, uses or permits others to use trade secrets obtained by the means listed in (i);
(iii) discloses, uses or permits others to use trade secrets in his possession in breach of the
agreement with, or the requirements of, the information proprietor for protecting the trade
secrets; or (iv) obtains, uses or discloses trade secrets if he knows or ought to know such trade
secrets were obtained through the illegal activities described above.
Regulations on Foreign Currency Exchange
The RMB is convertible into other currencies for the purpose of current account items, such as
trade related receipts and payments, interest and dividend. The conversion of RMB into other
currencies and remittance of the converted foreign currency outside China for the purpose of
capital account items, such as direct equity investments, loans and repatriation of investment,
requires the prior approval from the SAFE or its local office. Unless otherwise approved, PRC
companies must repatriate foreign currency payments received from abroad. Foreign-invested
enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject
to a cap set by the SAFE or its local office. Unless otherwise approved, domestic enterprises must
convert all of their foreign currency proceeds into RMB as required by law.
Pursuant
to the PRC Foreign Exchange Administration Regulations as amended on
August 5, 2008 foreign exchange earnings of
domestic institutions and individuals may be repatriated into the PRC or deposited overseas. The
conditions and time limitations for repatriation into the PRC or deposit overseas shall be
specified by the State Council foreign exchange management departments in accordance with the
international balance payments situations and the needs of foreign exchange management.
Furthermore, foreign exchange earnings under current account items may be retained or sold to
financial institutions that conduct the business of settlement, sale and payment of foreign
exchange.
Enterprises in China, including foreign-invested enterprises, that require foreign exchange
for transactions relating to current account items, may, without the approval of the SAFE, effect
payment from their foreign exchange account or convert and pay at the designated foreign exchange
banks, upon presentation of valid receipts and proof. Foreign-invested enterprises that need
foreign currencies for the distribution of profits to their shareholders, and Chinese enterprises
that, in accordance with regulations, are required to pay dividends to shareholders in foreign
currencies, may with the approval of board resolutions on the distribution of profits, effect
payment from their foreign exchange account or convert and pay at the designated foreign exchange
banks.
Convertibility of foreign exchange in respect of capital account items, like direct investment
and capital contribution, is still subject to restrictions, including requirements to obtain prior
approval from or to complete registration with, SAFE or its competent branch.
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Regulations on Loans to and Direct Investment in PRC Entities by Offshore Holding Companies
Pursuant to applicable PRC regulations on foreign debts, loans by foreign companies to their
subsidiaries in China, which accordingly are foreign-invested enterprises, are considered foreign
debt, and such loans must be registered with the local branches of the SAFE. In addition, the total
amount of accumulated medium-term and long-term foreign debt and the balance of short-term debt
borrowed by a foreign-invested enterprise is limited to the difference between the total investment
and the registered capital of the foreign-invested enterprise. Total investment of a
foreign-invested enterprise is the total amount of capital that can be used for the operation of
the foreign-invested enterprise, as approved by the Ministry of Commerce or its local counterpart,
and may be increased or decreased upon approval by the Ministry of Commerce or its local
counterpart. Registered capital of a foreign-invested enterprise is the total amount of capital
contributions of the foreign-invested enterprise subscribed to by its shareholders, as approved by
the Ministry of Commerce or its local counterpart and registered at the State Administration for
Industry and Commerce or its local counterpart.
Pursuant to applicable PRC regulations on foreign-invested enterprises, capital contributions
from a foreign holding company to its PRC subsidiaries, which are considered foreign-invested
enterprises, may only be made when approval by the Ministry of Commerce or its local counterpart is
obtained. In approving such capital contributions, the Ministry of Commerce or its local
counterpart examines the business scope of each foreign-invested enterprise under review to ensure
it complies with the Foreign Investment Industrial Guidance Catalogue, which classifies industries
in China into three categories: encouraged foreign investment industries, restricted foreign
investment industries and prohibited foreign investment industries.
Our PRC subsidiaries that are foreign-invested enterprises, such as Shanghai CRIC, are subject
to the regulations discussed above.
Regulations on Foreign Exchange Registration of Offshore Investment by PRC Residents
Pursuant to a SAFE notice that became effective as of November 1, 2005, commonly referred to
as Circular No. 75, each PRC resident, whether a natural or legal person, must complete the
overseas investment foreign exchange registration procedures with the relevant local SAFE branch,
prior to establishing or assuming control of a special purpose company. A special purpose company
refers to an offshore company established or indirectly controlled by PRC residents for the special
purpose of carrying out financing of their assets or equity interest in PRC domestic enterprises.
The notice applies retroactively. As a result, PRC residents who had established or acquired
control of such special purpose companies that previously made onshore investments in China were
required to complete the relevant overseas investment foreign exchange registration procedures by
March 31, 2006. These PRC residents must also amend the registration with the relevant SAFE branch
in the following circumstances: (1) the PRC residents have completed the injection of equity
investment or assets of a domestic company into the special purpose company; (2) the overseas
funding of the special purpose company has been completed; (3) there is a material change in the
capital of the special purpose company. SAFE subsequently issued relevant guidance and rules to its
local branches, which standardized more specific and stringent supervision of the SAFE registration
under Circular No. 75. Failure to comply with the foreign exchange registration procedures may
result in restrictions being imposed on the foreign exchange activities of the violator, including
restrictions on the payment of dividends and other distributions to its offshore parent company and
the capital inflow from its offshore parent company, and may also subject the violators to
penalties under the PRC foreign exchange administration regulations.
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Regulations on Employee Share Options
Under applicable SAFE rules, PRC citizens who are granted shares or share options by an
overseas listed company pursuant to its employee share option or share incentive plan are required,
through the PRC subsidiary of such overseas listed company or any other qualified PRC agent, to
register with the SAFE and complete certain other procedures related to the share option or other
share incentive plan. For instance, a qualified PRC domestic agent or the PRC subsidiaries of such
overseas listed company shall, among other things, file, on behalf of such individual, an
application with the SAFE to obtain approval for an annual allowance with respect to the purchase
of foreign exchange in connection with the share purchase or share option exercise as PRC domestic
individuals may not directly use overseas funds to purchase shares or exercise share options. Such
PRC citizens foreign exchange income received from the sale of shares or dividends distributed by
the overseas listed company shall be fully
remitted into a collective foreign currency account in the PRC opened and managed by the PRC
subsidiaries of the overseas listed company or the PRC agent before distribution to such
individual. Our PRC citizen employees who have been granted share options, or PRC option holders,
are subject to the Individual Foreign Exchange Rules after the listing of our ADSs on the NASDAQ
Global Select Market. If we or our PRC citizen employees fail to comply with these regulations, we
or our PRC option holders may be subject to fines and legal sanctions.
In addition, the State Administration of Taxation has issued certain circulars concerning
employee share options. Under these circulars, our employees working in the PRC who exercise share
options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file
documents related to employee share options with relevant tax authorities and to withhold
individual income taxes of those employees who exercise their share options. If our employees fail
to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may
face sanctions imposed by the tax authorities or other PRC government authorities.
Regulations on Dividend Distributions
Under applicable PRC regulations, wholly foreign-owned enterprises and Sino-foreign equity
joint ventures in China may pay dividends only out of their retained earnings, if any, determined
in accordance with PRC accounting standards and regulations. Additionally, a wholly foreign-owned
enterprise is required, as other enterprises subject to PRC laws, to set aside at least 10% of its
after-tax profits each year, if any, to fund statutory reserve funds until the cumulative amount of
such funds reaches 50% of its registered capital. For each of our PRC subsidiaries that has
achieved profit under the PRC accounting standards, it has set aside at least 10% of its after-tax
profits to meet the statutory reserve requirements. A wholly foreign-owned enterprise may, at its
discretion, allocate a portion of its after-tax profits calculated based on the PRC accounting
standards to staff welfare and bonus funds. None of our PRC subsidiaries has set aside its
after-tax profits, if any, to fund these discretionary staff welfare and bonus funds. We have not
implemented any policy or plan for our PRC subsidiaries to maintain discretionary staff welfare and
bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash
dividends except in the event of liquidation and cannot be used for working capital purposes. These
requirements apply to each of our wholly foreign-owned PRC subsidiaries, including Shanghai CRIC.
53
C.
Organizational Structure
The following diagram illustrates our corporate structure, including our principal operating
subsidiaries and consolidated affiliated entities, as December 31,
2010:
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(1)
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Prior to the completion of acquisition of SINAs real estate online business, we and SINA
held 34% and 66% equity interests in COHT, respectively. Pursuant to a share purchase
agreement we entered into with SINA on July 23, 2009 and amended on September 29, 2009, we
acquired SINAs 66% equity interest in COHT and became the 100% shareholder of COHT on October
21, 2009.
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(2)
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Shanghai CRIC also wholly owns Wuhan CRIC Information Technology Co., Ltd. and Chengdu CRIC
Information Technology Co., Ltd., which are not illustrated in this diagram.
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(3)
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Tian Zhuo is a consolidated affiliated entity established in China in 2008 and is 90% owned
by Mr. Xin Zhou, who is also our co-chairman and chief executive officer and the executive
chairman of E-House, and 10% owned by Mr. Xudong Zhu, our former director and head of our
advertising operations. We effectively control Tian Zhuo through contractual arrangements. See
Item 7. Major Shareholders and Related Party TransactionsContractual Arrangements with Tian
Zhuo.
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(4)
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Beijing Leju is a consolidated affiliated entity established in China in 2008 and is 80%
owned by Mr. Xudong Zhu, our former director and head of our advertising operations, and 20%
owned by Mr. Jun Luo, our director and co-president. We effectively control Beijing Leju through
contractual arrangements. See Item 7. Major Shareholders and Related Party
TransactionsContractual Arrangements with Beijing Leju.
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54
D.
Property, Plants and Equipment
Our headquarters are located in Shanghai, China, where we lease approximately 12,600 square
meters of office space. As of December 31, 2010, our subsidiaries and branches in 40 cities leased
an aggregate of 28,500 square meters of office space.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our consolidated financial statements and the related notes
included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under Item 3. Key InformationD. Risk Factors or in
other parts of this annual report on Form 20-F.
A.
Operating Results
Overview
We
are a leading provider of real estate information and consulting
services, real estate advertising
services, real estate promotional events services and real estate online services in China.
We operate our proprietary CRIC system, which is an advanced and comprehensive real estate
information database and analysis system. Prior to July 2006, our CRIC system had been used as an
internal resource to support E-Houses real estate agency and brokerage services as well as
information and consulting services. We began to commercialize the CRIC system by selling
subscriptions in July 2006 and have generated revenues from our real estate information services
since then. We began offering and generating revenues from real estate consulting services in 2002.
Such services were provided through various subsidiaries of E-House prior to 2006 and, since 2006,
have been provided through our main operating subsidiary, Shanghai CRIC.
Capitalizing on our proprietary CRIC system and our dedicated real estate research and
development team, we provide a broad range of real estate-related services, including
subscription-based information services, customized consulting services and, since 2008,
advertising services serving different industry participants. We also
started offering real estate promotional event services through
shanghai Dehu, in which we acquired a 55% interest in April 2010. We generate revenues from
subscription fees for our real estate information services, consulting fees for our real estate
consulting services and fees for our real estate advertising design,
sales and promotional event services. Our major
clients for information, consulting, advertising and promotions event services primarily include real estate
developers in China.
Immediately upon the completion of the IPO in October 2009, we acquired SINAs real estate
online business and SINA became a significant shareholder of our
company. Through the business we acquired from SINA we operate a leading real estate online business in China that provides
region-specific real estate news and information, property data and access to online communities
via local websites covering 138 cities across China as of December 31, 2010. Leveraging SINAs
strong brand recognition and market influence in Chinas online space and its large user base, our
real estate online business enables real estate advertisers to reach target audiences in most of
Chinas major cities.
Our total revenues grew from $50.0 million in 2008 to $95.7 million in 2009 and $174.2 million
in 2010. Our operating costs and expenses increased from $22.7 million in 2008 to $60.9 million in
2009 and $150.1 million in 2010. Our net income attributable to CRIC shareholders was $22.2 million
in 2008, $55.6 million in 2009 and $25.9 million in 2010.
55
In connection with our acquisition of SINAs real estate online business, we acquired certain
intangible assets from SINA and granted options to certain employees of SINA who joined us. As a
result, we incurred substantial non-cash charges arising from amortization of intangible assets recorded at fair
value and share-based compensation, which amounted to $7.2 million in 2009 and $28.6 million in
2010. We anticipate such non-cash charges will continue to materially and adversely affect our
results of operations.
Factors Affecting Our Results of Operations
Our operating results are subject to general conditions typically affecting the real estate
services industry in China, including:
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changes in governmental policies and laws affecting real estate and real estate
financing;
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economic growth and development across different regions of China;
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supply of and demand for housing and other types of property in local markets;
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government policies on online advertising;
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the perceived effectiveness of online advertising as compared to advertising in
more traditional media;
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entry barriers and competition from other real estate services companies; and
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increases in operating costs and expenses due to inflation and other factors.
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Unfavorable changes in any of these general conditions could negatively affect real estate
transaction volume and developers demand for project-related consulting services and online
advertising services and otherwise materially and adversely affect our results of operations.
However, our operating results are more directly affected by company-specific factors, including
our revenue growth and our ability to effectively manage our operating costs and expenses.
Revenues.
In 2008, 2009 and 2010, we generated total revenues of $50.0 million, $95.7 million
and $174.2 million, respectively. Following the acquisition of Tian Zhuo in 2008 and the
acquisition of SINAs real estate online business in 2009, we have derived our revenues from three
segments: (1) real estate information and consulting services, (2) real estate online services, and
(3) other services, including real estate advertising services and promotional events services.
Revenues from our real estate information and consulting services accounted for over 98% of our
total revenues in 2008, but fell to 71% of our total revenues in 2009 and 50.3% in 2010 as revenues
from our real estate online and other services grew significantly in those years. In particular,
38.4% of our revenues were attributable to our online services and 11.3% were attributable to other
services in 2010. Our revenues are presented net of PRC business taxes and related surcharges and agency
rebates.
Real Estate Information and Consulting Services
. We began to sell subscriptions to our
proprietary CRIC system in the second half of 2006. These subscriptions allow subscribers to search
information in our CRIC system and generate analytical reports. At the beginning of 2009, we
launched an upgraded version of the CRIC system, CRIC 2009, which allows subscribers to access the
CRIC system through Internet from their own computers by installing a logon interface software.
Given that each subscriber account can only be used on one computer, clients that require access to
our system from multiple computers need to set up and pay for multiple subscription accounts.
Subscription fees vary depending on the number of terminals and number of cities covered. We
receive subscription fees on an annual basis starting at the beginning of the subscription period
and recognize revenues ratably over the subscription period. We are investing our resources in the
development of more premium and customized subscription packages. Revenues from our real estate
information services depend primarily on the number of subscriptions to our CRIC system and unit
subscription fees. The number of subscriptions we sell is in turn affected by the number of active
real estate projects and developers at any given time as well as by our marketing and brand
promotion efforts and the quality and usefulness of our database. We continually update and expand
the information in our CRIC system, both by adding more data on projects in the cities that we
cover and by increasing the number of cities that we cover, in order to meet our clients needs on
a timely basis.
56
We provide real estate consulting services to customers in relation to land acquisition and
property development. In certain instances, we agree to a consulting arrangement under which
payment is contingent upon
the delivery of a final product, such as closing a land acquisition transaction or providing a
market study report. We recognize revenue under such arrangements upon delivery of the final
product, assuming customer acceptance has occurred and the fee is no longer contingent. The timing
of recognition may cause fluctuations in our quarterly revenues if all of the revenues under a
contract are recognized at one point in time. In other instances, we provide services periodically
during the development stage of a real estate project, such as monthly market updates. The
contractual period for such arrangements is usually between one and twelve months with revenue
being recognized ratably over such period.
Revenues from our real estate consulting services are significantly affected by the number of
major real estate developer clients we have and the scope and depth of consulting services they
require from us. Generally, we maintain business relationships with national and regional real
estate developers local subsidiaries or branches, and enter into individual contracts with each
subsidiary or branch. However, in limited cases, such as our relationship with Evergrande, we
maintain the business relationship with the headquarters of the real estate developer.
We have been working with Evergrande, a large developer in China, since December 2007, when we
entered into a strategic cooperation agreement with a term of one year with Evergrande. We renewed
the agreement for another one year term in December 2008. In December 2009, we were engaged as the
exclusive provider of real estate information system and market consulting services to 47 of
Evergrandes real estate projects under development and a certain land acquisition project. For
each of the projects for which Evergrande has engaged us for information and market consulting
services or land acquisition consulting services, our subsidiary, Shanghai CRIC, entered into a
real estate information and market consulting service agreement with a project development company
owned by or affiliated with Evergrande. In January 2011, we were again contracted to provide real
estate information, consulting and online services for Evergrandes projects throughout China.
Our top three developer clients in 2008, namely Evergrande, Shanghai Urban Development (Group)
Co., Ltd. and Sky East Resources Ltd. (including their subsidiaries and branches), accounted for
56.6%, 15.6% and 10.3%, respectively, of our total revenues in the year ended December 31, 2008,
while no other clients accounted for more than 10% of our total revenues during such periods.
Our top two developer clients in 2009, namely Evergrande and Shanghai Jinluodian Development Co.,
Ltd. accounted for 29.7% and 11.3%, respectively, of our total revenues in the year ended December 31, 2009, while
no other clients accounted for more than 10% of our total revenues during such periods. In
2010, our top developer client was Evergrande, which accounted for 13.6% of our total revenues for
the year ended December 31, 2010. No other clients accounted for more than 10% of our total
revenues during such period. See Item 3. Key InformationD. Risk FactorsRisks Related to Our
BusinessTo date, a limited number of real estate developers have contributed a substantial
portion of our revenues due to the large size of their contracts with us; if we fail to continue to
secure large contracts from existing, new or former clients, this could materially and adversely
impact our revenues, results of operations and financial condition, or contribute to large
fluctuations in our revenues, which may make it difficult to predict our results of operations from
period to period.
57
Real estate online services
. We generate online revenues principally from online advertising,
sponsorship arrangements and, to a lesser extent, hosting arrangements. Online advertising allows
advertisers to place advertisements on particular areas of our websites and SINAs non-real estate
channels in particular formats, such as banners and logos, and over particular lengths of time.
Sponsorship arrangements allow advertisers to sponsor a
particular area on our websites and SINAs non-real estate channels in exchange for a fixed
payment over the contract period. As is customary in the advertising industry, we offer rebates to
advertising agencies if they achieve certain revenue targets. Revenues are recognized net of these
agency rebates. For the period from the date when we acquired SINAs real estate online business
through December 31, 2009, a substantial majority of our advertising revenues were derived from
sales to advertising agencies, with approximately 70%, of the
revenues attributable to sales to our
top three advertising agency clients, namely Beijing Jiahua Hengshun Media Advertising Co., Ltd.,
Shanghai Hongbo Culture Communication Co., Ltd. and Shanghai Xindu Advertising Media Co., Ltd. For
the year ended December 31, 2010, Beijing Jiahua Hengshun Media Advertising Co., Ltd. continued to
account for 9.1% of our total revenue. However, we discontinued business with Shanghai Hongbo
Culture Communication Co., Ltd. and Shanghai Xindu Advertising Media Co., Ltd., as we made the
decision to turn our online business in Shanghai into a direct operation, including sales functions.
No advertising agencies accounted for more than 10% of our total
revenue in 2010. Our real estate online
revenues also include revenues from hosting arrangements, which are derived from outsourcing
certain regional websites to local business partners for a fixed term. With the launch of the Baidu
real estate channels in August 2010 through our four-year alliance with Baidu, we also started to
generate online revenues through a search-result-oriented model. Although revenues from the Baidu
channels were not material in 2010, going forward, clients will pay us for generating inquiry phone
calls to their sales offices through our websites and related
set-up, maintenance and updates of
project/unit information on our websites.
We believe that demand for advertising on real estate-related websites comes primarily from
real estate developers. Real estate market conditions will affect both the number of new real
estate development projects and the willingness of developers to spend money advertising those
projects. The demand among potential purchasers and renters for access to real estate listings and
other information on real estate will help drive website traffic, and this demand will be affected
by the need for housing, the affordability of housing and expectations about returns on investments
in real estate. Website traffic affects the rates that we can charge advertisers by serving as an
indicator of the popularity of the website and its ability to deliver the advertisement to the
target audience. Historically, in Chinas online real estate advertising market, the first quarter
is usually slower than the other three quarters due to winter and the Chinese New Year holidays.
Other Services
. Our other services include real estate advertising and promotional event
services. We began offering real estate advertising design and resale services to real estate
developers in 2008 through our consolidated affiliated entity in China, Tian Zhuo, and its
subsidiaries. In September 2008, we acquired a 60% interest in Wushi Advertising, which provides
real estate advertising design services to developers. We currently provide real estate advertising
design services in 14 cities in China. In addition, beginning in 2009, we started providing
advertising resale services by making wholesale purchases of advertising space in print and other
media in Shanghai and reselling them to our developer clients.
We began offering promotional event services through Shanghai Dehu in April 2010 when we
acquired 55% equity interest in that entity for $0.8 million. Our promotional event services
include, but are not limited to, securing venues, hiring caterers and other various service
providers, formulating event themes and inviting speakers and guests for real estate promotional
events.
Revenues from our advertising design services are significantly affected by real estate market
conditions, our ability to generate creative and effective advertising designs to meet our
developer clients needs, and our marketing efforts. Revenues from our advertising resale services
are significantly affected by real estate market conditions, our willingness and ability to
purchase and resell a large number of advertising spaces from print and other media and our
relationship with our developer clients. Revenues from our promotional event services are
significantly affected by real estate market conditions, clients promotional budgets and the
perceived effectiveness of the promotional events and of our services.
Cost of Revenues
.
Our cost of revenues for real estate information and consulting services
primarily consists of expenses incurred to develop, maintain and update our CRIC system, including
the cost to purchase or license data from third-party sources, personnel-related costs and
associated equipment depreciation. We must continually revise the data on the cities that we cover
because the market is always changing and our subscribers demand up-to-date information. Expanding
the geographical coverage of our CRIC system to a new city tends to increase our cost of revenues
before it increases our revenues, as we incur upfront costs to purchase or generate additional data
to make the database attractive and useful to developers in that city, and it also increases our
costs for updating the data on the system going forward. Our growth also causes us to incur more costs
for system maintenance as the number of subscribers using our CRIC system increases.
58
Cost of revenues for real estate online services consists of costs associated with the
production of websites, including fees paid to third parties for Internet connection, content and
services, personnel-related costs, amortization of intangible assets
and equipment depreciation fees paid to Baidu for the exclusive right
to build and operate Baidu real estate and home furnishing
channels,
and fees paid to SINA for advertising sales on SINAs non-real estate channels under an
advertising agency agreement with SINA. Under the SINA advertising
agency agreement, we have the exclusive right to sell
advertising to real estate, home furnishing and construction materials advertisers on SINAs
non-real estate channels, subject to certain limitations on the amount of advertising that may be
sold by us. Fees payable to SINA are based on the amount of advertising sold.
Cost
of revenues for our other services, namely real estate advertising
and promotional event services, includes fees
paid to third parties for services directly related to advertising design, the cost incurred to
acquire advertising space to resell, the salaries of sales and support staff and fees paid to third
parties for services related to our promotional event services, such
as rental and catering fees.
Selling, General and Administrative Expenses
.
Our selling, general and administrative expenses
primarily consist of compensation and benefits for our corporate office employees, consultant
expenses, costs associated with enhancement to and maintenance of websites, new product development
and product enhancements, sales commissions, marketing and
advertising expenses, travel expenses and
rental expenses, among others. Our selling, general and administrative expenses also include
share-based compensation expenses, as described below. We expect that our selling, general and
administrative expenses will increase as we hire additional personnel and incur additional costs in
connection with the expansion of our business.
Share-Based Compensation Expenses
.
Our selling, general and administrative expenses also
include share-based compensation expenses. We have adopted a share incentive plan and have granted
options and restricted shares under the plan. We recognize share-based compensation expense over
the vesting period of the award based on the fair value of the award on the grant date, net of
expected forfeitures. A change in the amount of share-based compensation expenses will primarily
affect our net income, earnings per share and operating expenses.
The following table summarizes the options and restricted shares we granted to our directors,
officers and employees and certain of E-Houses employees that remain outstanding as of March 31,
2011.
Options
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Number of
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Ordinary Shares
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Exercise
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Grant Date
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Underlying Options Granted
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Price
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January 1, 2009
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4,707,698
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(1)
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$
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3.00
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July 15, 2009
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900,290
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$
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6.00
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July 30, 2009
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300,000
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$
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6.00
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September 24, 2009
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1,269,501
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$
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8.00
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March 10, 2011
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2,782,000
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$
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7.02
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(1)
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Options to purchase 756,000 ordinary shares granted on January 1, 2009 were later modified on
July 15, 2009. The number of these options was reduced to 251,500 and the vesting schedule was
shortened to one to two year from two to four year subsequent to the original grant date.
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Restricted Shares
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Number of Restricted
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Grant
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Grant Date
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Shares Granted
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Price
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July 30, 2009
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125,000
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(1)
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$
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3.00
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July 30, 2009
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37,500
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(2)
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$
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6.00
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(1)
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250,000 of these options were surrendered for cancellation on July 30, 2009, in exchange for
the same number of restricted shares having the same vesting schedule and a purchase price
equal to the original option exercise price.
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(2)
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50,000 of these options were surrendered for cancellation on July 30, 2009, in exchange for
the same number of restricted shares having the same vesting schedule and a purchase price
equal to the original option exercise price.
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59
We used the binomial model to estimate the fair value of the options. The assumptions used in
the binomial model included 3.22% weighted average risk-free rate of
return, 10-year contractual life of option, 71.79% weighted average estimated volatility rate and no dividend
yield. The weighted-average grant-date fair value of the options was $3.72 per share. For the year
ended December 31, 2010, we recorded compensation expense of $6.1 million for the share options
granted to our employees and recorded dividends to E-House of $2.5 million for the options granted
to E-Houses employees. We recorded dividends to E-House of $0.2 million for restricted shares
granted to E-Houses employees for the year ended December 31, 2010.
Determining the fair value of options and ordinary shares requires making complex and
subjective judgments. In assessing the fair value of our ordinary shares prior to our IPO, we
considered the following principal factors:
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the nature of our business and the contracts and agreements relating to our
business;
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the global economic outlook in general and the specific economic and
competitive elements affecting our business;
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the nature and prospects of the real estate service industry in China;
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the growth of our operations; and
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We used the income
approach to assess the fair value of our ordinary shares as of the date of
the option grant on a contemporaneous basis. The income approach resulted in a fair value of our
ordinary shares at $2.90, $6.89 and $7.43 per share as of January 1, July 15 and July 30, 2009,
respectively.
The income approach involved applying appropriate discount rates to estimated cash flows that
were based on our earnings forecasts. The major assumptions used by the independent appraiser in
deriving the fair value of our ordinary shares were consistent with our business plan and major
milestones that we achieved. Other major assumptions used in determining the fair value of our
ordinary share as of January 1, July 15 and July 30, 2009 included the following:
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weighted average costs of capital of 21.41%, 18% and 18% were used for options
granted on January 1, July 15 and July 30, 2009, respectively. This was the combined
result of the changes in risk-free rate and industry average beta and the decrease in
our company-specific risks; and
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discount for lack of marketability of 22.18%, 11.95% and 9.47% was used for
options granted on January 1, July 15 and July 30, 2009, respectively. This took into
consideration our then pending IPO.
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We also used other general assumptions, including the following: no material changes in the
existing political, legal, fiscal and economic conditions and real estate industry in China; our
ability to retain competent management and key personnel to support our ongoing operations; and no
material deviation in market conditions from economic forecasts.
An estimated fair value of our
ordinary shares of $12.80 per share was used in connection with our determination of the fair value
of the options granted on September 24, 2009.
60
In October 2009, after the completion of our IPO and our acquisition of SINAs real estate
online business, we granted options to purchase 3,609,000 of our ordinary shares to certain
employees of SINA and COHT to replace the same number of options of COHT they held at that time.
The terms of these options are similar to those of the options of COHT held by such employees. We
used the binomial model to estimate the fair value of the options. The assumptions used in the
binomial model included 2.47% average risk-free rate of return,
5.2-year contractual life of
option, 63.18% estimated volatility rate and no dividend yield. The weighted-average grant-date
fair value of the options was $11.44 per share. We recorded compensation expense of $2.2 million
for the period from the date of acquisition of SINAs real estate online business to December 31,
2009 and $8.7 million for 2010. Unrecognized compensation expense in the total amount of $16.8 million is expected to be recognized over a
weighted-average requisite service period of two years commencing on January 1, 2011.
With
respect to our options granted on March 10, 2011, we used the
binomial model to estimate
the fair value of the options. The assumptions used in the binomial
model included 3.90% average risk-free rate of
return, 10-years contractual life of option, 57.48% estimated volatility rate and no dividend
yield. The weighted-average grant-date fair value of the options was
$4.19 per share.
Other Income
.
We generate interest income from the cash and cash equivalents that we hold in
bank accounts. The amount of interest is subject to prevailing interest rates. We may generate
foreign exchange gain or loss if we hold U.S. dollar-denominated cash and cash equivalents in an
entity with a different functional currency, such as the Hong Kong dollar (in the case of our BVI
subsidiaries) or the RMB (in the case of our PRC subsidiaries).
Taxation
We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are
not subject to income or capital gains tax. Our subsidiaries in the British Virgin Islands are not
subject to income or capital gains tax either. Our subsidiaries in Hong Kong are subject to a
profit tax at the rate of 16.5% on assessable profit determined under relevant Hong Kong tax
regulations; prior to 2008, this rate had been 17.5%.
The PRC Enterprise Income Tax Law applies a uniform 25% enterprise income tax rate to both
foreign-invested enterprises and domestic enterprises in the PRC, except where an enterprise meets
the conditions for a tax incentive. Shanghai SINA Leju was recognized as a qualified software
enterprise in February 2009 and was further approved by the local tax authority on June 17, 2009,
and, thus, became eligible to be exempted from income tax for 2009, followed by a 50% reduction in
income tax from 2010 through 2012. Shanghai CRIC was also granted software enterprise status in
September 2008 and was further approved by the local tax authority on May 19, 2010 to become
qualified to be exempted from income tax for 2009, followed by a 50% reduction in income tax from
2010 through 2012. Qualified software enterprise status is subject to annual review.
In addition to the enterprise income tax,
our subsidiaries and consolidated variable interest entities in China are also subject to business tax and related
surcharges by various local tax authorities at rates of 5% to 5.55% on revenues or 8.5% to 9.5% on gross
profits (the balance of revenues after deducting cost of sales) generated from providing advertising services.
Under the PRC Enterprise Income Tax Law, dividends from our PRC subsidiaries out of earnings
generated after the new law came into effect on January 1, 2008, are subject to a withholding tax
which may be as high as 20%, although under the detailed implementation rules promulgated by the
PRC authorities the effective withholding tax is currently 10%, unless otherwise reduced or
exempted by treaties or applicable PRC law. Distributions of earnings generated before January 1,
2008 are exempt from PRC withholding tax.
Dividends of PRC subsidiaries that are directly held by Hong Kong entities may benefit from a
reduced withholding tax rate of 5% pursuant to the Arrangement between Mainland China and Hong Kong
for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on
Income, subject to the approval from the relevant local branch of the State Administration of
Taxation in accordance with the Administrative Measures on Tax Treaty Treatment of Nonresidents
(Trial) and other relevant tax rules. Our Hong Kong subsidiaries have not sought approval for such
preferential withholding tax rate, given that no dividends have been paid by their respective PRC
subsidiaries. Dividend payments are not subject to withholding tax in Hong Kong, Macau, the British
Virgin Islands or the Cayman Islands.
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Under the PRC Enterprise Income Tax Law, enterprises that are established under the laws of
foreign countries or regions and whose de facto management bodies are located within the PRC
territory are considered PRC resident enterprises, and will be subject to the PRC enterprise income
tax at the rate of 25% on their worldwide income. Under the implementation rules of the PRC
Enterprise Income Tax Law, de facto management bodies are defined as the bodies that have
material and overall management and control over the manufacturing and business operations,
personnel and human resources, finances and treasury, and acquisition and disposition of properties
and other assets of an enterprise. We cannot assure you that we will not be deemed to be a PRC
resident enterprise under the PRC Enterprise Income Tax Law and be subject to the PRC enterprise
income tax at the rate of 25% on our worldwide income. See Item 3. Key InformationD. Risk
FactorsRisks Related to Doing Business in ChinaDividends payable to us by our PRC subsidiaries
may be subject to PRC withholding taxes, we may be subject to PRC taxation on our worldwide income, and dividends distributed to our non-PRC investors may
be subject to PRC withholding taxes under the PRC Enterprise Income Tax Law.
Critical Accounting Policies
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make
judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based
on the most recently available information, our own historical experience and various other
assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is
an integral component of the financial reporting process, actual results could differ from our
expectations as a result of changes in our estimates.
An accounting policy is considered critical if it requires an accounting estimate to be made
based on assumptions about matters that are highly uncertain at the time such estimate is made, and
if different accounting estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur periodically, could materially impact the
consolidated financial statements. We believe that the following accounting policies involve a
higher degree of judgment and complexity in their application and require us to make significant
accounting estimates. The following descriptions of critical accounting policies, judgments and
estimates should be read in conjunction with our consolidated financial statements and other
disclosures included in this annual report.
Revenue Recognition
We recognize revenues when there is persuasive evidence of an arrangement, service has been
rendered, the sales price is fixed or determinable and collectability is reasonably assured.
Revenues are recorded, net of sales related taxes.
We provide real estate consulting services to customers in relation to land acquisition and
property development. In certain instances, we agree to a consulting arrangement wherein payment is
contingent upon the delivery of a final product, such as closing a land acquisition transaction or
providing a market study report. We recognize revenue under such arrangements upon delivery of the
final product, assuming customer acceptance has occurred and the fee is no longer contingent. In
other instances, we provide services periodically during the development stage of a real estate
project, such as monthly market updates. The contractual period for such arrangements is usually
between one and twelve months with revenue being recognized ratably over such period.
We sell subscriptions to our proprietary CRIC system for which revenues are recognized ratably
over the subscription period, which is usually six to twelve months.
When an arrangement includes periodic consulting services and subscriptions for the CRIC
system, revenues are recognized ratably over the longer of the consulting or CRIC subscription
period. When an arrangement includes both project-based consulting services and subscriptions for
the CRIC system, the entire arrangement is considered a single unit of account as we do not have
objective and reliable evidence of fair value for each deliverable. Revenue is recognized based on
the revenue recognition model for the final deliverable in the arrangement, which is typically the
subscription for the CRIC system which requires ratable recognition over the subscription period.
We have objective and reliable evidence of the fair value for the CRIC subscription service. As
such, upon delivery of the consulting product, we defer the fair value of the remaining CRIC
subscription and recognize the residual amount, or the difference between the remaining fair value
of the CRIC subscription and the total arrangement fee, as revenue, assuming all other revenue
recognition criteria have been met. The residual amount recognized is limited to the cumulative
amount due under the terms of the arrangement.
Our parent company, E-House, has multiple element arrangements that have included the
provision of primary real estate services, payment of which is based on a commission rate that is
contingent upon the sale of real estate, consulting services and/or subscription for the CRIC
system. E-House has determined that the commission rate for the primary real estate services under
these multiple element arrangements has been at fair value. Fixed arrangement fees associated with
the consulting services and/or subscription for the CRIC system under multiple element arrangements
have been recognized in accordance with the preceding paragraph.
62
We generate real estate online services revenues principally from online advertising,
sponsorship arrangements and, to a lesser extent, hosting arrangements. Online advertising
arrangements allow advertisers to place advertisements on particular areas of our websites, in
particular formats and over particular periods of time. Advertising revenues from online
advertising arrangements are recognized ratably over the contract period of display when
collectability is reasonably assured. Sponsorship arrangements allow advertisers to sponsor a
particular area on its websites in exchange for a fixed payment over the contract period.
Advertising revenues from sponsorship are recognized ratably over the contract period. Revenues for
advertising services are recognized net of agency rebates. We also generate advertising revenues
from outsourcing certain regional sites for a fixed length of time to local hosting partners, who
are responsible for both websites operating and related advertising sales. Advertising revenues
from hosted websites are recognized ratably over the fixed term of the contract.
We generate revenues from real estate advertising design services, which are recognized
ratably over the specified contract period ranging from three to twelve months. We also provide
advertising sales services by acquiring advertising space and subsequently reselling such space.
Revenues under such arrangements are recognized when the related advertisement is placed.
Advertising sales revenues are recognized on a gross basis because we act as the principal and are
the primary obligor in the arrangement.
We
generate revenues from promotional event services, which are recognized when such
services are rendered, assuming all other revenue recognition criteria have been met.
Deferred revenues are recognized when payments are received in advance of revenue recognition.
Share-based Compensation
Share-based
compensation cost is measured at the grant date, based on the fair value of the award,
and recognized as an expense over the requisite service period. We have made an estimate of
expected forfeitures and recognize compensation cost only for those equity awards expected to
vest.
Determining the value of our share-based compensation expense in future periods requires the
input of highly subjective assumptions, including the expected life of the share-based payment
awards, estimated forfeitures and the price volatility of the underlying shares. The assumptions
used in calculating the fair value of share-based payment awards represent managements best
estimates, but these estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and we use different assumptions, our share-based
compensation expense could be materially different in the future.
63
Goodwill Valuation
We perform a two-step goodwill impairment test on an annual basis. The first step compares the
fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of
each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the
second step will not be required. If the carrying amount of a reporting unit exceeds its fair
value, the second step compares the implied fair value of goodwill to the carrying value of a
reporting units goodwill. The implied fair value of goodwill is determined in a manner similar to
accounting for a business combination with the allocation of the assessed fair value determined in
the first step to the assets and liabilities of the reporting unit. The excess of the fair value of
the reporting unit over the amounts assigned to the assets and liabilities is the implied fair
value of goodwill. This allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any assets or liabilities. An
impairment loss is recognized for any excess in the carrying value of goodwill over the implied
fair value of goodwill.
The fair value of each reporting unit is determined by analysis of discounted cash flows. The
significant assumptions regarding our future operating performance are revenue growth rates,
discount rates and terminal multiple. If any of these assumptions changes, the estimated fair value
of our reporting units will change, which could affect the amount of goodwill impairment charges,
if any.
No goodwill
impairment was recognized during the year ended December 31, 2010 after we performed an annual
goodwill impairment test as of December 31, 2010. As of December 31, 2010, the carrying value of goodwill
was attributable to our real estate online services reporting unit due to our acquisition of COHT,
which had operated SINAs real estate online business. We may incur goodwill impairment charges in
the future, although we cannot predict whether this will occur when we perform our goodwill
impairment test each year.
Income Taxes
Deferred income taxes are recognized for temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements, net operating loss
carryforwards and credits by applying enacted statutory tax rates applicable to future years.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets will not be realized. We
have not recorded a valuation allowance against our deferred tax assets as of December 31, 2010 as
we believe it is more likely than not that such assets will be fully realized. Current income taxes
are provided for in accordance with the laws of the relevant tax authorities. The components of the
deferred tax assets and liabilities are individually classified as current and non-current based on
the characteristics of the underlying assets and liabilities.
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the
periods indicated. This information should be read together with our consolidated financial
statements and related notes included elsewhere in this annual report. The operating results in any
period are not necessarily indicative of the results that may be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands of $)
|
|
Revenues
|
|
|
50,049
|
|
|
|
95,654
|
|
|
|
174,154
|
|
Cost of revenues
|
|
|
(2,897
|
)
|
|
|
(12,810
|
)
|
|
|
(41,010
|
)
|
Selling, general and administrative expenses
|
|
|
(19,820
|
)
|
|
|
(48,049
|
)
|
|
|
(109,089
|
)
|
Gain from settlement of pre-existing relationship
|
|
|
|
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
27,332
|
|
|
|
36,896
|
|
|
|
24,055
|
|
Interest expense
|
|
|
420
|
|
|
|
279
|
|
|
|
1,727
|
|
Other income, net
|
|
|
(1,341
|
)
|
|
|
2,725
|
|
|
|
3,174
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and equity in affiliates
|
|
|
26,411
|
|
|
|
39,900
|
|
|
|
28,956
|
|
Income tax expenses
|
|
|
(4,721
|
)
|
|
|
(6,307
|
)
|
|
|
(2,791
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before equity in affiliates
|
|
|
21,690
|
|
|
|
33,593
|
|
|
|
26,165
|
|
Income from equity in affiliates
|
|
|
154
|
|
|
|
22,016
|
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
21,844
|
|
|
|
55,609
|
|
|
|
25,889
|
|
Less: net
income (loss) attributable to non-controlling interest
|
|
|
(318
|
)
|
|
|
7
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to CRIC shareholders
|
|
|
22,162
|
|
|
|
55,602
|
|
|
|
25,941
|
|
64
Segment Information
We use the management approach to determine operating segments. The management approach
considers the internal organization and reporting used by our chief operating decision maker
(CODM) for making decisions, allocating resources and assessing performance. Our CODM has been
identified as the chief executive officer, who reviews consolidated and segment results when making
decisions about allocating resources and assessing performance of us.
We have four operating segments: (1) real estate information and consulting services, (2) real
estate online services, (3) real estate advertising services and (4) promotional events services.
The real estate advertising services segment commenced in 2008. The real estate online services
segment started as a result of the acquisition of COHT in October 2009. The promotional events
service segment started as a result of the acquisition of a promotional events provider in 2010.
In 2010, the real estate advertising services segment and promotional events services segment
did not meet the significance threshold for separate disclosure and have been combined and
classified as other services. Our CODM reviews net revenues, cost of sales, operating expenses,
income from operations and net income for each operating segment and does not review balance sheet
information. Corporate expenses such as selling, general and administrative expenses and interest
income are not allocated among segments and are recorded as non-allocated items.
The following tables summarize the selected revenue and expense information for each operating
segment for the years ended December 31, 2010, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information and
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
Consulting
|
|
|
Online
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
Segment Information
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
allocated
|
|
|
Total
|
|
|
|
(in thousands of $)
|
|
Revenues from external customers
|
|
|
87,567
|
|
|
|
66,855
|
|
|
|
19,732
|
|
|
|
|
|
|
|
174,154
|
|
Cost of revenues
|
|
|
(3,017
|
)
|
|
|
(26,361
|
)
|
|
|
(11,632
|
)
|
|
|
|
|
|
|
(41,010
|
)
|
Selling, general and
administrative expenses
|
|
|
(35,270
|
)
|
|
|
(54,741
|
)
|
|
|
(8,218
|
)
|
|
|
(10,860
|
)
|
|
|
(109,089
|
)
|
Income (loss) from operations
|
|
|
49,280
|
|
|
|
(14,247
|
)
|
|
|
(118
|
)
|
|
|
(10,860
|
)
|
|
|
24,055
|
|
Interest income
|
|
|
1,156
|
|
|
|
286
|
|
|
|
110
|
|
|
|
175
|
|
|
|
1,727
|
|
Other income, net
|
|
|
2,360
|
|
|
|
(23
|
)
|
|
|
734
|
|
|
|
103
|
|
|
|
3,174
|
|
Income (loss) before taxes and
equity in affiliates
|
|
|
52,796
|
|
|
|
(13,984
|
)
|
|
|
726
|
|
|
|
(10,582
|
)
|
|
|
28,956
|
|
Income tax benefit (expense)
|
|
|
(2,911
|
)
|
|
|
456
|
|
|
|
(336
|
)
|
|
|
|
|
|
|
(2,791
|
)
|
Income (loss) before equity in
affiliates
|
|
|
49,885
|
|
|
|
(13,528
|
)
|
|
|
390
|
|
|
|
(10,582
|
)
|
|
|
26,165
|
|
Loss from equity in affiliates
|
|
|
(271
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(276
|
)
|
Net income (loss)
|
|
|
49,614
|
|
|
|
(13,533
|
)
|
|
|
390
|
|
|
|
(10,582
|
)
|
|
|
25,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information and
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
Consulting
|
|
|
Online
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
Segment Information
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
allocated
|
|
|
Total
|
|
|
|
(in thousands of $)
|
|
Revenues from external customers
|
|
|
68,045
|
|
|
|
13,830
|
|
|
|
13,779
|
|
|
|
|
|
|
|
95,654
|
|
Cost of revenues
|
|
|
(1,866
|
)
|
|
|
(4,930
|
)
|
|
|
(6,014
|
)
|
|
|
|
|
|
|
(12,810
|
)
|
Selling, general and
administrative expenses
|
|
|
(22,723
|
)
|
|
|
(11,360
|
)
|
|
|
(5,691
|
)
|
|
|
(8,275
|
)
|
|
|
(48,049
|
)
|
Gain from settlement of
pre-existing relationship
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,101
|
|
Income (loss) from operations
|
|
|
45,557
|
|
|
|
(2,460
|
)
|
|
|
2,074
|
|
|
|
(8,275
|
)
|
|
|
36,896
|
|
Interest income
|
|
|
166
|
|
|
|
24
|
|
|
|
28
|
|
|
|
61
|
|
|
|
279
|
|
Other income, net
|
|
|
2,481
|
|
|
|
6
|
|
|
|
|
|
|
|
238
|
|
|
|
2,725
|
|
Income (loss) before taxes and
equity in affiliates
|
|
|
48,204
|
|
|
|
(2,430
|
)
|
|
|
2,102
|
|
|
|
(7,976
|
)
|
|
|
39,900
|
|
Income tax benefit (expense)
|
|
|
(6,710
|
)
|
|
|
957
|
|
|
|
(554
|
)
|
|
|
|
|
|
|
(6,307
|
)
|
Income (loss) before equity in
affiliates
|
|
|
41,494
|
|
|
|
(1,473
|
)
|
|
|
1,548
|
|
|
|
(7,976
|
)
|
|
|
33,593
|
|
Income from equity in affiliates
|
|
|
|
|
|
|
22,016
|
|
|
|
|
|
|
|
|
|
|
|
22,016
|
|
Net income (loss)
|
|
|
41,494
|
|
|
|
20,543
|
|
|
|
1,548
|
|
|
|
(7,976
|
)
|
|
|
55,609
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Information and
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
Consulting
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
Segment Information
|
|
Services
|
|
|
Services
|
|
|
allocated
|
|
|
Total
|
|
|
|
(in thousands of $)
|
|
Revenues from external customers
|
|
|
49,116
|
|
|
|
933
|
|
|
|
|
|
|
|
50,049
|
|
Cost of revenues
|
|
|
(2,855
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
(2,897
|
)
|
Selling, general and administrative expenses
|
|
|
(13,777
|
)
|
|
|
(1,866
|
)
|
|
|
(4,178
|
)
|
|
|
(19,821
|
)
|
Income (loss) from operations
|
|
|
32,484
|
|
|
|
(975
|
)
|
|
|
(4,178
|
)
|
|
|
27,331
|
|
Interest income
|
|
|
416
|
|
|
|
4
|
|
|
|
1
|
|
|
|
421
|
|
Foreign exchange loss
|
|
|
(1,324
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
(1,341
|
)
|
Income (loss) before taxes and equity in
affiliates
|
|
|
31,576
|
|
|
|
(971
|
)
|
|
|
(4,194
|
)
|
|
|
26,411
|
|
Income tax benefit (expense)
|
|
|
(4,918
|
)
|
|
|
197
|
|
|
|
|
|
|
|
(4,721
|
)
|
Income (loss) before equity in affiliates
|
|
|
26,658
|
|
|
|
(774
|
)
|
|
|
(4,194
|
)
|
|
|
21,690
|
|
Income from equity in affiliates
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
154
|
|
Net income (loss)
|
|
|
26,658
|
|
|
|
(774
|
)
|
|
|
(4,040
|
)
|
|
|
21,844
|
|
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues
. Our
total revenues increased by 82% from $95.7 million in 2009 to $174.2 million in
2010 due to (i) an increase in revenues from our real estate information and consulting services, (ii)
an increase in revenues from our real estate advertising services,
and (iii) revenues from the real estate
online business acquired from SINA in October 2009.
Revenues
from our real estate information and consulting services increased by 29% from $68.0
million in 2009 to $87.6 million in 2010, primarily due to an increased number of subscribers to
the CRIC database and more demand for our companys customized real estate reports.
Revenues from our real estate online business increased from $13.8 million in 2009 to $66.9
million in 2010. For the year ended December 31, 2009, only the fourth quarter online revenues were
included, as we completed the acquisition of COHT in October of 2009. In comparison, fourth quarter
online revenues were $25.2 million in 2010.
Revenues
from our other services, including real estate advertising and promotional events
services, increased from $13.8 million in 2009 to
$19.7 million in 2010, primarily due to
the addition of promotional event services starting in April 2010.
Cost of Revenues
. Our cost of revenues increased by 220% from $12.8 million in 2009 to $41.0
million in 2010, primarily due to the addition of our real estate online business starting from the
fourth quarter of 2009, the addition of real estate promotional event services starting from the
second quarter of 2010, the addition of Baidu real estate channels starting from the third quarter
of 2010 and our overall business expansion.
Selling,
General and Administrative Expenses
. Our selling, general and administrative expenses
increased by 127% from $48.0 million in 2009 to $109.1 million in 2010, primarily due to the
addition of our real estate online business starting from the fourth quarter of 2009, the
addition of our new real estate promotional event
service business starting from the second quarter of 2010, and higher salary,
commission, bonus and travel expenses associated with our real estate information and consulting
services. General and administrative expenses associated with being a public company for the full
year of 2010 also contributed to the overall increase in selling, general and administrative
expenses as compared to 2009.
66
Other Income
. We had other income of $3.2 million for the year ended December 31, 2010,
compared to $2.7 million for the year ended December 31, 2009. Other income in 2010 includes
government subsidies of $2.1 million granted to one of our
subsidiaries as an incentive for investing
in a certain local district and a gain of $1.1 million from the sale of certain properties.
Income Tax Expense
. We had an income tax expense of $2.8 million for the year ended December
31, 2010, compared to $6.3 million for the year ended December 31, 2009, primarily due to the
decrease in our reported income before taxes and a tax refund of $4.3 million relating to 2009
issued to Shanghai CRIC following its qualification as a software enterprise rendering it exempt
from 2009 income taxes, which was recognized as an income tax
benefit. Our effective tax rate was 9.64% for the year ended December
31, 2010 compared to 15.81% for the year ended December 31, 2009. The
change in effective tax rate was primarily due to the increase in tax
refund partially offset by the increase in expense not deductible.
Net Income Attributable to CRIC Shareholders
. As a result of the forgoing, we had net income
attributable to CRIC shareholders of $25.9 million for the year ended December 31, 2010 as compared
to $55.6 million for the year ended December 31, 2009.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenues
. Our total revenues
increased by 91% from $50.0 million in 2008 to $95.7 million in
2009 due to (i) an increase in revenues from our real estate information and consulting services, (ii)
an increase in revenues from our real estate advertising services,
and (iii) revenues from the real estate
online business acquired from SINA in October 2009.
Revenues from
our real estate information and consulting services increased by 39% from $49.1
million in 2008 to $68.0 million in 2009, primarily due to further expansion of the coverage and
marketing of the CRIC database as well as higher consulting revenues
resulting from an increased
number of consulting clients and projects in 2009.
Revenues
from our estate advertising services increased significantly from $0.9 million in
2008 to $13.8 million in 2009, primarily attributable to wider acceptance and brand recognition of
our advertising design services and the launch of advertising resale services in 2009 by making
wholesale purchases of advertising spaces in print and other media in Shanghai and reselling them
to developer clients.
Revenues from our real estate online business were $13.8 million in 2009. We completed the
acquisition of COHT, which operates our real estate online business, in October 2009 and started
reporting its online advertising services as a new line of business in the fourth quarter of 2009.
Cost of Revenues
. Our cost of revenues increased by 342% from $2.9 million in 2008 to $12.8
million in 2009, primarily due to (i) an increase of $6.0 million in cost of revenues for real
estate advertising services and (ii) cost of revenues in the
amount of $4.9 million for the real estate
online business acquired from SINA in October 2009. The increase
in cost of revenues for our real
estate advertising services was primarily due to the expansion of advertising design services which
started in 2008 and the launch of advertising resale services in
2009. Cost of revenue, for our real
estate advertising services consists of fees paid to third parties for the services directly
related to advertising design and the cost incurred to acquire advertising space for resale. Cost
of revenues for the real estate online business acquired from SINA consists of costs associated
with the maintenance of websites, which include fees paid to third parties for Internet connection, content and services, personnel related costs,
amortization of intangible assets, depreciation of equipment and fees paid to SINA for advertising
inventory on non-real estate channels.
67
Selling, General and Administrative Expenses
. Our selling, general and administrative expenses
increased by 142% from $19.8 million in 2008 to $48.0 million in 2009. Our selling, general and
administrative expenses in 2009 include $11.4 million attributable to the real estate online
business acquired from SINA in October 2009. The remainder was $36.6 million, an increase of 85%
from $19.8 million in 2008, primarily due to higher expenses of $ 4.6 million relating to share-based
compensation recorded in 2009 as compared to $1.3 million in
2008, and higher salaries, rental and office
expenses associated with increased personnel and office spaces.
Gain from Settlement of Pre-existing Relationship
. Prior to the acquisition of COHT, we had a
pre-existing relationship with COHT in the form of an ongoing obligation to maintain and update the
CRIC database, which was contributed to COHT through a 10-year license. We had recorded deferred
revenue of $2.4 million at the date of COHTs inception in 2008. Upon completion of our acquisition
of COHT in October 2009, we recorded a $2.1 million gain on settlement of this pre-existing
relationship that equals the remaining unamortized deferred revenue.
Other Income
. We had other income of $2.7 million for the year ended December 31, 2009,
compared to a loss of $1.3 million for the year ended December 31, 2008. Other income in 2009
includes government subsidies of $2.4 million granted to one of our subsidiaries as incentive for
investing in a certain local district and a foreign exchange gain of $0.2 million resulting from
fluctuation in exchange rates between the RMB and the U.S. dollar in 2009. Other income in 2008
represented a foreign exchange loss of $1.3 million. We had a foreign exchange gain in 2009
primarily because the U.S. dollar holdings that had been responsible for the foreign exchange loss
in 2008 were eventually converted into RMB.
Income Tax Expense
. We had an income tax expense of $6.3 million for the year ended December
31, 2009, compared to $4.7 million for the year ended December 31, 2008, primarily due to the
increase in our income before taxes.
Income from Equity in Affiliates
. Income from equity in affiliates represents income from
COHT, in which we held a 34% interest prior to October 2009. This interest was re-measured to its
fair value in connection with the acquisition of the remaining 66% interest in COHT in October
2009, with the excess of fair value over the carrying amount recognized as a gain of $21.5 million.
Net Income Attributable to CRIC Shareholders
. As a result of the forgoing, we had net income
attributable to CRIC shareholders of $55.6 million for the year ended December 31, 2009, compared
to $22.2 million for the year ended December 31, 2008.
Inflation
Since our inception, inflation in China has not materially impacted our results of operations.
According to the National Bureau of Statistics of China, the annual average percent changes in the
consumer price index in China for 2008, 2009 and 2010 were an increase of 5.9%, a decrease of 0.7%
and an increase of 3.3%, respectively. The year-over-year percent changes in the consumer price
index for February 2009, 2010 and 2011 were a decrease of 1.6%, an increase of 2.7% and an increase
of 4.9%, respectively. Although we have not been materially affected by inflation in the past, we
can provide no assurance that we will not be affected in the future by higher rates of inflation in
China.
68
Impact of Foreign Currency Fluctuation
See Item 3. Key InformationD. Risk FactorsRisks Related to Doing Business in
ChinaFluctuation in the value of the RMB may have a material adverse effect on your investment.
and Item 11. Quantitative and Qualitative Disclosures About Market RiskForeign Exchange Risk.
Impact of Governmental Policies
See Item 3. Key InformationD. Risk FactorsRisks Related to Our Business Our business
may be materially and adversely affected by government measures affecting Chinas real estate
industry, Item 3. Key InformationD. Risk FactorsRisks Related to Doing Business in China and
Item 4. Information on the CompanyB. Business OverviewRegulation.
B.
Liquidity and Capital Resources
Our principal
sources of liquidity are capital contributions from E-House prior to our
IPO, proceeds from our IPO in October 2009 and cash generated from operating activities. Our cash
and cash equivalents consist of cash on hand and deposits placed with banks, which are unrestricted
as to withdrawal or use and have original maturities of three months or less. We currently
anticipate that we will be able to meet our needs to fund operations for at least the next twelve
months with operating cash flow and existing cash balances.
The following table sets forth a summary of our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands of $)
|
|
Net cash provided by (used in) operating activities
|
|
|
(3,246
|
)
|
|
|
57,013
|
|
|
|
35,995
|
|
Net cash provided by (used in) investing activities
|
|
|
(12,201
|
)
|
|
|
4,133
|
|
|
|
(10,797
|
)
|
Net cash provided by financing activities
|
|
|
14,097
|
|
|
|
223,970
|
|
|
|
1,705
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(620
|
)
|
|
|
285,276
|
|
|
|
29,653
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
26,411
|
|
|
|
25,791
|
|
|
|
311,067
|
|
Cash and cash equivalents at the end of the year
|
|
|
25,791
|
|
|
|
311,067
|
|
|
|
340,720
|
|
Operating Activities
Our operating activities primarily comprise our real estate information, consulting, online,
and advertising and promotional event services. Our fees from some real estate consulting services
to clients are conditional upon the delivery of a final product, such as closing a land acquisition
transaction or providing a market study report. The contractual period is usually between one and
twelve months. Our accounts receivable as of December 31, 2010 included $9.8 million in billed
accounts receivable and $51.2 million in unbilled accounts receivable. Unbilled accounts receivable
represent amounts recognized in revenue prior to issuing official tax receipts to clients. We
regularly review the collectability of unbilled accounts receivable using the same method as that
used for billed accounts receivable. Although the service agreements with our developer clients are
generally silent in this regard, we typically settle the payments for consulting services with our
developer clients after the completion of the consulting projects, which generally last several
months. Therefore, our working capital levels are affected by the time lag between the time we
provide services, bill our clients and collect the payments owed to us, which is reflected in our
accounts receivable and has from time to time resulted in negative operating cash flows. See Item
3. Key InformationD. Risk FactorsRisks Related to Our BusinessSubstantial defaults by our
clients on accounts receivable could have a material adverse effect on our business, results of
operations and financial condition for further information. As we continue to expand the scale of
our business, our working capital requirements are expected to increase as well.
Net cash provided by operating activities amounted to $36.0 million in 2010, mainly due to net
income of $26.2 million before equity in affiliates and non-controlling interest, an increase in
our income tax and other tax payable of $10.3 million partially offset by an increase in our
accounts receivable of $31.0 million and an increase in our prepaid expenses and other current
assets of $7.0 million as a result of payments arising out of the Baidu strategic cooperation agreement. The principal non-cash items accounting for the difference between our
net income and our net cash provided by operating activities in 2010 were $23.3 million in
depreciation and amortization and $14.7 million in share-based compensation.
69
Net cash provided by operating activities amounted to $57.0 million in 2009, mainly due to net
income of $33.6 million before equity in affiliates and non-controlling interest, an increase in
our income tax and other tax payable by $7.6 million in aggregate as a result of a much higher
profit before tax in 2009, an increase of $5.3 million from advance payment for advertising
placements collection partially offset by a decrease in our amounts due to related parties by $6.2
million as a result of accounts settlement. The principal non-cash items accounting for the
difference between our net income and our net cash provided by operating activities in 2009 were
$6.7 million in depreciation and amortization, $6.0 million in share-based compensation and $4.7
million in allowance for doubtful accounts.
Net cash used in operating activities amounted to $3.2 million in 2008. While we achieved net
income of $21.8 million in 2008, our accounts receivable increased by $21.7 million and we made
advance payments for advertising placement of $6.7 million and deposit payment for purchasing of
advertising placement with newspaper of $3.2 million. The growth in our accounts receivable was due
to the rapid expansion of our business in 2008. The advance payments for advertising placement were
related to our initial entry into the real estate advertising resale services sector.
Investing Activities
Our investing activities primarily relate to our purchases and disposals of property and
equipment, our acquisition activities and investments in affiliates.
Net cash used in investing activities amounted to $10.8 million in 2010, primarily due to $6.9
million in purchases of property and equipment, $4.7 million in investments in affiliates and $4.5
million paid as a deposit for business acquisitions, partially offset by proceeds of $4.7 million
from the sale of certain properties.
Net cash provided by investing activities amounted to $4.1 million in 2009, primarily due to
$11.6 million cash received from COHT upon completion of our acquisition of the remaining 66%
equity interest in this entity, $2.5 million paid to us as deposit for property held for sale,
partially offset by our payment of $8.4 million investment for the acquisition of Guangzhou
Integrated, Fangyou Software and Portal Overseas Limited and $1.9 million for the purchase of property and
equipment.
Net cash used in investing activities amounted to $12.2 million in 2008, primarily due to $9.5
million in purchases of property and equipment (including a $7.8 million advance payment for an
office building that we had intended to use as our corporate office but are now intending to sell),
our $2.5 million investment in COHT and our $2.5 million investment for a 100% interest in
Guangzhou Integrated, partially offset by the collection of $2.2 million in related party loans.
Financing Activities
Net
cash provided by financing activities amounted to $1.7 million in 2010 primarily due to $1.5
million in proceeds from the exercise of options. Net cash provided
by financing activities amounted
to $224.0 million in 2009 primarily due to the net proceeds from our IPO.
E-House contributed $8.4 million and $2.5 million to us in 2008 and 2009, respectively, prior
to our IPO. In addition, we borrowed $5.7 million from related parties in 2008, primarily from
E-House, and repaid $5.6 million in 2009.
70
C.
Research and Development, Patents and Licenses, etc.
Research and Development
Our information and consulting services are supported and enhanced by a team of experienced
and dedicated research staff, including many highly regarded industry experts with in-depth
knowledge of the real estate industry, market dynamics and regulatory environment in China. We have
one of the largest research and development team in Chinas real estate information and consulting
services sector. As of December 31, 2010, we had 384 employees whose primary responsibilities are
to conduct research on the real estate industry in China. Their research activities involve
collecting, compiling and analyzing market and project data, and producing research reports for
internal use or for our clients. We also use the market and project data collected by our research
staff to verify and update information in our CRIC system. The periodic and topical reports
produced by our research staff for general use are also included in our CRIC system. In addition,
some of our research professionals also write columns and blogs for
dichan.sina.com.cn
.
As of December 31, 2010, we had a staff of 216 information technology employees. Our
information technology staff focus on maintaining and improving the core technologies used in our
CRIC system and our real estate online services to support the delivery of our existing services and the development of new services.
Our information
technology staff have developed core software used in the CRIC
system, the geographic information system software we use to add
property information onto satellite images and two-dimensional digital maps licensed from third
parties and various online products. In addition, they have developed software tools that we use to automatically collect and
update certain real estate transaction data, conducted automated
quality assurance tests, detected
and prevented unauthorized access to our system.
and maintained our online servers and websites. Furthermore, they are
responsible for developing and maintaining our CRM, ERP and other
internal operating systems.
Our Internet technology staff are responsible for maintaining operation of our real estate
websites, developing new online products and functionalities, improving website performance
and user experience, as well as developing new online platforms such as mobile applications.
Intellectual Property
The CRIC trademark, our proprietary CRIC system and other intellectual property contribute
to our competitive advantage in the real estate information and consulting services sector in
China. To protect our brand, our CRIC system and other intellectual property, we rely on a
combination of trademark, trade secret and copyright laws in China as well as imposing procedural
and contractual confidentiality and invention assignment obligations on our employees, contractors
and others. In addition, we have implemented technological measures aimed at preventing
unauthorized access to and downloading of proprietary data from our CRIC system.
We have also applied to register the trademarks CRIC and
![(CHINESE CHARACTER)](http://content.edgar-online.com/edgar_conv_img/2011/04/26/0000950123-11-039360_C15675C1567503.GIF)
in China. We have
registered our domain names,
www.cric2009.com
,
www.dichan.com
and
www.fangyou.com
, with the China
Internet Network Information Center. We developed our CRIC system internally and hold copyright
registrations in China that cover the CRIC systems core software. Our rights in the CRIC system,
including but not limited to rights to publish, amend, issue and license the CRIC systems
software, are protected in accordance with the Regulations on the Protection of Computer Software
and other relevant laws and regulations of the PRC. We have applied for and obtained a software
copyright certificate covering the CRIC systems core software, which provides us with enhanced
intellectual property protection under PRC law.
We have also registered the trademarks leju and
![(CHINESE CHARACTER)](http://content.edgar-online.com/edgar_conv_img/2011/04/26/0000950123-11-039360_C15675C1567504.GIF)
in China. We have registered
www.leju.com
as a domain name with the China Internet Network Information Center. As part of our
acquisition of COHT in October 2009, an affiliate of SINA granted us an exclusive license to use
house.sina.com.cn
and
jiaju.sina.com.cn
in connection with our real estate online operations in
China. In addition, this affiliate of SINA also granted us a non-exclusive license to use three
SINA trademarks and an exclusive license to use two SINA Leju trademarks. In addition, as part of
CRICs strategic cooperation with Baidu, Inc., we obtain the exclusive right to build and operate
all of Baidus web channels related to real estate and home furnishing, including among others,
house.baidu.com
,
leju.baidu.com
and
jiaju.baidu.com
.
While we cannot assure you that our efforts will prevent others from misappropriating our
intellectual property, we will continue to protect the intellectual property we create in order to
maintain our competitive position.
71
D.
Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the year 2010 that are reasonably likely to have
a material adverse effect on our net revenues, income, profitability, liquidity or capital
resources, or that caused the disclosed financial information to be not necessarily indicative of
future operating results or financial conditions.
E.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the
payment obligations of any third parties. 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. 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.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2010:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
|
(in thousands of $)
|
|
Operating lease Obligations
|
|
|
16,570
|
|
|
|
4,689
|
|
|
|
4,206
|
|
|
|
301
|
|
|
|
7,374
|
|
Our operating lease obligations related to lease agreements with lessors of our office
properties in the PRC.
In addition, we
have a contractual obligation to pay Baidu $7.5 million each
year from 2010
through 2013 for the exclusive right to build and operate the Baidu real estate channels in
2010 through 2014.
G.
Safe Harbor
This annual report on Form 20-F contains forward-looking statements that relate to future
events, including our future operating results and conditions, our prospects and our future
financial performance and condition, all of which are largely based on our current expectations and
projections. The forward-looking statements are contained principally in the sections entitled
Item 3. Key InformationD. Risk Factors, Item 4. Information on the Company and Item 5.
Operating and Financial Review and Prospects. These statements are made under the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these
forward-looking statements by words or phrases such as may, will, expect, anticipate,
aim, estimate, intend, plan, believe, likely to or other similar expressions. We have
based these forward-looking statements largely on our current expectations and projections about
future events and financial trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. These forward-looking statements include:
|
|
|
our business partnership with SINA and the expected synergies and benefits from
our integration of our real estate online business acquired from SINA;
|
|
|
|
our future business development, results of operations and financial condition;
|
|
|
|
our ongoing relationships with E-House and SINA;
|
|
|
|
expected changes in our revenues and certain cost or expense items;
|
|
|
|
our ability to attract clients and further enhance our brand recognition; and
|
|
|
|
trends and competition in the real estate services, Internet and online
advertising industries.
|
72
We would like to caution you not to place undue reliance on these statements and you should
read these statements in conjunction with the risk factors disclosed in the section entitled Item
3. Key InformationD. Risk Factors. Except as required by law, we undertake no obligation to
update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, after the date on which the statements are made or to reflect the occurrence
of unanticipated events.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth information regarding our directors and executive officers as
of the date of this annual report.
|
|
|
|
|
Name
|
|
Age
|
|
Position/Title
|
Xin Zhou
|
|
43
|
|
Co-Chairman of the Board of Directors and Chief Executive Officer
|
Charles Chao
|
|
45
|
|
Co-Chairman of the Board of Directors
|
Neil Nanpeng Shen
|
|
43
|
|
Director
|
Hong Du
|
|
38
|
|
Director
|
Zuyu Ding
|
|
37
|
|
Director and Co-President
|
Jun Luo
|
|
43
|
|
Director and Co-President
|
Fan Bao
|
|
40
|
|
Independent Director
|
David Zhang
|
|
37
|
|
Independent Director
|
Ya-Qin Zhang
|
|
45
|
|
Independent Director
|
Bin Laurence
|
|
43
|
|
Chief Financial Officer
|
Yan Zhang
|
|
37
|
|
Vice President
|
Zhongmin Jin
|
|
36
|
|
Vice President and Technology Director
|
Mr. Xin Zhou
has served as our chairman since 2006, our chief executive officer since
September 2009 and our co-chairman since October 2009. He is one of the co-founders of our parent,
E-House, and has served as E-Houses chairman since 2003 and served as E-Houses chief executive
officer from 2003 to September 2009. Mr. Zhou has over 17 years of experience in Chinas real
estate industry. From 1997 to 2003, he served as a director and the general manager of Shanghai
Real Estate Exchange Co., Ltd., and as the deputy general manager of Shanghai Jinfeng Investments
Co., Ltd., a company listed on the Shanghai Stock Exchange. Mr. Zhou also served as the chairman
and general manager of Shanghai Wanxin Real Estate Investments Consulting Ltd. from 1994 to 1997.
In recognition of his contribution to the development of real estate marketing, brokerage and
circulation area in Shanghai and elsewhere in China, Mr. Zhou was awarded the Special Contribution
Award in Chinas Real Estate Circulation Industry in 2005, and named one of the ten most
influential people in the real estate services industry in 2005 from China City Property
Exposition Commission. Mr. Zhou currently serves as the acting chairman of the Real Estate Broker
Professional Committee of the China Real Estate Association. Mr. Zhou received his bachelors
degree from Shanghai Industrial University.
73
Mr. Charles Chao
has served as our co-chairman since October 2009. Since May 2006, Mr. Chao
has served as SINAs director and chief executive officer. Mr. Chao has served as SINAs president
since September 2005 and as SINAs chief financial officer from February 2001 to May 2006. He also
served as SINAs co-chief operating officer from July 2004 to September 2005, executive vice
president from April 2002 to June 2003, and vice president, finance from September 1999 to January
2001. Prior to joining SINA, Mr. Chao served as an experienced audit manager at PricewaterhouseCoopers, LLP in San Jose, California. Mr. Chao is
currently a director of Focus Media Holding Limited, an out-of-home media and advertising network
company, and an independent director of NetDragon Websoft Inc., a company providing technology for
online gaming. Mr. Chao holds a masters degree in professional accounting from the University of
Texas at Austin, a masters degree in journalism from the University of Oklahoma and a bachelors
degree in journalism from Fudan University in Shanghai. Mr. Chao is a certified public accountant
and a member of the American Institute of Certified Public Accountants.
Mr. Neil Nanpeng Shen
has served as our director since October 2009. Mr. Shen is the founding
managing partner of Sequoia Capital China and has been with Sequoia Capital China since its
inception in October 2005. Mr. Shen co-founded Home Inns & Hotels Management Inc., or Home Inns, a
leading economy hotel chain in China, and Ctrip.com International, Ltd., or Ctrip, the largest
travel consolidator in China, both listed on NASDAQ. Currently, Mr. Shen is a co-chairman of Home
Inns, a director of Ctrip, a director of E-House, the leading real estate service provider in China
listed on the NYSE, a director of American Dairy, Inc., an infant milk company listed on the NYSE,
a director of Peak Sport Products Co., a sportswear company listed on the Hong Kong Stock Exchange,
a director of China Nuokang Bio-Pharmaceutical Inc., a biopharmaceutical company listed on NASDAQ,
the chairman of Mecox Lane Limited, an operator of online platform for apparel and accessories
listed on NASDAQ, a director of Le Gaga Holdings Limited, a greenhouse vegetable producer listed on
NASDAQ, and a director of Qihoo 360 Technology Co. Ltd., an Internet company listed on NYSE. Mr.
Shen is also an independent director of Focus Media Holding Limited, an out-of-home media and
advertising network company listed on NASDAQ, and serves on the boards of a number of private
companies based in China. He served as Ctrips chief financial officer from 2000 to October 2005
and as president from August 2003 to October 2005. Prior to founding Ctrip, Mr. Shen worked for
more than eight years in the investment banking industry in New York and Hong Kong. Mr. Shen
received a bachelors degree from Shanghai Jiao Tong University in China and a masters degree from
the School of Management at Yale University.
Ms. Hong Du
has served as our director since October 2009. Ms. Du has served as SINAs chief
operating officer since February 2008. Ms. Du joined SINA in November 1999 and worked in the
business development department until April 2004. From May 2004 to January 2005, Ms. Du served as
deputy general manager of 1Pai.com, a joint venture between SINA and Yahoo! Ms. Du rejoined SINA in
January 2005 and served as its general manager of sales strategy from January 2005 to March 2005,
general manager of sales from April 2005 to August 2005, vice president of sales from September
2005 to February 2007 and senior vice president of sales and marketing from February 2007 to
February 2008. Ms. Du received a bachelors degree from Harbin Institute of Technology and a
masters degree from San Francisco State University.
Mr. Zuyu Ding
has served as our co-president since September 2009 and as our director since
March 2011. He was E-Houses technology director from 2001 to January 2008. From 2001 to 2005, he
served as the vice president of Shanghai Real Estate Sales (Group) Co., Ltd. Prior to that, from
1997 to 2000, he was the manager of the research and development department of Shanghai Real Estate
Exchange Co., Ltd., a subsidiary of E-House. Mr. Ding currently also serves as vice principal of
the E-House Research and Training Institute, an executive director of the China Real Estate
Research Association, secretary-general of the Real Estate Broker Professional Committee
Intermediary Committee of China Real Estate Association, and an advisor on the real estate market
for the Ministry of Housing and Urban-Rural Development. Mr. Ding received a bachelors degree from
Shanghai East China Normal University and an MBA from Macau University of Science & Technology.
Mr. Jun Luo
has served as our co-president since October 2009 and our director since March
2011. Mr. Luo has served as the general manager of Shanghai SINA Leju since December 2007. Before
joining SINA, Mr. Luo was a director of Unified Communications Business for Greater China Region at
Cisco Systems (China) Networking Technology Co., Ltd. from April 2006 to November 2007. From
September 2004 to April 2006, he served as the director of the Application Business and director of
Nationwide Named Account business for Avaya (China) Communication Co. Ltd. Mr. Luo served as a
business development manager of Cisco Systems (China) Networking Tech Co., Ltd. from February 2000
to September 2004, and a sales manager of Oracle Software System Co., Ltd. from September 1996 to
February 2000. Mr. Luo obtained a bachelors degree from Shanghai University of Finance and
Economics and a masters degree of Software Engineering from BeiHang University, Beijing.
74
Mr. Fan Bao
has served as our independent director since October 2009. Mr. Bao is the founder
and chief executive officer of China Renaissance Partners, a leading boutique investment bank in
China. Prior to founding China Renaissance Partners in 2004, Mr. Bao was the chief strategy officer of AsiaInfo
Holdings, Inc., a leading IT service and software company in China. Prior to that, Mr. Bao worked
at investment banking divisions with Morgan Stanley and Credit Suisse for seven years. Mr. Bao
received a bachelors degree from Fudan University in Shanghai and a masters degree from Norwegian
School of Management.
Mr. David Zhang
has served as our independent director since October 2009. Since January 2008,
Mr. David Zhang has served as the founding managing partner for Matrix Partners China, an early
stage technology venture capital firm and oversees all its operations in China. Prior to forming
Matrix Partners China, Mr. Zhang served as the managing director and head of the Beijing office for
WI Harper Group, where he oversaw all investments, portfolio management and operations in both life
sciences and IT in China from January 2004 to January 2008. Mr. Zhang joined WI Harper in late 2001
as an associate in the San Francisco office and moved back to China in 2003. Prior to joining WI
Harper, Mr. Zhang worked with ABN AMRO Capital and Salomon Smith Barney (the investment banking arm
of Citicorp) successively. Mr. Zhang is currently an independent director of Focus Media Holding
Limited, an out-of-home media and advertising network company. Mr. Zhang received his bachelors
degree from California State University, San Francisco and his masters degree from Northwestern
University.
Mr. Ya-Qin Zhang
has served as our independent director since October 2009. Mr. Zhang serves
as corporate vice president of Microsoft Corporation, or Microsoft, leading Microsofts overall
research and development efforts in China. Mr. Zhang joined Microsoft in 1999 and previously served
as corporate vice president at Microsofts Mobile and Embedded Devices Division. Mr. Zhang is one
of the founding members of the Microsoft Research Asia lab, where he served as managing director
and chief scientist, and he also founded the Advanced Technology Center in 2003. Before joining
Microsoft, Mr. Zhang was a director for the Multimedia Technology Laboratory at Sarnoff Corp., and
worked as a senior technical staff member for GTE Laboratories Inc. and Contel Corp. Mr. Zhang
received his bachelors and masters degrees from the University of Science and Technology of China
and a Ph.D. from George Washington University.
Ms. Bin Laurence
has served as our chief financial officer since August 2009. Prior to joining
us, Ms. Laurence had been a research analyst at SuttonBrook Capital Management LP, a hedge fund
based in New York since 2005. Ms. Laurence served as a director in the distressed assets management
division of BMO Financial Group in New York from 2002 to 2004. From 1996 to 2002, she served as an
associate and a vice president successively covering the media/communications industry in the
leveraged finance division of BMO Financial Group. From 1994 to 1996, Ms. Laurence was an analyst
covering the media/communications industry in the investment banking division of Lehman Brothers,
Inc. in New York. Ms. Laurence received a bachelors degree from Wellesley College and an MBA from
Columbia Business School.
Ms. Yan Zhang
has served as our vice president since 2006. Prior to joining us, Ms. Zhang had
served as the editor-in-chief for the real estate department of Xinmin News 365 since 2005. In
2004, she founded Pioneer House Weekly and served as its deputy editor-in-chief. From 2001 to 2003,
she was a director in the real estate department of Chengdu Business Daily. Prior to that and
starting in 1999, Ms. Zhang served as a veteran editor in the real estate department of Shenzhen
News. Ms. Zhang received a bachelors degree from Sichuan University and a masters degree from the
Social Sciences Academy located in Sichuan Province, China.
Mr. Zhongmin Jin
has served as the chief operating officer of our information center since
2006 and our vice president since 2008. Since 2003, Mr. Jin has served as the chief technology
officer of Shanghai Real Estate Sales (Group) Co., Ltd. Prior to joining us, Mr. Jin served as the
chief technology officer of Shanghai E-House Internet Co., Ltd. from 2001 and 2003. From 1999 to
2001, Mr. Jin served as a project manager for Shanghai Meining Computing Co., Ltd. From 1997 to
1999, Mr. Jin was an engineer at the Shanghai branch of Chinese Academy of Sciences. Mr. Jin
received a bachelors degree from Tongji University in Shanghai, China.
75
Employment Agreements
We have entered into an employment agreement with each of our executive officers. We may
terminate an executive officers employment for cause, at any time, without notice or remuneration,
for certain acts of the officer, including, but not limited to, a conviction or plea of guilty to a
felony, negligent or dishonest acts to our detriment or misconduct or a failure to perform agreed
duties. We may, upon advance written notice, terminate an executive officers employment at any time without cause. Each executive officer is entitled to certain
benefits upon termination, including severance pay, if we terminate the employment without cause.
The severance pay comprises one, two or three months base salary if such termination or
resignation becomes effective during the first year, the second year or after the second
anniversary, respectively, of the effective date of the employment agreement. The benefits also
include the officers entitlement to exercise his or her vested options as of the date of
termination at any time within three months after the date of termination. Except for the
foregoing, the officer is not entitled to any severance payments or benefits upon the termination
of the employment for any reason. We will indemnify an executive officer for his or her losses
based on or related to his or her acts and decisions made in the course of his or her performance
of duties within the scope of his or her employment. Each executive officer has agreed to hold in
strict confidence any trade secrets or confidential information of our company. Each officer also
agrees to faithfully and diligently serve our company in accordance with the employment agreement
and the guidelines, policies and procedures of our company approved from time to time by our board
of directors.
B.
Compensation of Directors and Executive Officers
For the year ended December 31, 2010, we paid an aggregate of approximately RMB5.6 million
($0.8 million) in cash to our senior executive officers, and we did not pay any cash compensation
to our non-executive directors.
We have not set aside or accrued any amount of cash to provide pension, retirement or other
similar benefits to our officers and directors. Our PRC subsidiaries and consolidated affiliated
entities as well as their subsidiaries are required by law to make contributions equal to certain
percentages of each employees salary for his or her retirement benefit, medical insurance
benefits, housing funds, unemployment and other statutory benefits.
Share Incentive Plan
Share Incentive Plan
. On September 9, 2008, we adopted a share incentive plan, or the Plan, to
attract and retain the best available personnel, provide additional incentives to employees,
directors and consultants, and promote our success. The Plan permits the grant of three types of
awards: options, restricted shares and restricted share units. The maximum number of shares which
may be issued pursuant to all awards under the Plan shall be 15% of our total outstanding shares on
an as-converted basis as of the effective date of the plan, plus an additional number of shares to
be added on each of the third, sixth and ninth anniversary of the effective date of the plan, as a
result of which the additional shares reserved under the Plan as of each applicable anniversary
shall equal 5% of the then total outstanding shares. We have granted restricted shares and options
to purchase our ordinary shares to certain of our directors, executive officers and employees as
well as some of the directors and officers of E-House who have made contributions to us. As of
March 31, 2011, the aggregate number of our ordinary shares underlying our outstanding options is
13,091,244 and the aggregate number of outstanding restricted shares granted under the Plan is
162,500.
Plan Administration
. Our board of directors, or a committee designated by our board or
directors, will administer the Plan. The committee or the full board of directors, as appropriate,
will determine the provisions and terms and conditions of each option grant.
Award Agreements
. Options and other awards granted under the Plan are evidenced by an award
agreement that sets forth the terms, conditions and limitations for each grant. In addition, the
award agreement may also provide that securities granted are subject to a 180-day lock-up period
following the effective date of a registration statement filed by us under the Security Act, if so
requested by us or any representative of the underwriters in connection with any registration of
the offering of any of our securities. The exercise price of granted options may be amended or
adjusted in the absolute discretion of our board of directors, or a committee designated by our
board of directors, without the approval of our shareholders or the recipients of the options.
Eligibility
. We may grant awards to employees, directors and consultants of our company or any
of our related entities, which include our subsidiaries or any entities in which we hold a
substantial ownership interest.
76
Acceleration of Awards upon Corporate Transactions
. The outstanding awards will terminate and
accelerate upon occurrence of a change-of-control corporate transaction where the successor entity
does not assume our outstanding awards under the Plan. In such event, each outstanding award will become fully
vested and immediately exercisable, and the transfer restrictions on the awards will be released
and the repurchase or forfeiture rights will terminate immediately before the date of the
change-of-control transaction provided that the grantees continuous service with us shall not be
terminated before that date.
Term of the Options
. The term of each option grant shall be stated in the award agreement,
provided that the term shall not exceed 10 years from the date of the grant.
Vesting Schedule
. In general, our board of directors, or a committee designated by our board
of directors, determines, or the award agreement specifies, the vesting schedule.
Transfer Restrictions
. Awards may not be transferred in any manner by the recipient other than
by will or the laws of succession and incentive share options may be exercised during the lifetime
of the optionee only by the optionee.
Termination of the Plan
. Unless terminated earlier, the Plan will terminate automatically in
2018. Our board of directors has the authority to amend or terminate the Plan subject to
shareholder approval to the extent necessary to comply with applicable law. However, no such action
may impair the rights of any award recipient unless agreed by the recipient.
The following table summarize, as of March 31, 2011, the options granted under the Plan to our
senior executive officers, directors and to other individuals as a group, without giving effect to
the options that were exercised, if any.
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|
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|
|
|
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|
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|
|
Ordinary
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Price
|
|
|
|
|
|
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Vesting
|
Name
|
|
Options
|
|
|
($/Share)
|
|
|
Date of Grant
|
|
Date of Expiration
|
|
Schedule
(1)
|
Xin Zhou
|
|
|
1,250,000
|
|
|
|
3.00
|
|
|
January 1, 2009
|
|
December 31, 2018
|
|
4 years
|
|
|
|
500,000
|
|
|
|
0.65
|
|
|
April 23, 2009
|
|
April 22, 2015
|
|
4 years
|
|
|
|
150,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Charles Chao
|
|
|
500,000
|
|
|
|
8.00
|
|
|
September 24, 2009
|
|
September 23, 2019
|
|
4 years
|
|
|
|
100,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Neil Nanpeng Shen
|
|
|
40,000
|
|
|
|
8.00
|
|
|
September 24, 2009
|
|
September 23, 2019
|
|
3 years
|
|
|
|
25,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Zuyu Ding
|
|
|
1,000,000
|
|
|
|
3.00
|
|
|
January 1, 2009
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|
December 31, 2018
|
|
4 years
|
|
|
|
100,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Jun Luo
|
|
|
50,000
|
|
|
|
3.00
|
|
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January 1, 2009
|
|
December 31, 2018
|
|
4 years
|
|
|
|
1,000,000
|
|
|
|
0.64
|
|
|
September 6, 2008
|
|
September 5, 2014
|
|
4 years
|
|
|
|
100,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Hong Du
|
|
|
200,000
|
|
|
|
0.65
|
|
|
April 23, 2009
|
|
April 22, 2015
|
|
4 years
|
|
|
|
25,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Fan Bao
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|
|
60,000
|
|
|
|
8.00
|
|
|
September 24, 2009
|
|
September 23, 2019
|
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3 years
|
|
|
|
35,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
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3 years
|
David Zhang
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|
|
40,000
|
|
|
|
8.00
|
|
|
September 24, 2009
|
|
September 23, 2019
|
|
3 years
|
|
|
|
25,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Ya-Qin Zhang
|
|
|
40,000
|
|
|
|
8.00
|
|
|
September 24, 2009
|
|
September 23, 2019
|
|
3 years
|
|
|
|
25,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Bin Laurence
|
|
|
300,000
|
|
|
|
6.00
|
|
|
July 30, 2009
|
|
July 29, 2019
|
|
4 years
|
|
|
|
100,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Yan Zhang
|
|
|
225,000
|
|
|
|
3.00
|
|
|
January 1, 2009
|
|
December 31, 2018
|
|
4 years
|
|
|
|
70,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Zhongmin Jin
|
|
|
225,000
|
|
|
|
3.00
|
|
|
January 1, 2009
|
|
December 31, 2018
|
|
4 years
|
|
|
|
40,000
|
|
|
|
7.02
|
|
|
March 10, 2011
|
|
March 9, 2021
|
|
3 years
|
Other individuals as a group
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|
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8,025,180
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(2)
|
|
|
0.64
|
|
|
September 6, 2008
|
|
September 5, 2014
|
|
1 4 years
|
|
|
|
|
|
|
to 8.00
|
|
to March 10, 2011
|
|
to March 9, 2021
|
|
|
|
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(1)
|
|
Many of our options are subject to a four-year vesting schedule, with one-fourth of the
underlying ordinary shares vesting on each of the first, second, third and fourth anniversary
of the grant date.
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|
(2)
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|
On July 30, 2009, options to purchase 250,000 ordinary shares granted on January 1, 2009 and
options to purchase 50,000 ordinary shares granted on July 15, 2009 were surrendered for
cancellation in exchange for the same number of restricted shares having the same vesting
schedule and a purchase price equal to the original option exercise price.
|
77
C.
Board Practices
Our board of directors currently consists of nine members. A director is not required to hold
any shares in our company by way of qualification. A director may vote with respect to any contract
or transaction in which he or she is materially interested provided the nature of the interest is
disclosed prior to its consideration and any vote on such contract or transaction. The directors
may exercise all the powers of our company to borrow money, mortgage its undertaking, property and
uncalled capital, and issue debentures or other securities whenever outright or as security for any
debt, liability or obligation of our company or of any third party. None of our non-executive
directors has a service contract with us that provides for benefits upon termination of employment.
A company of which more than 50% of the voting power is held by a single entity is considered
a controlled company under the NASDAQ Stock Market Rules. A controlled company need not comply
with the applicable NASDAQ corporate governance rules requiring its board of directors to have a
majority of independent directors and independent compensation and nominations committees. Because
more than 50% of the voting power of our company is held by E-House, we qualify as a controlled
company under the NASDAQ Stock Market Rules. Therefore, the controlled company exemption provided
under those rules are available to us. We rely on this exemption from the NASDAQ
corporate governance requirements that a majority of our board of directors must be comprised of
independent directors and that we have a corporate governance and nominating committee that is
composed entirely of independent directors.
Committees of the Board of Directors
We have established two committees under the board of directors: the audit committee and the
compensation committee. We have not established a nominating committee. Instead, the independent
directors of our company select and recommend to the board, for nomination by the board, such
candidates as the independent directors, in the exercise of their judgment, find to be well
qualified and willing and available to serve as our directors prior to each annual meeting of our
shareholders at which directors are to be elected or re-elected. In compliance with Rule 5605 of
the NASDAQ Stock Market Rules, all members of each of our board committees are independent
directors. We have adopted a charter for each of the board committees.
78
Audit Committee
Our audit committee consists of Messrs. Fan Bao, David Zhang and Ya-Qin Zhang. We have
determined that Messrs. Fan Bao, David Zhang and Ya-Qin Zhang satisfy the independence
requirements of Rule 5605 of the NASDAQ Stock Market Rules and the independence standards under
Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Mr. Fan Bao is the chair of our audit committee.
The purpose of the audit committee is to assist our board of directors with its oversight
responsibilities regarding: (i) the integrity of our financial statements, (ii) our compliance with
legal and regulatory requirements, (iii) the independent auditors qualifications and independence,
and (iv) the performance of our internal audit function and independent auditor. The audit
committee is responsible for, among other things:
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|
appointing the independent auditors and pre-approving all audit and non-audit
services permitted to be performed by the independent auditors;
|
|
|
|
reviewing with the independent auditors any audit problems or difficulties and
managements response;
|
|
|
|
reviewing and approving all proposed related party transactions, as defined
under applicable U.S. securities laws and regulations;
|
|
|
|
reviewing and discussing the annual audited financial statements with
management and the independent auditors;
|
|
|
|
reviewing major issues as to the adequacy of our internal controls and any
special audit steps adopted in light of material control deficiencies; and
|
|
|
|
meeting separately and periodically with management and the independent
auditors.
|
In 2010, our audit committee held meetings or passed unanimous written resolutions in lieu of
meeting five times.
Compensation Committee
Our compensation committee consists of Messrs. David Zhang, Fan Bao and Ya-Qin Zhang. We have
determined that Messrs. David Zhang, Fan Bao and Ya-Qin Zhang satisfy the independence
requirements of Rule 5605 of NASDAQ Stock Market Rules. Mr. David Zhang is the chair of our
compensation committee. The compensation committee assists the board in reviewing and approving the
compensation structure, including all forms of compensation, relating to our directors and
executive officers. The compensation committee is responsible for, among other things:
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|
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reviewing at least annually the goals and objectives of our executive
compensation plans and our executive compensation plans in light of such goals and
objectives;
|
|
|
|
evaluating annually the performance of the chief executive officer and other
executive officers in light of the goals and objectives of our executive compensation
plans;
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|
|
|
determining and approving, or recommending to the board for its approval, the
compensation of such executive officers; and
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|
|
|
evaluating annually the appropriate level of compensation for the board and
committee service by non-employee directors.
|
In 2010, our compensation committee held one meetings and did not pass any written resolutions
in lieu of meetings.
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to act honestly, in good faith
and with a view to our best interests. Our directors also have a duty to exercise the skill they
actually possess and such care and diligence that a reasonably prudent person would exercise in
comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association as may be amended and restated from time
to time.
79
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of our shareholders and the board of
directors, in accordance with our articles of association. Our directors are not subject to a term
of office and hold office until their resignation, death or incapacity or until their respective
successors have been elected and qualified in accordance with our shareholders agreement and our
articles of association. A director will be removed from office automatically if, among other
things, the director (i) dies, becomes bankrupt or makes any arrangement or composition with his
creditors or (ii) is found to be or becomes of unsound mind.
Pursuant to the shareholders agreement between E-House and SINA, our board of directors shall
consist of a maximum of eleven members, and E-House and SINA each has the right to designate two directors to the board of directors. Pursuant to
the shareholder agreement, in the event that SINA or E-House no longer owns at least 20%, but still
owns at least 10%, of our issued and outstanding ordinary shares, SINA or E-House, as the case may
be, will have the right to designate only one director to the board. In the event that SINA or
E-House no longer owns at least 10% of our issued and outstanding ordinary shares, SINA or E-House,
as the case may be, shall have no right to nominate any director to the board. As long as E-House
owns at least 10% of our issued and outstanding ordinary shares and holds more ordinary shares than
are held by SINA, E-House may, in its discretion, select an E-House director to serve as the
chairman of the board. On our board of directors, Messrs. Xin Zhou, Zuyu Ding and Jun Luo are
designated by E-House, while Mr. Charles Chao and Ms. Hong Du are designated by SINA.
D.
Employees
We had 947, 1,907 and 3,712 employees as of December 31, 2008, 2009 and 2010, respectively.
The following table sets forth the number and percentage of our employees by functional area as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Functional Area
|
|
Employees
|
|
|
% of Total
|
|
Sales and marketing
|
|
|
879
|
|
|
|
24
|
%
|
Research and technical
|
|
|
1,356
|
|
|
|
36
|
%
|
General and administrative
|
|
|
1,477
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
3,712
|
|
|
|
100
|
%
|
We consider our relations with our employees to be good.
E.
Share Ownership
The following table sets forth information with respect to the beneficial ownership of our
ordinary shares, as of March 31, 2011, by:
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|
|
each of our directors and executive officers; and
|
|
|
|
each person known to us to own beneficially more than 5% of our ordinary
shares.
|
80
As of March 31, 2011, we had 145,059,722 ordinary shares outstanding, 1,141,064 of which have
been issued to our depositary and reserved for future grants under our share incentive plan. In addition, we repurchased 524,300 ADSs on the open market pursuant to a share
repurchase program. The 1,141,064 ordinary shares and 524,300 ordinary shares equivalent to the 524,300 ADSs are not deemed as outstanding for calculating the beneficial ownership in the
following table. Beneficial ownership is determined in accordance with the rules and regulations of
the SEC.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned
|
|
|
|
Number
(1)
|
|
|
%
(2)
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
Xin Zhou
|
|
|
2,485,408
|
|
|
|
1.7
|
|
Charles Chao
|
|
|
*
|
|
|
|
*
|
|
Neil Nanpeng Shen
|
|
|
*
|
|
|
|
*
|
|
Hong Du
|
|
|
*
|
|
|
|
*
|
|
Fan Bao
|
|
|
*
|
|
|
|
*
|
|
David Zhang
|
|
|
*
|
|
|
|
*
|
|
Ya-Qin Zhang
|
|
|
*
|
|
|
|
*
|
|
Zuyu Ding
|
|
|
*
|
|
|
|
*
|
|
Jun Luo
|
|
|
*
|
|
|
|
*
|
|
Bin Laurence
|
|
|
*
|
|
|
|
*
|
|
Yan Zhang
|
|
|
*
|
|
|
|
*
|
|
Zhongmin Jin
|
|
|
*
|
|
|
|
*
|
|
All Directors and Executive Officers as a Group
|
|
|
4,011,223
|
|
|
|
2.8
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
E-House (China) Holdings Limited
(3)
|
|
|
75,939,975
|
|
|
|
53.0
|
|
SINA Corporation
(4)
|
|
|
48,589,567
|
|
|
|
33.9
|
|
|
|
|
*
|
|
Beneficially owns less than 1% of our ordinary shares.
|
|
(1)
|
|
Beneficial ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to the securities.
|
|
(2)
|
|
For each person and group included in this table, percentage of beneficial ownership is
calculated by dividing the number of shares beneficially owned by such person or group by the
sum of the number of ordinary shares outstanding and the number of ordinary shares underlying
share options held by such person or group that are exercisable within 60 days after March 31,
2010.
|
|
(3)
|
|
Includes 74,555,555 ordinary shares and 1,384,420 ADSs. E-House (China) Holdings Limited is a
company incorporated in the Cayman Islands, and its business address is 17/F, Merchandise
Harvest Building (East), No. 333 North Chengdu Road, Shanghai 200041, Peoples Republic of
China.
|
|
(4)
|
|
Includes 47,666,667 ordinary shares and 922,900 ADSs. SINA Corporation is a company
incorporated in Cayman Islands, and its business address is Room 1802, United Plaza, 1468 Nan
Jing Road West, Shanghai 200040, Peoples Republic of China.
|
None of our existing shareholders has different voting rights from other shareholders. We are
not aware of any arrangement that may, at a subsequent date, result in a change of control of our
company.
To our knowledge, 22,700,000 of our ordinary shares were held by one record holder in the
United States, which was JPMorgan Chase Bank, N.A., the depositary of our ADS program. 1,141,064 of
the 22,700,000 ordinary shares held by JPMorgan Chase Bank, N.A. are reserved for future grants
under our share incentive plan. The number of beneficial owners of our ADSs in the United States is
likely to be much larger than the number of record holders of our ordinary shares in the United
States.
For the options granted to our directors, officers and employees, please refer to B.
Compensation of Directors and Executive Officers.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
Please refer to Item 6. Directors, Senior Management and EmployeesE. Share Ownership.
B.
Related Party Transactions
Immediately after we completed our IPO in October 2009, E-House and SINA became our two
largest shareholders holding approximately 50.04% and 33.35%, respectively, of our
outstanding ordinary shares at the time. As of March 31, 2011 E-House and SINA beneficially owned 53.0% and
33.9%, respectively, of our outstanding shares.
81
Transactions with E-House
Total selling, general and administrative expenses allocated from E-House are $3.5 million and
$2.5 million for the year ended December 31, 2008 and the period from January 1, 2009 to the date
when we completed our IPO, respectively. The amounts of these expenses were based on a variety of
factors and dependent on the nature of the expenses being allocated. These expenses consist
primarily of share-based compensation expenses of senior management and shared marketing and
management expenses including marketing, finance, legal, technology, human resources,
administration and internal audit. These allocations were made using a proportional cost allocation
method based on revenues, expenses and headcount as well as estimates of actual time spent on the
provision of services attributable to us. We believe that these allocations are reasonable. See the
notes to our consolidated financial statements included elsewhere in this annual report.
There was no such selling, general and administrative expenses allocation from date when we
completed our IPO until December 31, 2010, as E-House started to
charge us a transitional corporate
service fee pursuant to the offshore and onshore transitional services agreements entered into on
July 29, 2009 in connection with our IPO. Under these transitional services arrangements, E-House
is to provide various corporate support services to us, including support in general finance and
accounting, human resources management, administrative, internal control and internal audit,
operational management, legal and information technology. E-House will charge us corporate service
fees on an actual basis. The transitional corporate services fee charged was $583,650 and $1.5
million, respectively, for the period from the date when we completed our IPO to December 31, 2009
and for 2010. For the years ended December 31, 2008, 2009 and 2010, we derived revenues in the
amounts of nil, $6.3 million and $16.2 million, respectively, from providing real estate consulting
services to E-House. For the period from completion of the IPO until December 31, 2009, and for the
year ending December 31, 2010, we derived revenues in the amount of nil and $50,457, respectively,
from providing real estate online services to E-House. For the years ended December 31, 2008, 2009
and 2010, we derived revenues in the amounts of $169,928, $2.4 million and $1.8 million,
respectively from providing other services to E-House, including advertising and promotional event
services. As of December 31, 2010, $5.1 million was due from E-House on account of information and
consulting services, real estate online services and other services provided to E-House.
Outstanding Loans
During the years ended December 31, 2008 and 2009, prior to our IPO, E-House loaned $8.4
million and $2.5 million, respectively, to fund capital injections into our PRC subsidiaries. Such
amounts were waived by E-House and have been reflected as capital contributions as of the date such
loans were originally made. E-House has not loaned any funds to us since the IPO. As of December
31, 2010, we did not have any outstanding loans.
Agreements with E-House
We have entered into agreements with E-House with respect to various ongoing relationships
between us. These include a master transaction agreement, an offshore transitional services
agreement, an onshore transitional services agreement, a non-competition agreement, an onshore
cooperation agreement and a consulting and services agreement relating to certain services to be
provided by us to E-House.
Master Transaction Agreement
The master transaction agreement contains provisions relating to our carve-out from E-House.
The master transaction agreement provides for cross-indemnities that generally will place the
financial responsibility on us for all liabilities associated with the current and historical real
estate information, consulting and advertising services business and operations that have been
conducted by or transferred to us, and generally will place on E-House the financial responsibility
for liabilities associated with all of E-Houses other current and historical businesses and
operations, in each case regardless of the time those liabilities arise. The master transaction
agreement also contains indemnification provisions under which we and E-House indemnify each other
with respect to breaches of the master transaction agreement or any related inter-company
agreement.
82
In addition, we have agreed to indemnify E-House against liabilities arising from
misstatements or omissions in this prospectus or the registration statement of which it is a part,
except for misstatements or omissions relating to information that E-House provided to us specifically for inclusion in this
prospectus or the registration statement of which it forms a part. We also have agreed to indemnify
E-House against liabilities arising from any misstatements or omissions in our subsequent SEC
filings and from information we provide to E-House specifically for inclusion in E-Houses annual
or quarterly reports following the completion of this offering, but only to the extent that the
information pertains to us or our business or to the extent E-House provides us prior written
notice that the information will be included in its annual or quarterly reports and the liability
does not result from the action or inaction of E-House. Similarly, E-House will indemnify us
against liabilities arising from misstatements or omissions in its subsequent SEC filings or with
respect to information that E-House provided to us specifically for inclusion in this prospectus,
the registration statement of which this prospectus forms a part, or our annual or quarterly
reports following the completion of this offering.
The master transaction agreement contains a general release, under which the parties will
release each other from any liabilities arising from events occurring on or before the initial
filing date of the registration statement of which this prospectus forms a part, including in
connection with the activities to implement this offering. The general release does not apply to
liabilities allocated between the parties under the master transaction agreement or the other
inter-company agreements.
Furthermore, under the master transaction agreement, we have agreed to use our reasonable best
efforts to use the same independent certified public accounting firm selected by E-House and to
maintain the same fiscal year as E-House until the first E-House fiscal year-end occurring after
the earlier of (1) the first date when E-House no longer owns at least 20% of the voting power of
our then outstanding securities and (2) the first date when E-House ceases to be the largest
beneficial owner of our then outstanding voting securities (without considering holdings by certain
institutional investors). We refer to this earlier date as the control ending date in this
prospectus. We also have agreed to use our reasonable best efforts to complete our audit and
provide E-House with all financial and other information on a timely basis so that E-House may meet
its deadlines for its filing of annual and quarterly financial statements.
Under the master transaction agreement, E-House Research and Training Institute, the research
arm of E-House, or other members of the group performing similar functions, will provide us, during
the service period until the control ending date and free of charge, with regular macro-economic
and real estate industry research and information services and customized real estate industry
research and information services from time to time based on our specific request. E-House Research
and Training Institute reserves all intellectual property rights in respect of the services it
provides. We may use the service products provided by E-House Research and Training Institute for
the operation of our business, including operation of the CRIC system.
The master transaction agreement will automatically terminate five years after the first date
upon which E-House ceases to own in aggregate at least 20% of the voting power of our then
outstanding securities. This agreement can be terminated early by mutual written consent of the
parties.
Offshore Transitional Services Agreement
Under the offshore transitional services agreement, E-House agrees that, during the service
period, E-House will provide us with various corporate support services, including:
|
|
|
general finance and accounting support;
|
|
|
|
human resources management support;
|
|
|
|
administrative support;
|
|
|
|
internal control and internal audit support;
|
|
|
|
operational management support;
|
|
|
|
information technology support.
|
83
E-House also may provide us with additional services that we and E-House may identify from
time to time in the future. It may engage third parties to provide services covered by the offshore
transitional service agreement.
The offshore transitional service agreement provides that the performance of a service
according to the agreement will not subject the provider of such service to any liability
whatsoever except as directly caused by the gross negligence or willful misconduct of the service
provider. Liability for gross negligence or willful misconduct is limited to the lower of the price
paid for the particular service or the cost of the services recipient performing the service
itself or hiring a third party to perform the service. Under the offshore transitional services
agreement, the service provider of each service is indemnified by the recipient against all
third-party claims relating to provision of services or the recipients material breach of a
third-party agreement, except where the claim is directly caused by the service providers gross
negligence or willful misconduct.
The price to be paid for the services provided under the offshore transitional service
agreement is the actual direct costs and indirect costs of providing such services. Direct costs
include compensation and travel expenses attributable to employees, temporary workers, and
contractors directly engaged in performing the services as well as materials and supplies consumed
in performing the services. Indirect costs include occupancy, information technology supervision
and other overhead costs of the department incurring the direct costs of providing the service.
The offshore transitional services agreement provides for a service period commencing on the
date when the registration statement on Form F-1 was first publicly filed with the SEC, and ending
on the date when E-House ceases to own in aggregate at least 20% of the voting power of our then
outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting
securities, without considering holdings of institutional investors that have acquired our
securities in the ordinary course of their business and not with a purpose nor with the effect of
changing or influencing our control.
Either party may terminate the offshore transitional services agreement with respect to either
all or part of the services by giving a 90-day prior written notice to the other party. The
agreement provides for an early termination fee in the case of early termination by E-House, but
does not quantify the amount of or specify the calculation method, for such fee.
Onshore Transitional Services Agreement
The onshore transitional services agreement adopts terms and conditions similar to those of
the offshore transitional services agreement. Under the onshore transitional services agreement,
Shanghai Real Estate Sales (Group) Co., Limited, an indirectly wholly-owned subsidiary of E-House,
or E-House Shanghai, agrees, during the applicable service period, to provide Shanghai CRIC with
various corporate support services, including general finance and accounting support, human
resources management support, administrative support, internal control and internal audit support,
operational management support, legal support and information technology support. E-House Shanghai
also may provide Shanghai CRIC with additional services that Shanghai CRIC and E-House Shanghai may
identify from time to time in the future. E-House Shanghai may engage third parties to provide
services covered by the onshore transitional services agreement.
The price to be paid for the services provided under the onshore transitional service
agreement is the actual direct costs and indirect costs of providing such services. Direct costs
include compensation and travel expenses attributable to employees, temporary workers, and
contractors directly engaged in performing the services as well as materials and supplies consumed
in performing the services. Indirect costs include occupancy, information technology supervision
and other overhead costs of the department incurring the direct costs of providing the service.
The onshore transitional services agreement provides for a service period commencing on the
date when the registration statement on Form F-1 was first publicly filed with the SEC, and ending
on the date when E-House ceases to own in aggregate at least 20% of the voting power of our then
outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting
securities, without considering holdings of institutional investors that have acquired our
securities in the ordinary course of their business and not with a purpose nor with the effect of
changing or influencing our control.
84
Either party may terminate the onshore transitional services agreement with respect to either
all or part of the services by giving a 90-day prior written notice to the other party. The
agreement provides for an early termination fee in the case of early termination by E-House
Shanghai, but does not quantify the amount of or specify the calculation method, for such fee.
Non-competition Agreement
The non-competition agreement provides for a non-competition period beginning on the date of
the agreement and ending on the later of (1) three years after the first date when E-House ceases
to own in aggregate at least 20% of the voting power of our then outstanding securities and (2)
five years after the date that the registration statement on Form F-1 is first publicly filed with
the SEC. This agreement can be terminated early by mutual written consent of the parties.
E-House has agreed not to compete with us during the non-competition period in the business of
providing real estate information and consulting services, real estate advertising services, and
operating business-to-business and business-to-consumer Internet websites targeting participants in
the real estate industry as described in this prospectus, anywhere in the world, with the exception
of E-House Research and Training Institute as long as its revenues from third parties do not exceed
5% of our total revenues for the same fiscal year. We have agreed not to compete with E-House
during the non-competition period in the business of primary real estate agency services, secondary
real estate brokerage services and any other businesses conducted by E-House, as described in its
periodic filings with the SEC.
The non-competition agreement also provides for a mutual non-solicitation obligation that
neither E-House nor we may, during the non-competition period, hire, or solicit for hire, any
active employees of or individuals providing consulting services to the other party, or any former
employees of or individuals providing consulting services to the other party within six months of
the termination of their employment or consulting services, without the other partys consent,
except for solicitation activities through generalized non-targeted advertisement not directed to
such employees or individuals that do not result in a hiring within the non-competition period.
Consulting and Services Agreement
Under the consulting and services agreement, Shanghai CRIC, as the consulting services
provider, agrees that within the service period of ten years commencing on April 1, 2009, it will
provide E-House Shanghai and/or its designated PRC affiliated entities with (i) regular real estate
information and consulting services in respect of certain real estate projects as specified in the
agreement or otherwise agreed upon by Shanghai CRIC and E-House Shanghai from time to time, for
which E-House Shanghai and/or the affiliated entities provide real estate agency services, and (ii)
special real estate information and consulting services to be separately agreed upon between
Shanghai CRIC and E-House Shanghai. Shanghai CRIC and E-House Shanghai shall consult with each
other in respect of extension of the service period at least one month prior to the expiration of
the service period. Neither party may unilaterally terminate the agreement early except where the
other party is in a material breach of the agreement and fails to rectify the breach as required
under the agreement.
Under the consulting and services agreement, a service fee for the regular real estate
information and consulting services shall generally be charged on a quarterly basis at the
quarterly rate of RMB70,000 ($10,606) per project for the first year, with annual adjustments
according to market rates, and service fees for any special real estate information and consulting
services shall be separately reviewed and agreed upon between the parties.
According to the consulting and services agreement, Shanghai CRIC reserves all intellectual
property rights in respect of the service products it provides. E-House Shanghai and/or its
affiliated entities shall only use the services provided by Shanghai CRIC in their internal
research for the purpose of operation of the business of E-House Shanghai and/or its relevant
affiliated entities.
85
Onshore Cooperation Agreement
Under this onshore cooperation agreement, E-House Shanghai, Shanghai CRIC and Tian Zhuo agree
that they will cooperate with each other in sharing information about potential demands for
products and/or services and developing clients. If any party is aware that its customers, suppliers or other business
partners may have demands for the products and/or services of any other party, it will share such
information with such other party, to the extent not in violation of any applicable law and its
confidentiality obligations under any contract. Furthermore, the parties agree to cooperate with
each other, to the extent commercially reasonable and in the manner deemed to be appropriate, in
referring the principal products and/or services of any other party, joint pitching for and
negotiating with clients, and entering into agreements with clients. In the event the parties
jointly enter into an agreement with a client, they shall determine their respective rights and
obligations in writing through amicable negotiations, and based on the principle of fairness and
the fair market values of the products and/or services offered by the parties. The parties agree
not to charge any fees for their cooperation and assistance provided under the agreement unless
they separately and explicitly agree otherwise.
The onshore cooperation agreement provides for a term commencing on its date of execution and
ending on the date when E-House ceases to own in aggregate at least 20% of the voting power of our
then outstanding securities or ceases to be the largest beneficial owner of our then outstanding
voting securities, without considering holdings of institutional investors that have acquired our
securities in the ordinary course of their business and not with a purpose nor with the effect of
changing or influencing our control. None of the parties may unilaterally terminate the agreement
early except where another party is in a material breach of the agreement and fails to rectify the
breach under the agreement.
Transactions and Agreements with SINA and COHT
On January 1, 2008, SINA started to reorganize its real estate and home furnishing channels
and online real estate advertising business into a separate unit with its own legal entities,
management team, advertising operations, systems and physical facilities. The reorganization was
completed on April 1, 2008 with the formation of a joint venture, COHT, between SINA and us. SINA
contributed $2.5 million in cash, certain assets and liabilities and the rights to operate its real
estate and home furnishing channels for a period of ten years. The rights include the licenses
granted to COHT to use SINAs trademark, domain name, portal technologies and certain software. We
contributed $2.5 million in cash and a ten-year license to use the database in our CRIC system. We
and SINA beneficially owned 34% and 66% of COHT, respectively.
On July 23, 2009, we and SINA entered into a share purchase agreement, as amended on September
29, 2009, pursuant to which we acquired SINAs 66% equity interest in COHT in exchange for issuing
to SINA ordinary shares. We and SINA also entered into a shareholders agreement and a registration
rights agreement on October 21, 2009. SINA and COHT entered into an amended and restated
advertising agency agreement, a domain name and content license agreement, a trademark license
agreement and a software license and support services agreement, which became effective immediately
upon the closing of our acquisition of SINAs equity interests in COHT. Immediately after our IPO
in October 2009, COHT became a wholly-owned subsidiary of us, while E-House and SINA became our two
largest shareholders, holding 50.04% and 33.35%, respectively, of our total outstanding ordinary
shares.
Under the new advertising agency agreement, COHT continues to operate SINAs existing real
estate and home furnishing channels and develop a new real estate-related channel on
sina.com.cn
,
and has the exclusive right to sell advertising to real estate, home furnishing and construction
materials advertisers on SINAs non-real estate channels, subject to certain limitations on the
amount of advertising that may be sold by COHT and fees payable by COHT to SINA based on the amount
of advertising sold. For the year ended December 31, 2010, we paid SINA a total amount of $6.8
million for online advertising agency fee. As of December 31, 2010, $2.0 million was due to SINA,
representing online advertising agency fee payable to SINA.
Shareholders Agreement
Composition of the board
. The shareholders agreement provides that our board of directors
shall consist of a maximum of eleven members, of which two will be designated by E-House and two
will be designated by SINA. In the event that SINA or E-House no longer owns at least 20%, but
still owns at least 10%, of our issued and outstanding ordinary shares, SINA or E-House, as the
case may be, will have the right to designate only one director to the board. In the event that
SINA or E-House no longer owns at least 10% of our issued and outstanding ordinary shares, SINA or
E-House, as the case may be, shall have no right to nominate any director to the board. As long as E-House owns at least 10% of our issued and outstanding ordinary shares and holds more
ordinary shares than are held by SINA, E-House may, in its discretion, select an E-House director
to serve as the chairman of the board.
86
Restrictions on transfer
. The shareholders agreement provides for certain restrictions on the
transfer of ordinary shares. For a 180-day lock up period commencing on the date of the agreement,
neither E-House nor SINA could transfer or grant or allow to be encumbered any lien with respect to
any of our ordinary shares held by it, except for a transfer to its affiliates or with prior
written consent by all other shareholders under the shareholders agreement. Following the lock up
period, E-House or SINA may transfer our ordinary shares pursuant to Rule 144 of the Securities
Exchange Act or a firm commitment underwritten public offering registered under the Securities Act,
in addition to the two types of transfers permitted in the lock up period. Other than these
permitted transfers, E-House or SINA must give a right of first offer to each other shareholder
under the agreement prior to transferring our ordinary shares to third parties. However, neither
party is allowed to, without the prior written consent of the other party, transfer or grant or
allow to be encumbered that number of our ordinary shares exceeding in aggregate 10% of our share
capital in a single transaction or series of transactions to any person other than a financial
investor, so long as the other party owns at least 20% of our issued and outstanding ordinary
shares.
Registration Rights Agreement
We entered into a registration rights agreement with SINA and E-House, pursuant to which we
have granted E-House and SINA certain registration rights with respect to our ordinary shares owned
by them.
Demand registration rights
. Following the date that is 180 days after the date of the
agreement, both E-House and SINA have the right to demand that we effect a registration covering
the offer and sale of their ordinary shares. E-House and SINA are each entitled to an aggregate of
three such registrations. We, however, are not required to prepare and file (1) more than one
demand registration statements in any 12-month period, or (2) any demand registration statement
within 180 days following the date of effectiveness of any other registration statement. If the
demand registration relates to an underwritten public offering and the managing underwriter advises
in its reasonable opinion that the number of securities requested to be included in the demand
registration exceeds the largest number which reasonably can be sold in such offering without
having a material adverse effect on such offering, we will include in such demand registration, up
to the maximum offering size, following the order of priority: (1) the registrable securities that
the requesting party proposes to register; (2) the registrable securities that any non-requesting
party proposes to register; and (3) any securities we propose to register and any securities with
respect to which any other security holder has requested registration.
Piggyback registration rights
. If we propose to file a registration statement for an offering
of our ordinary shares, other than in a transaction of the type referred to in Rule 145 under the
Securities Act or to our employees pursuant to any employee benefit plan, then we must offer
E-House and SINA an opportunity to include in the registration all or any part of their registrable
securities. If the piggyback registration relates to an underwritten public offering and the
managing underwriter advises in its reasonable opinion that the number of securities requested to
be included in the piggyback registration together with the securities being registered by us or
any other security holder exceeds the largest number which reasonably can be sold in such offering
without having a material adverse effect on such offering, then (1) if we initiate the piggyback
registration, we will include in such registration the securities we propose to register first, and
allocate the remaining part of the maximum offering size to all other selling security holders on a
pro rata basis; (2) if any holder of our securities initiated the piggyback registration, we will
include, up to the maximum offering size, first the securities such initiating security holder
proposes to register, then the securities of any other selling security holders on a pro rata
basis, and lastly the securities we propose to register.
Blackout periods
. We are entitled to two blackout periods, aggregating to no more than 120
days in any 12-month period, during which we can defer the filing or effectiveness of a
registration statement, if in the good faith judgment of our board of directors, we would be
required to disclose in the annual report information not otherwise then required by law to be
publicly disclosed, and there is a likelihood that such disclosure, or any other action to be taken
in connection with the annual report, would materially and adversely affect or interfere with any
significant financing, acquisition, merger, disposition of assets, corporate reorganization or
other material transaction of negotiations involving us.
87
Expenses of registration
. We will pay all expenses relating to any demand or piggyback
registration, except that either E-House or SINA shall bear and pay all (1) brokerage commissions,
(2) commissions, fees, discounts, transfer taxes, stamp duties or expenses of any underwriter or
placement agent applicable to registrable securities offered for its account, (3) fees and expenses
of its counsel or other advisers, and (4) other out-of-pocket expenses.
Amended and Restated Advertising Agency Agreement
Under the amended and restated advertising agency agreement, which became effective in October
2009 upon the completion of our acquisition of SINAs real estate online business, COHT has the
exclusive right to sell advertising to real estate, home furnishing and construction materials
advertisers on SINAs non-real estate channels. If COHT sells advertising on SINAs non-real estate
channels, it will pay SINA fees of approximately 15% of the revenues generated from these sales,
subject to certain limitations on the amount of advertising that may be sold by COHT and fees
payable by COHT to SINA based on the amount of advertising sold. In addition, COHT authorizes SINA
as its exclusive agent to sell non-real estate-related advertising on its directly operated website
and channels. COHT is entitled to receive approximately 85% of the revenues generated from these
sales. The initial term of this new advertising agency agreement is ten years.
Domain Name and Content License Agreement
Under the domain name and content license agreement, which became effective in October 2009
upon the completion of our acquisition of SINAs real estate online business, an affiliate of SINA,
or licensor, has granted to us an exclusive license to use
house.sina.com.cn
and
jiaju.sina.com.cn
,
among others, in connection with our real estate online operations in China. In addition, the
licensor also grants to us an exclusive license to use all contents, whose copyrights are owned by
the licensor or owned by a third party provider but is sub-licensable by the licensor without
requiring payment of any additional fees and without violating the terms of any agreement with such
third party provider, in connection with websites associated with the three domain names licensed
to us. For other operating contents, we may enter into an agreement with the owner independently
and will be responsible for the costs associated with procuring the contents. The licenses are for
an initial term of ten years.
Trademark License Agreement
Under the trademark license agreement, which became effective in October 2009 upon the
completion of our acquisition of SINAs real estate online business, an affiliate of SINA has
granted to us a non-exclusive license to use three SINA trademarks and an exclusive license to use
two SINA Leju trademarks in connection with our real estate online operations in China through
websites located at
www.leju.com
and the channels located at
house.sina.com.cn
and
jiaju.sina.com.cn
. The licenses are for an initial term of ten years.
Software License and Support Services Agreement
Under the software license and support services agreement, which became effective in October
2009 upon the completion of our acquisition of SINAs real estate online business, a subsidiary of
SINA, or the licensor, has granted to us a non-exclusive license to use (i) the proprietary
software used for, among other things, internet content publishing, advertising publishing, sales
management, procurement reimbursement, financial management and flow statistics, (ii) certain
current software products and interfaces necessary to facilitate our use of such current software
products, (iii) the databases and compilations, (iv) certain improvements to the licensed software
and (v) related documentation and hardware, in connection with our real estate online operations in
China. The licensor also provides to us infrastructure necessary to operate our websites and
facilitate our use of the licensed software. In addition, the licensor also provides us during the
term support services, including routine maintenance, technical support and hardware support.
The licenses are for an initial term of ten years and free of any fees (subject to certain
exceptions). However, to the extent that there are any reasonable, incremental costs for use of the
licensed software or the infrastructure, or provision of the support services, due to a change in
the business needs, we are required to reimburse the licensor for all such costs.
88
Contractual Arrangements with Tian Zhuo
In March 2008, Mr. Xin Zhou, our co-chairman and chief executive officer, and the executive
chairman of E-House, became the sole shareholder of Tian Zhuo through equity interest transfer from
the former shareholder of Tian Zhuo. Subsequently, Tian Zhuo became our consolidated affiliated
entity through a series of contractual arrangements entered into between Shanghai CRIC, Tian Zhuo
and Mr. Xin Zhou. In July 2009, Mr. Xin Zhou transferred 10% equity interest in Tian Zhuo to Mr.
Xudong Zhu. Upon completion of the foregoing equity interest transfer, Shanghai CRIC entered into a
series of new or amended contractual arrangements with Tian Zhuo and its shareholders. Under PRC
laws, each of Shanghai CRIC and Tian Zhuo is an independent legal person and is not exposed to
liabilities incurred by the other party. Other than pursuant to the contractual arrangements
between Shanghai CRIC and Tian Zhuo, Tian Zhuo does not transfer any other funds generated from its
operations to Shanghai CRIC.
Agreements that Provide Effective Control over Tian Zhuo
Exclusive Call Option Agreement.
Under the exclusive call option agreement dated as of July
20, 2009, among Shanghai CRIC, Tian Zhuo, Mr. Xin Zhou and Mr. Xudong Zhu, each of Mr. Xin Zhou and
Mr. Xudong Zhu granted an irrevocable and unconditional option to Shanghai CRIC, which entitles
Shanghai CRIC or its designated entity or individual to acquire all or part of the equity interests
held by him in Tian Zhuo at its sole discretion, to the extent as permitted by the then-effective
PRC laws and regulations. The consideration for such acquisition of all equity interests in Tian
Zhuo will be equal to the registered capital of Tian Zhuo, and if there is any limitation imposed
by PRC law, the consideration will be the minimum amount as permitted by PRC law. In addition, Tian
Zhuo irrevocably granted Shanghai CRIC an exclusive option to purchase, to the extent permitted
under the PRC law, all or part of the assets of Tian Zhuo. The exercise price for purchasing the
assets of Tian Zhuo is equal to their respective book values unless otherwise required by the PRC
law. The call option may be exercised by Shanghai CRIC or any third party designated by Shanghai
CRIC.
Loan Agreements
. Pursuant to the loan agreement among Shanghai CRIC, Mr. Xin Zhou and Mr.
Xudong Zhu dated July 20, 2009, Shanghai CRIC granted an interest-free loan of RMB0.9 million
($131,851) to Mr. Xin Zhou and RMB100,000 ($14,650) to Mr. Xudong Zhu, respectively, solely for
their investment in the equity interests in Tian Zhuo.
Pursuant to the loan agreement between Shanghai CRIC and Mr. Xin Zhou dated as of July 20,
2009, Mr. Xin Zhou has another outstanding interest-free loan of RMB18 million ($2.6 million)
payable to Shanghai CRIC. Such RMB18 million ($2.6 million) was granted by Mr. Xin Zhou to Tian
Zhuo as an interest-free loan to support its investment in Wushi Advertising.
Pursuant to the loan agreement among Shanghai CRIC, Tian Zhuo and Mr. Xin Zhou dated as of
April 1, 2008, Shanghai CRIC granted an interest-free loan of RMB70 million ($10.3 million) to Mr.
Xin Zhou solely for his provision of a shareholder loan to Tian Zhuo. Mr. Xin Zhou in turn granted
an interest-free loan of RMB70 million ($10.3 million) to Tian Zhuo to, among other things, support
its purchase of certain advertising spaces.
Pursuant to the loan agreement among Shanghai CRIC, Tian Zhuo and Mr. Xin Zhou dated as of
September 8, 2008, Shanghai CRIC granted another interest-free loan of RMB1 million ($146,501) to
Mr. Xin Zhou solely for his provision of another shareholder loan to Tian Zhuo. Mr. Xin Zhou in
turn granted another interest-free loan of RMB1 million ($146,501) to Tian Zhuo to support its
acquisition of Guangzhou Integrated. Company: These agreements were included in E-House 20-F but
not here.
Shareholder Voting Rights Proxy Agreement
. Under the shareholder voting rights proxy agreement
dated as of July 20, 2009, among Shanghai CRIC, Tian Zhuo, Mr. Xin Zhou and Mr. Xudong Zhu, each of
Mr. Xin Zhou and Mr. Xudong Zhu agreed to irrevocably grant any person designated by Shanghai CRIC
the power to exercise all voting rights to which he is entitled as shareholder of Tian Zhuo.
89
Equity Pledge Agreement
. Pursuant to the equity pledge agreement among Shanghai CRIC, Tian
Zhuo, Mr. Xin Zhou and Mr. Xudong Zhu, dated as of July 20, 2009, all of the equity interest in
Tian Zhuo was pledged to Shanghai CRIC to guarantee the performance of the obligations of Tian
Zhuo, Mr. Xin Zhou and Mr. Xudong Zhu under the exclusive call option agreement, the loan agreements between Shanghai CRIC and Mr.
Xin Zhou and/or Mr. Xudong Zhu, the shareholder voting rights proxy agreement and the consultancy
service agreement. If Mr. Xin Zhou, Mr. Xudong Zhu or Tian Zhuo breaches their respective
contractual obligations, Shanghai CRIC, as pledgee, will be entitled to certain rights, including
the right to sell the pledged equity interests. Mr. Xin Zhou and Mr. Xudong Zhu agreed not to
transfer, sell, pledge, dispose of or otherwise create any new encumbrance on their respective
equity interest in Tian Zhuo without the prior written consent of Shanghai CRIC. The equity pledge
right enjoyed by Shanghai CRIC will expire when Mr. Xin Zhou, Mr. Xudong Zhu and Tian Zhuo have
fully performed their respective obligations under the above agreements.
Agreements that Transfer Economic Benefits of Tian Zhuo to CRIC
Consultancy Service Agreement.
Pursuant to a consultancy service agreement between Shanghai
CRIC and Tian Zhuo dated as of April 1, 2008, Shanghai CRIC provides Tian Zhuo with consulting and
related services and is entitled to receive service fees. The term of this consultancy service
agreement is ten years, and can be extended by another ten years upon Shanghai CRICs request.
Without prior written consent of Shanghai CRIC, Tian Zhuo may not enter into any agreement with any
third party or otherwise to engage such thirty party to provide services similar to those provided
by Shanghai CRIC.
Contractual Arrangements with Beijing Leju
PRC laws and regulations currently prohibit foreign investors from holding more than 50% of a
foreign-invested telecommunications enterprise that provides commercial Internet information
services, which are one type of value-added telecommunications services. In addition, PRC laws and
regulations currently do not allow foreign entities with less than two years of direct experience
operating an advertising business outside of China to invest in an advertising business in China.
Because of such restriction, COHT is operating
www.leju.com
and its real estate online business
through a consolidated affiliated entity in China, Beijing Leju. Beijing Leju is currently owned by
Mr. Xudong Zhu and Mr. Jun Luo. COHTs wholly-owned indirect subsidiary, Shanghai SINA Leju, has
entered into contractual arrangements with Beijing Leju, pursuant to which, Shanghai SINA Leju
provides technical support to Beijing Leju. In addition, Shanghai SINA Leju has entered into
agreements with Beijing Leju, Mr. Xudong Zhu and Mr. Jun Luo, which provide Shanghai SINA Leju with
the substantial ability to control Beijing Leju and make it a primary beneficiary of Beijing Leju.
We operate our real estate online business through our contractual arrangements with Beijing Leju,
Mr. Xudong Zhu and Mr. Jun Luo.
Agreements that Provide Effective Control over Beijing Leju
Exclusive Call Option Agreement
. Under the exclusive call option agreement on September 29,
2009 among Shanghai SINA Leju, Beijing Leju, Mr. Xudong Zhu and Mr. Jun Luo, each of Mr. Xudong Zhu
and Mr. Jun Luo granted an irrevocable and unconditional option to Shanghai SINA Leju, which
entitles Shanghai SINA Leju or its designated entity or individual to acquire all or part of the
equity interests held by him in Beijing Leju at its sole discretion, to the extent as permitted by
the then-effective PRC laws and regulations. The consideration for such acquisition of all equity
interests in Beijing Leju will be equal to the registered capital of Beijing Leju, and if there is
any limitation imposed by PRC law that requires the consideration to be greater than the registered
capital, the consideration will be the minimum amount as permitted by PRC law. In addition, Beijing
Leju irrevocably and unconditionally granted Shanghai SINA Leju an exclusive option to purchase, to
the extent permitted under the PRC law, all or part of the assets of Beijing Leju. The exercise
price for purchasing the assets of Beijing Leju is equal to their respective book values unless
otherwise required by the PRC law. The call option may be exercised by Shanghai SINA Leju or any
third party designated by Shanghai SINA Leju.
Loan Agreement.
Under the loan agreement among Shanghai SINA Leju, Mr. Xudong Zhu and Mr. Jun
Luo, Shanghai SINA Leju granted an interest-free loan of RMB8.0 million ($1.2 million) to Mr.
Xudong Zhu and RMB2 million ($0.3 million) to Mr. Jun Luo, respectively, solely for their purchase
of equity interests in Beijing Leju. Under the supplementary agreement to this loan agreement among
Shanghai SINA Leju, Mr. Xudong Zhu and Mr. Jun Luo, Shanghai SINA Leju granted an additional
interest-free loan of RMB7.2 million ($1.1 million) to Mr. Xudong Zhu and RMB1.8 million ($0.3
million) to Mr. Jun Luo, respectively, solely for the capital increase of Beijing Leju.
90
Shareholder Voting Rights Proxy Agreement
. Under the shareholder voting rights proxy agreement
among Shanghai SINA Leju, Beijing Leju, Mr. Xudong Zhu and Mr. Jun Luo, each of Mr. Xudong Zhu and
Mr. Jun Luo irrevocably granted any person designated by Shanghai SINA Leju the power to exercise
all voting rights to which he is entitled to as shareholder of Beijing Leju at that time.
Equity Pledge Agreement
. Under the equity pledge agreement among Shanghai SINA Leju, Beijing
Leju, Mr. Xudong Zhu and Mr. Jun Luo, all of the equity interest in Beijing Leju has been pledged
to Shanghai SINA Leju to guarantee the performance of the obligations of Beijing Leju, Mr. Xudong
Zhu and Mr. Jun Luo under the exclusive call option agreement, the loan agreement, the shareholder
voting rights proxy agreement and the exclusive technical support agreement. If Mr. Xudong Zhu, Mr.
Jun Luo or Beijing Leju breaches their respective contractual obligations, Shanghai SINA Leju, as
pledgee, will be entitled to certain rights, including the right to sell the pledged equity
interests. Pursuant to the equity pledge agreement, Mr. Xudong Zhu and Mr. Jun Luo shall not
transfer, sell, pledge, dispose of or otherwise create any new encumbrance on their respective
equity interest in Beijing Leju without the prior written consent of Shanghai SINA Leju. The equity
pledge right enjoyed by Shanghai SINA Leju will expire when Mr. Xudong Zhu, Mr. Jun Luo and Beijing
Leju have fully performed their respective obligations under the above agreements.
Memorandum.
Under the memorandum among Shanghai SINA Leju, Beijing Leju, Mr. Xudong Zhu and
Mr. Jun Luo, the registered capital of Beijing Leju has confirmed to be increased to RMB10 million
($1.52 million) and the relevant clauses with reference to such registered capital in all the above
agreements shall be revised accordingly. In addition, according to the memorandum, the increased
loan of RMB9 million ($1.36 million) as provided under the supplementary agreement to the loan
agreement shall also be secured by the equity pledge agreement.
Agreement that Transfers Economic Benefits of Beijing Leju to CRIC
Exclusive Technical Support Agreement.
Pursuant to an exclusive technical support agreement
between Shanghai SINA Leju and Beijing Leju dated as of May 8, 2008, Shanghai SINA Leju provides
Beijing Leju with a series of technical support services and is entitled to receive related fees.
The term of this exclusive technical support agreement will expire upon dissolution of Beijing
Leju. Unless expressly provided by this agreement, without prior written consent of Shanghai SINA
Leju, Beijing Leju may not engage any third party to provide the services offered by Shanghai SINA
Leju under this agreement.
Transactions with Certain Related Customers and Suppliers, Shareholders, Directors and Affiliates
Transactions with Affiliates
As of December 31, 2008, $146,314 was due from us to Shanghai JinYue Real Estate Development
Co., Ltd., of which Mr. Xin Zhou, our co-chairman and chief executive officer, is a director. Such
amount represented amounts paid on our behalf to fund Tian Zhuos capital requirements and was
repaid by us in full in March 2009.
As of December 31, 2009, $1.0 million was due to us from E-House China Real Estate Investment
Fund I, L.P., a real estate investment fund, representing deposit payment made on behalf of the
fund. The amount was repaid in March 2010. Our co-chairman and chief executive officer, Mr. Xin
Zhou, is a limited partner of the fund and a non-controlling shareholder of the general partner.
Transactions with Management
As
of December 31, 2010, $787,500 was due to E-House management, representing consideration paid
by management for unvested restricted shares. See also Item 6. Directors, Senior Management and
EmployeesB. Compensation of Directors and Executive Officers.
91
Share Options
See Item 6. Directors, Senior Management and EmployeesB. Compensation of Directors and
Executive OfficersShare Incentive Plan.
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
We are subject to legal proceedings, investigations and claims incidental to the conduct of
our business from time to time. We are not currently a party to, nor are we aware of, any legal
proceeding, investigation or claim which, in the opinion of our management, is likely to have a
material adverse effect on our business, financial condition or results of operations.
Dividend Policy
We have not previously declared or paid and have no plan to declare or pay in the near future
any dividends on our shares or ADSs. We currently intend to retain most, if not all, of our
available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely principally on dividends
from our subsidiaries in China for our cash requirements, including any payment of dividends to our
shareholders. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out
of their accumulated profits, if any, determined in accordance with Chinese accounting standards
and regulations. In addition, each of our subsidiaries in China is required to set aside a certain
amount of its after-tax profits each year, if any, to fund certain statutory reserves. These
reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China incur
debt on their own behalf in the future, the instruments governing the debt may restrict their
ability to pay dividends or make other payments to us.
Our board of directors has complete discretion as to whether to distribute dividends. Even if
our board of directors decides to pay dividends, the form, frequency and amount will depend upon
our future operations and earnings, capital requirements and surplus, general financial condition,
contractual restrictions and other factors that the board of directors may deem relevant. If we pay
any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares,
subject to the terms of the deposit agreement, including the fees and expenses payable thereunder.
See Description of American Depositary Shares. in our registration statement on Form F-1 (File
No. 333-162213), as amended, initially filed with the Commission on September 29, 2009. Cash
dividends on our ordinary shares, if any, will be paid in U.S. dollars.
B.
Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant
changes since the date of our audited consolidated financial statements included in this annual
report.
ITEM 9. THE OFFER AND LISTING
A.
Offering and Listing Details
Our ADSs, each representing one of our ordinary shares, have been listed on the NASDAQ Global
Select Market since October 16, 2009 under the symbol CRIC.
In 2010, the trading price of our ADSs on NASDAQ Global Select Market ranged from US$11.74 to
US$7.47 per ADS.
92
The following table provides the high and low trading prices on the NASDAQ Global Select
Market for the periods indicated below.
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Sales Price ($)
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High
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Low
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2009 (from October 16)
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17.15
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|
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9.66
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October (from October 16)
|
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17.15
|
|
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12.05
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November
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15.85
|
|
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11.02
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December
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13.90
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9.66
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2010
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11.74
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7.47
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First Quarter
|
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11.27
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7.88
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Second Quarter
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10.58
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|
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7.52
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Third Quarter
|
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11.74
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7.47
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Fourth Quarter
|
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11.14
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8.51
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October
|
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11.14
|
|
|
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9.42
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November
|
|
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10.67
|
|
|
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8.88
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December
|
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9.85
|
|
|
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8.51
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2011
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First Quarter
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9.89
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6.35
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January
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9.89
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7.43
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February
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8.00
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6.39
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March
|
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7.98
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6.35
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April (through April 15)
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8.55
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7.70
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B.
Plan of Distribution
Not applicable.
C.
Markets
Our ADSs, each representing one of our ordinary shares, have been traded on the NASDAQ Global
Select Market since October 16, 2009 under the symbol CRIC.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
We incorporate by reference into this annual report our memorandum and articles of association
filed as Exhibit 3.2 to our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Securities and Exchange Commission on September 29, 2009.
93
C.
Material Contracts
On January 1, 2010, Beijing Leju entered into a Network Advertising Placement Contract and a
Supplemental Agreement thereto with Beijing Jiahua Hengshun Media Advertising Co., Ltd., pursuant
to which Beijing Jiahua Hengshun Media Advertising Co., Ltd. agreed to place advertisements on
SINA.com during the year 2010 under the terms and conditions set forth therein.
We have not entered into any material contracts other than in the ordinary course of business
for the two years immediately preceding the date of this annual report other than those
described in the preceding paragraph, in Item 4. Information on the Company or elsewhere in this annual report on Form 20-F.
D.
Exchange Controls
See Item 4. Information on the CompanyB. Business OverviewRegulationRegulations on
Foreign Currency Exchange.
E.
Taxation
The following summary of the material Cayman Islands, PRC and United States federal income tax
consequences of an investment in our ADSs or ordinary shares is based upon laws and relevant
interpretations thereof in effect as of the date of this annual report, all of which are subject to
change. This summary does not deal with all possible tax consequences relating to an investment in
our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or
estate duty. There are no other taxes likely to be material to us levied by the government of the
Cayman Islands except for stamp duties which may be applicable on instruments executed in, or
brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any
double tax treaties that are applicable to any payments made to or by our company. There are no
exchange control regulations or currency restrictions in the Cayman Islands.
Peoples Republic of China Taxation
Under the Enterprise Income Tax Law, enterprises established outside of China but whose de
facto management body is located in China are considered resident enterprises for PRC tax
purposes. Under the applicable implementation regulations, de facto management body is defined as
the organizational body that effectively exercises overall management and control over production
and business operations, personnel, finance and accounting, and properties of the enterprise.
Substantially all of our management is currently based in China, and may remain in China in the
future. If we are treated as a resident enterprise for PRC tax purposes, foreign holders of our
ADSs or ordinary shares that are non-resident enterprises under the Enterprise Income Tax Law may
be subject to a 10% PRC withholding tax upon dividends payable by us and on gains realized on their
sales or other dispositions of our ADSs or ordinary shares. See Item 3. Key InformationD. Risk
FactorsRisks Related to Doing Business in ChinaDividends payable to us by our PRC subsidiaries
may be subject to PRC withholding taxes, we may be subject to PRC taxation on our worldwide income,
and dividends distributed to our non-PRC investors may be subject to PRC withholding taxes under
the PRC Enterprise Income Tax Law.
United States Federal Income Taxation
This discussion describes the material U.S. federal income tax considerations to U.S. Holders
(as defined below) of an investment in the ADSs or ordinary shares. This discussion is based upon
existing U.S. federal income tax law as in effect on the date of this annual report, which is
subject to differing interpretations or change, possibly with retroactive effect. This discussion
applies only to U.S. Holders that hold the ADSs or ordinary shares as capital assets and that have
the U.S. dollar as their functional currency. This discussion does not describe all aspects of
U.S. federal income taxation that may be important to particular investors in light of their
individual investment circumstances, including investors subject to special tax rules (for example,
financial institutions, insurance companies, broker-dealers, partnerships and their partners, and
tax-exempt organizations (including private foundations)), holders who are not U.S. Holders,
holders who own (directly, indirectly, or constructively) 10% or more of our voting stock, or
investors that hold their ADSs or ordinary shares as part of a straddle, hedge, conversion,
constructive sale, or other integrated transaction for United States federal income tax purposes,
all of whom may be subject to tax rules that differ significantly from those described below. In
addition, this discussion does not describe any non-United States, state, or local tax
considerations.
94
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX
RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE AND LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY SHARES.
The discussion below of the U.S. federal income tax consequences to U.S. Holders will apply
if you are a beneficial owner of ADSs or ordinary shares and you are, for U.S. federal income tax
purposes,
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an individual who is a citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation) organized under the
laws of the United States, any State thereof or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or
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a trust that (1) is subject to the primary supervision of a court within the
United States and the control of one or more U.S. persons for all substantial decisions
or (2) has a valid election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
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If you are a partner in a partnership (or other entity taxable as a partnership for U.S.
federal income tax purposes) that holds ADSs or ordinary shares, your tax treatment generally will
depend on your status and the activities of the partnership.
The discussion below assumes that the representations contained in the deposit agreement are
true and that the obligations in the deposit agreement and any related agreement have been and will
be complied with in accordance with their terms. If you hold ADSs, you should be treated as the
holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax
purposes.
The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be
taking actions that are inconsistent with the claiming, by U.S. Holders of ADSs, of foreign tax
credits for U.S. federal income tax purposes. Such actions would also be inconsistent with the
claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S.
Holders, as described below. Accordingly, the availability of the reduced tax rate for dividends
received by certain non-corporate U.S. Holders could be affected by future actions that may be
taken by the U.S. Treasury or parties to whom ADSs are pre-released.
Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be classified as a passive foreign
investment company, or PFIC, for United States federal income tax purposes, for any taxable year
if either (i) 75% or more of its gross income consists of certain types of passive income or (ii)
50% or more of the value of its assets (determined on the basis of a quarterly average) produce or
are held for the production of passive income. For this purpose, cash is categorized as a passive
asset and our companys unbooked intangibles are taken into account. We will be treated as owning
our proportionate share of the assets and earning our proportionate share of the income of any
other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.
In applying this rule, however, it is not clear whether the contractual arrangements between us and
our variable interest entity will be treated as ownership of stock. Although the law in this
regard is unclear, we treat our consolidated affiliated entities as being owned by us for United
States federal income tax purposes, not only because we exercise effective control over the
operation of such entities but also because we are entitled to substantially all of their economic
benefits, and, as a result, we consolidate their results of operations in our consolidated
financial statements
95
Based on the price of our ADSs and ordinary shares and the composition of our income and
assets as reasonably approximated for purposes of applying the PFIC rules, we do not believe that
were a PFIC for the taxable year ending 2010. Although we do not currently expect that our assets
or activities will change in a manner that would cause us to become a PFIC for our current taxable year ending December 31, 2011, there
can be no assurance our business plans will not change in a manner that will affect our PFIC status
in the current or future taxable years. In addition, fluctuations in the market price of the ADSs
and ordinary shares may cause us to become a PFIC because the value of our assets for purposes of
the PFIC test will generally be determined by reference to the market price of our ADSs and
ordinary shares. The composition of our income and assets will also be affected by how, and how
quickly, we use the cash we generate from our operations and raise in any offering. If we are
classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we
generally will continue to be treated as a PFIC for all succeeding years during which such U.S.
Holder holds our ADSs or ordinary shares.
Because PFIC status is a fact-intensive determination made on an annual basis, no assurance
can be given that we are not or will not become classified as a PFIC. The discussion below under
Dividends and Disposition of the ADSs or Ordinary Shares is written on the basis that we will
not be classified as a PFIC for United States federal income tax purposes.
Dividends
The gross amount of cash distributions made by us with respect to the ADSs or ordinary shares
generally will be includable in your gross income as dividend income on the date of receipt by the
depositary, in the case of ADSs, or by you, in the case of ordinary shares, but only to the extent
that the distribution is paid out of our current or accumulated earnings and profits (as determined
under U.S. federal income tax principles). To the extent, if any, that the amount of the
distribution exceeds our current and accumulated earnings and profits, such excess amount will be
treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and then, to
the extent such excess amount exceeds your tax basis, as capital gain. We do not intend to
calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S.
Holder should expect that a distribution will generally be treated as a dividend even if that
distribution would otherwise be treated as a non-taxable return of capital or as capital gain under
the rules described above. Any dividends we pay will not be eligible for the dividends-received
deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, for
taxable years beginning before January 1, 2013, dividends will be taxed at the lower capital gains
rate applicable to qualified dividend income, provided that (1) the ADSs or ordinary shares, as
applicable, are readily tradable on an established securities market in the United States, or we
are eligible for the benefits of a qualifying income tax treaty with the United States that
includes an exchange of information program, (2) we are neither a passive foreign investment
company nor treated as such with respect to you (as discussed below) for the taxable year in which
the dividend was paid and the preceding taxable year, and (3) certain holding period requirements
are met. U.S. Treasury guidance indicates that common or ordinary shares, or ADSs representing such
shares, are considered for the purpose of clause (1) above to be readily tradable on an established
securities market in the United States if they are listed on the NASDAQ Global Select Market, as
are our ADSs (but not our ordinary shares). There can be no assurance that our ADSs will be
considered readily tradable on an established securities market in the United States in later
years. If we are treated as a PRC resident enterprise under the PRC Enterprise Income Tax Law, we
may be eligible for the benefits of the income tax treaty between the United States and the PRC.
See Item 10. Additional InformationTaxationPeoples Republic of China Taxation. You should
consult your tax advisors regarding the availability of the lower capital gains rate applicable to
qualified dividend income for any dividends paid with respect to our ADSs or ordinary shares.
Dividends will generally be treated as income from foreign sources for United States foreign
tax credit purposes. A U.S. Holder may be eligible, subject to a number of complex limitations, to
claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends
received on ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax
credit for foreign tax withheld may instead claim a deduction for United States federal income tax
purposes, in respect of such withholdings, but only for a year in which such holder elects to do so
for all creditable foreign income taxes. If PRC withholding taxes apply to dividends paid to you
with respect to the ADSs or ordinary shares, see Item 10. Additional
InformationTaxationPeoples Republic of China Taxation, such PRC withholding taxes may be
treated as foreign taxes eligible for credit against your U.S. federal income tax liability. U.S.
Holders should consult their tax advisors regarding the availability of a foreign tax credit in
their particular circumstances.
96
Disposition of the ADSs or Ordinary Shares
A U.S. Holder will recognize taxable gain or loss on any sale, exchange or other taxable
disposition of an ADS or ordinary share equal to the difference between the amount realized (in
U.S. dollars) for the ADS or ordinary share and your tax basis (in U.S. dollars) in the ADS or
ordinary share. The gain or loss generally will be capital gain or loss. If you are a
non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ADS or ordinary
share for more than one year, you will be eligible for reduced tax rates. The deductibility of
capital losses is subject to limitations. Any such gain or loss that you recognize will generally
be treated as United States source income or loss. In the event that gain from the disposition of
the ADSs or ordinary shares is subject to tax in the PRC, a U.S. Holder that is eligible for the
benefits of the income tax treaty between the United States and the PRC may elect to treat the gain
as PRC source income. U.S. Holders should consult their tax advisor regarding the tax consequences
if a foreign withholding tax is imposed on a disposition of our ADSs or ordinary shares, including
the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs
or ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described
below), the U.S. Holder will generally be subject to special tax rules that have a penalizing
effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the
U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder
that is greater than 125 percent of the average annual distributions paid in the three preceding
taxable years or, if shorter, the U.S. Holders holding period for the ADSs or ordinary shares.
Under these PFIC rules:
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the excess distribution or gain will be allocated ratably over the U.S.
Holders holding period for the ADSs or ordinary shares;
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the amount allocated to the current taxable year, and any taxable years in your
holding period prior to the first taxable year in which we were a PFIC, or pre-PFIC
year, will be taxable as ordinary income;
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the amount allocated to each prior taxable year, other than the current taxable
year or a pre-PFIC year, will be subject to tax at the highest tax rate in effect for
individuals or corporations, as applicable, for each such year; and
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an interest charge generally applicable to underpayments of tax will be imposed
on the tax attributable to each prior taxable year, other than the current taxable year
or a pre-PFIC year.
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A U.S. Holder of marketable stock (as defined below) in a PFIC may make a mark-to-market
election for such stock to elect out of the tax treatment discussed above. If a U.S. Holder makes
a mark-to-market election for the ADSs or ordinary shares, such holder will include in income for
each year that we are treated as a PFIC with respect to such holder an amount equal to the excess,
if any, of the fair market value of the ADSs or ordinary shares as of the close of your taxable
year over the holders adjusted basis in such ADSs or ordinary shares. A U.S. Holder will be
allowed a deduction for the excess, if any, of the adjusted basis of the ADSs or ordinary shares
over their fair market value as of the close of the taxable year. However, deductions will be
allowable only to the extent of any net mark-to-market gains on the ADSs or ordinary shares
included in a U.S. Holders income for prior taxable years. Amounts included in a U.S. Holders
income under a mark-to-market election, as well as gain on the actual sale or other disposition of
the ADSs or ordinary shares, will be treated as ordinary income. Ordinary loss treatment will also
apply to the deductible portion of any mark-to-market loss on the ADSs or ordinary shares, as well
as to any loss realized on the actual sale or disposition of the ADSs or ordinary shares, to the
extent that the amount of such loss does not exceed the net mark-to-market gains previously
included for such ADSs or ordinary shares. A U.S. Holders basis in the ADSs or ordinary shares
will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes a valid
mark-to-market election, the tax rules that apply to distributions by corporations which are not
PFICs would apply to distributions by us, except that the lower capital gains rate applicable to
qualified dividend income (discussed above under Dividends) would not apply.
97
The mark-to-market election is available only for marketable stock, which is stock that is
traded in other than de minimis quantities on at least 15 days during each calendar quarter
(regularly traded) on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. Our ADSs are
listed on the NASDAQ Global Select Market, which is a qualified exchange or market for these
purposes. Consequently, if the ADSs continue to be listed on the NASDAQ Global Select Market and
are regularly traded, and a U.S. Holder holds ADSs, we expect that the mark-to-market election
would be available to such U.S. Holder were we to be or become a PFIC. Because a mark-to-market
election cannot be made for equity interests in any lower-tier PFICs that we own, a U.S. Holder may
continue to be subject to the PFIC rules with respect to its indirect interest in any investments
held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
Alternatively, a U.S. Holder of stock in a PFIC may make a qualified electing fund or QEF
election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder
that makes a valid qualified electing fund election with respect to a PFIC will generally include
in gross income for a taxable year such holders pro rata share of the corporations earnings and
profits for the taxable year. However, the qualified electing fund election is available only if
the PFIC provides such U.S. Holder with certain information regarding its earnings and profits as
required under applicable U.S. Treasury regulations. We do not intend to prepare or provide the
information that would enable a U.S. Holder to make a qualified electing fund election.
Accordingly, each U.S. Holder should assume that the QEF Election will not be available.
If a U.S. Holder holds ADSs or ordinary shares in any year in which we are treated as a PFIC
with respect to such U.S. Holder, the U.S. Holder may be required to file Internal Revenue Service
Form 8621 and such other form as is required by the U.S. Treasury Department.
U.S. Holders are urged to consult their tax advisor regarding the application of the PFIC
rules to their investment in ADSs or ordinary shares.
Information Reporting and Backup Withholding
The United States tax compliance rules impose reporting requirements on certain United States
investors in connection with holding interests of a non-United States company, including our ADSs
or ordinary shares, either directly or through a foreign financial institution. These rules also
impose penalties if an individual U.S. Holder is required to submit such information to the United
States Internal Revenue Service and fails to do so. In addition, U.S. Holders may be subject to
information reporting to the United States Internal Revenue Service with respect to dividends on
and proceeds from the sale or other disposition of our ADSs or ordinary shares. Dividend payments
with respect to our ADSs or ordinary shares and proceeds from the sale or other disposition of our
ADSs or ordinary shares are not generally subject to United States backup withholding (provided
that certain certification requirements are satisfied). U.S. Holders are advised to consult their
tax advisors regarding the application of the United States information reporting and backup rules
to their particular circumstances.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We have filed with the SEC registration statements on Form F-1, including relevant exhibits
and securities under the Securities Act with respect to underlying ordinary shares represented by
the ADSs.
We are subject to the periodic reporting and other informational requirements of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are
required to file reports and other information with the SEC. Specifically, we are required to file
annually a Form 20-F no later than six months after the close of each fiscal year, which is
December 31. Beginning in 2011, that deadline will be reduced to no later than four months after
the close of each fiscal year. Copies of reports and other information, when so filed, may be
inspected without charge and may be obtained at prescribed rates at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and at the regional office of
the SEC located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The public may obtain information regarding the Washington, D.C. Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains a web site at
www.sec.gov
that contains reports,
proxy and information statements, and other information regarding registrants that make electronic
filings with the SEC using its EDGAR system.
98
Our Internet website is
www.cric.com
. We make available free of charge on our website our
annual reports on Form 20-F and any amendments to such reports as soon as reasonably practicable
following the electronic filing of such report with the SEC. In addition, we provide electronic or
paper copies of our filings free of charge upon request. The information contained on our website
is not part of this or any other report filed with or furnished to the SEC.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing
the furnishing and content of quarterly reports and proxy statements, and officers, directors and
principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act.
Our financial statements have been prepared in accordance with U.S. GAAP.
We will furnish our shareholders with annual reports, which will include a review of
operations and annual audited consolidated financial statements prepared in conformity with U.S.
GAAP.
I.
Subsidiary Information
For a listing of our subsidiaries, see Item 4. Information on the CompanyC. Organizational
Structure.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest income generated by bank
deposits with original maturities of three months or less. As of December 31, 2010, we had no
outstanding borrowings. We have not used any derivative financial instruments to manage our
interest risk exposure. Interest-earning instruments carry a degree of interest rate risk. We have
not been exposed to material risks due to changes in interest rates. However, our future interest
income may be lower than expected due to changes in market interest rates.
Foreign Exchange Risk
Substantially all of our revenues and most of our expenses are denominated in RMB. Our
exposure to foreign exchange risk primarily relates to cash and cash equivalents denominated in
U.S. dollars as a result of our IPO in October 2009. We believe the impact of foreign currency risk
is not material and we have not used any forward contracts, currency borrowings or derivative
instruments to hedge our exposure to foreign currency exchange risk. Although in general our
exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will
be affected by the foreign exchange rate between U.S. dollars and RMB because substantially all of
our revenues and expenses are denominated in RMB and the functional currency of our principal
operating subsidiaries and consolidated affiliated entities is the RMB, while we use the U.S.
dollar as our functional and reporting currency and the ADSs will be traded in U.S. dollars.
The
conversion of RMB into foreign currencies, including U.S. dollars, is based on rates
set by the Peoples Bank of China. The PRC government allowed
the RMB to appreciate by more
than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010,
this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained
within a narrow band. Since June 2010, the PRC government has
allowed the RMB to appreciate
slowly against the U.S. dollar again. It is difficult to predict how market forces or PRC or U.S.
government policy may impact the exchange rate between the RMB and the U.S. dollar in the
future.
99
To the extent that we need to convert U.S. dollars into RMB for our operations,
acquisitions or other uses within the PRC, appreciation of the RMB against the U.S. dollar would
have an adverse effect on the RMB amount we receive from the conversion. To the extent that we seek
to convert RMB into U.S. dollars, depreciation of the RMB against the U.S. dollar would have an
adverse effect on the U.S. dollar amount we receive from the conversion. As of December 31, 2010,
we had RMB or HKD denominated cash balances of $156.5 million and U.S. dollar-denominated cash
balances of $184.2 million. Assuming we had converted the U.S. dollar-denominated cash balance of
$184.2 million as of December 31, 2010 into RMB at the exchange rate of $1.00 for RMB6.6000 as of
December 30, 2010, this cash balance would have been RMB1,215.9 million. Assuming a further 1%
appreciation of the RMB against the U.S. dollar, this cash balance would have decreased to
RMB1,203.8 million as of December 31, 2010.
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ITEM 12.
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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Not applicable.
Not applicable.
Not applicable.
D.
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American Depositary Shares
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Fees and Charges Our ADS Holders May Have to Pay
JP Morgan Chase Bank, N.A., the depositary of our ADS program, may charge each person to whom
ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in
respect of share distributions, rights and other distributions, issuances pursuant to a stock
dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or
any other transaction or event affecting the ADSs or deposited securities, and each person
surrendering ADSs for withdrawal of deposited securities or whose ADSs are cancelled or reduced for
any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced,
cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale)
sufficient securities and property received in respect of a share distribution, rights and/or other
distribution prior to such deposit to pay such charge.
The following additional charges shall be incurred by the ADS holders, by any party depositing
or withdrawing shares or by any party surrendering ADSs or to whom ADSs are issued (including,
without limitation, issuance pursuant to a stock dividend or stock split declared by us or an
exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs),
whichever is applicable:
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a fee of $1.50 per ADS or ADSs for transfers of certificated or direct
registration ADSs;
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a fee of up to $0.05 per ADS for any cash distribution made pursuant to the
deposit agreement;
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a fee of up to $0.05 per ADS per calendar year (or portion
thereof) for
services performed by the depositary in administering the ADSs (which fee may be
charged on a periodic basis during each calendar year and shall be assessed against
holders of ADSs as of the record date or record dates set by the depositary during each
calendar year and shall be payable in the manner described in the next succeeding
provision);
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reimbursement of such fees, charges and expenses as are incurred by the
depositary and/or any of the depositarys agents (including, without limitation, the
custodian and expenses incurred on behalf of holders in connection with compliance with
foreign exchange control regulations or any law or
regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the delivery of deposited securities or otherwise
in connection with the depositarys or its custodians compliance with applicable law,
rule or regulation (which charge shall be assessed on a proportionate basis against
holders as of the record date or dates set by the depositary and shall be payable at the
sole discretion of the depositary by billing such holders or by deducting such charge
from one or more cash dividends or other cash distributions);
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a fee for the distribution of securities (or the sale of securities in
connection with a distribution), such fee being in an amount equal to the fee for the
execution and delivery of ADSs which would have been charged as a result of the deposit
of such securities (treating all such securities as if they were shares) but which
securities or the net cash proceeds from the sale thereof are instead distributed by
the depositary to those holders entitled thereto;
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stock transfer or other taxes and other governmental charges;
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cable, telex and facsimile transmission and delivery charges incurred at your
request in connection with the deposit or delivery of shares;
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transfer or registration fees for the registration of transfer of deposited
securities on any applicable register in connection with the deposit or withdrawal of
deposited securities; and
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expenses of the depositary in connection with the conversion of foreign
currency into U.S. dollars.
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The depositary collects its fees for issuance and cancellation of ADSs directly from investors
depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting
for them. The depositary collects fees for making distributions to investors by deducting those
fees from the amounts distributed or by selling a portion of distributable property to pay the
fees. The depositary may collect its annual fee for depositary services by deduction from cash
distributions, or by directly billing investors, or by charging the book-entry system accounts of
participants acting for them. The depositary may generally refuse to provide services to any holder
until the fees and expenses owing by such holder for those services or otherwise are paid.
Fees and Other Payments Made by the Depositary to Us
Our depositary has agreed to reimburse us for certain expenses we incur that are related to
establishment and maintenance of the ADS program, including investor relations expenses and
exchange application and listing fees. The amount of reimbursement we are entitled to is a fixed
percentage of the amount of fees the depositary collects from investors, net of certain expenses
the depositary incurs. For the years ended December 31, 2009 and December 31, 2010, we were
entitled to approximately $90,000 and $215,441, respectively, from the depositary as reimbursement for
our expenses incurred in connection with the establishment and maintenance of the ADS program.
PART II
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ITEM 13.
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DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
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None.
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ITEM 14.
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
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See Item 10. Additional Information for a description of the rights of securities holders,
which remain unchanged.
The following Use of Proceeds information relates to the registration statement on Form F-1
(File number: 333-162213) for our IPO of 20,700,000 ADSs, representing 20,700,000 ordinary shares,
which registration statement was declared effective by the SEC on October 15, 2009.
101
For the period from the effective date to December 31, 2009, we estimate that our expenses
incurred and paid to others in connection with the issuance and distribution of the ADSs totaled
$21.9 million, which included $17.4 million for underwriting discounts and commissions and $6.4
million for other expenses. We received net proceeds of approximately $224.7 million from our IPO.
For the period from the effective date to December 31, 2009, we did not use a substantial
portion of the net proceeds received from our IPO.
For the year ended December 31, 2010, we used approximately $17.2 million net proceeds
received from our IPO to fund capital expenditures for incorporation of our PRC subsidiaries.
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ITEM 15.
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CONTROLS AND PROCEDURES
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Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the
participation of our chief executive officer and chief financial officer, has performed an
evaluation of the effectiveness of our disclosure controls and procedures within the meaning of
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon this evaluation, our management has
concluded that, as of December 31, 2010, our existing disclosure controls and procedures were
effective to provide reasonable assurance that material information required to be disclosed by us
in the reports that we file with, or submit to, the SEC under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in by the SECs rules and
regulations.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation and fair presentation of its
published consolidated financial statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective may
not prevent or detect misstatements and can provide only reasonable assurance with respect to
financial statement preparation and presentation. 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.
Our management conducted an assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2010. In making this assessment, it used the criteria
established within the
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, our management has
concluded that, as of December 31, 2010, our internal control over financial reporting was
effective.
Our independent registered public accounting firm, Deloitte Touche Tohmatsu CPA Ltd., has
audited the effectiveness of our internal control over financial reporting as of December 31, 2010,
as stated in its report, which appears on page F-3 of this annual report on Form 20-F.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during 2010 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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ITEM 16A.
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AUDIT COMMITTEE FINANCIAL EXPERT
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Our board of directors has determined that Mr. Fan Bao, an independent director (under the
standards set forth in NASDAQ Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act)
and member of our audit committee, is an audit committee financial expert.
102
Our board of directors has adopted a code of ethics that applies to our directors, officers
and employees, including certain provisions that specifically apply to our chief executive officer,
chief financial officer, senior finance officer, controller, vice presidents and any other persons
who perform similar functions for us. We have filed our code of business conduct and ethics as an
exhibit to our registration statement on Form F-1 (No. 333-162213), and the code is also available
on our official website under the investor relations section at
ir.cric.com
.
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ITEM 16C.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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The following table sets forth the aggregate fees by categories specified below in connection
with certain professional services rendered by Deloitte Touche Tohmatsu CPA Ltd., our principal
external auditors, for the periods indicated. We did not pay any other fees to our auditors during
the periods indicated below.
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2008
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2009
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2010
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Audit fees
(1)
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247,188
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344,591
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806,794
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Audit-related fees
(2)
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969,927
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Tax fees
(3)
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(1)
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Audit fees means the aggregate fees billed for professional services rendered by our
principal auditors for the audit of our annual financial statements and the review of our
comparative interim financial statements.
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(2)
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Audit-related fees represents aggregate fees billed for professional services rendered by
our principal auditors for the assurance and related services. The audit-related fees in 2009
primarily included the issuance of the audit and review of financial statements and other
assurance services rendered in connection with our IPO.
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(3)
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Tax fees represents aggregate fees billed for professional services rendered by our
principal auditors for tax compliance, tax advice and tax planning.
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All audit and permitted non-audit services provided by our independent auditors, including
audit services, audit-related services, tax services and other services as described above, must be
approved in advance by our audit committee or by one or more members of the committee as shall be
designated by the audit committee or the chairperson of the audit committee.
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ITEM 16D.
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EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
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None.
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ITEM 16E.
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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
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No shares were repurchased during 2010.
We publicly announced a share repurchase plan on March 10, 2011, which plan provides for the
repurchase of up to US$50.0 million worth of our ADSs and expires on March 10, 2012. The following table is a summary of the shares repurchased by us pursuant to this plan as of
March 31, 2011.
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Approximate Dollar
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Total Number of Shares
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Value of Shares that
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Total Number of
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Average Price Paid
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Purchased as Part of
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may yet be Purchased
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Period
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Shares Purchased
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Per Share
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Publicly Announced Plans
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Under the Plans
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March 17-31
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524,300
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$7.58
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524,300
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$46.0 million
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ITEM 16F.
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CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
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Not applicable.
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ITEM 16G.
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CORPORATE GOVERNANCE
|
Because E-House owns more than 50% of the total voting power of our ordinary shares, we are a
controlled company under the NASDAQ Stock Market Rules. We rely on certain exemptions
that are available to controlled companies from NASDAQ corporate governance requirements, including
the requirements:
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that a majority of our board of directors must be comprised of independent
directors; and
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that we have a corporate governance and nominating committee that is composed
entirely of independent directors with a written charter addressing the committees
purpose and responsibilities;
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We are not required to and will not voluntarily meet these requirements. As a result of our
use of the controlled company exemption, our investors will not have the same protection afforded
to shareholders of companies that are subject to all of NASDAQs corporate governance requirements.
103
PART III
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ITEM 17.
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FINANCIAL STATEMENTS
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We have elected to provide financial statements pursuant to Item 18.
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ITEM 18.
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FINANCIAL STATEMENTS
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The consolidated financial statements of China Real Estate Information Corporation are
included at the end of this annual report.
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Exhibit
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Number
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Document
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1.1
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Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by
reference to Exhibit 3.2 from our F-1 registration statement (File No. 333-162213), as
amended, initially filed with the Commission on September 29, 2009)
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2.1
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Specimen American Depositary Receipt of the Registrant (incorporated by reference to Exhibit
4.1 from our F-1 registration statement (File No. 333-162213), as amended, initially filed
with the Commission on September 29, 2009)
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2.2
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Specimen Certificate for Ordinary Shares of the Registrant (incorporated by reference to
Exhibit 4.2 from our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Commission on September 29, 2009).
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2.3
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Deposit Agreement among the Registrant, the depositary and holder of the American Depositary
Receipts Registrant (incorporated by reference to Exhibit 4.2 from our S-8 registration
statement (File No. 333-164034) filed with the Commission on December 28, 2009)
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4.1
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Share Incentive Plan of the Registrant (incorporated by reference to Exhibit 10.1 from our F-1
registration statement (File No. 333-162213), as amended, initially filed with the Commission
on September 29, 2009).
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4.2
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Form of Indemnification Agreement with the Registrants directors (incorporated by reference
to Exhibit 10.2 from our F-1 registration statement (File No. 333-162213), as amended,
initially filed with the Commission on September 29, 2009).
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4.3
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Employment Agreement between the Registrant and Xin Zhou (incorporated by reference to Exhibit
10.3 from our F-1 registration statement (File No. 333-162213), as amended, initially filed
with the Commission on September 29, 2009).
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4.4
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Employment Agreement between the Registrant and Bin Laurence (incorporated by reference to
Exhibit 10.4 from our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Commission on September 29, 2009).
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4.5
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Employment Agreement between the Registrant and Zuyu Ding (incorporated by reference to
Exhibit 10.5 from our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Commission on September 29, 2009).
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4.6
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Employment Agreement between the Registrant and Jun Luo (incorporated by reference to Exhibit
10.6 from our F-1 registration statement (File No. 333-162213), as amended, initially filed
with the Commission on September 29, 2009).
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104
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Exhibit
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Number
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Document
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4.7
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Employment Agreement between the Registrant and Yan Zhang (incorporated by reference to
Exhibit 10.7 from our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Commission on September 29, 2009).
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4.8
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Employment Agreement between the Registrant and Zhongmin Jin (incorporated by reference to
Exhibit 10.8 from our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Commission on September 29, 2009).
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4.9
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Master Transaction Agreement, dated July 27, 2009, between the Registrant and E-House (China)
Holdings Limited (incorporated by reference to Exhibit 10.9 from our F-1 registration
statement (File No. 333-162213), as amended, initially filed with the Commission on September
29, 2009).
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4.10
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Offshore Transitional Services Agreement, dated July 27, 2009, between the Registrant and
E-House (China) Holdings Limited (incorporated by reference to Exhibit 10.10 from our F-1
registration statement
(File No. 333-162213),
as amended, initially filed with the Commission
on September 29, 2009).
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4.11
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English translation of Onshore Transitional Services Agreement, dated July 27, 2009, between
Shanghai CRIC Information Technology Co., Ltd. and Shanghai Real Estate Sales (Group) Co.,
Ltd. (incorporated by reference to Exhibit 10.11 from our F-1 registration statement (File No.
333-162213), as amended, initially filed with the Commission on September 29, 2009).
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4.12
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Non-Competition Agreement, dated July 27, 2009, between the Registrant and E-House (China)
Holdings Limited. (incorporated by reference to Exhibit 10.12 from our F-1 registration
statement (File No. 333-162213), as amended, initially filed with the Commission on September
29, 2009).
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4.13
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English translation of Consulting and Services Agreement, dated June 30, 2009, between
Shanghai CRIC Information Technology Co., Ltd. and Shanghai Real Estate Sales (Group) Co.,
Ltd. (incorporated by reference to Exhibit 10.13 from our F-1 registration statement (File
No. 333-162213), as amended, initially filed with the Commission on September 29, 2009).
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4.14
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English translation of Onshore Cooperation Agreement, dated August 31, 2009, among Shanghai
Real Estate Sales (Group) Co., Ltd., Shanghai CRIC Information Technology Co., Ltd. and
Shanghai Tian Zhuo Advertising Co., Ltd. (incorporated by reference to Exhibit 10.14 from our
F-1 registration statement (File No. 333-162213), as amended, initially filed with the
Commission on September 29, 2009).
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4.15
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English translation of Equity Pledge Agreement, dated July 20, 2009, between Shanghai CRIC
Information Technology Co., Ltd., Shanghai Tian Zhuo Advertising Co., Ltd., Xin Zhou and
Xudong Zhu. (incorporated by reference to Exhibit 10.15 from our F-1 registration statement
(File No. 333-162213), as amended, initially filed with the Commission on September 29, 2009).
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4.16
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English translation of Exclusive Call Option Agreement, dated July 20, 2009, between Shanghai
CRIC Information Technology Co., Ltd., Shanghai Tian Zhuo Advertising Co., Ltd., Xin Zhou and
Xudong Zhu. (incorporated by reference to Exhibit 10.16 from our F-1 registration statement
(File No. 333-162213), as amended, initially filed with the Commission on September 29, 2009).
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4.17
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English translation of Loan Agreement, dated April 1, 2008, between Shanghai CRIC Information
Technology Co., Ltd. and Xin Zhou. (incorporated by reference to Exhibit 10.17 from our F-1
registration statement
(File No. 333-162213),
as amended, initially filed with the Commission
on September 29, 2009).
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105
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Exhibit
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Number
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Document
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4.18
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English translation of Loan Agreement, dated September 8, 2008, between Shanghai CRIC
Information Technology Co., Ltd. and Xin Zhou. (incorporated by reference to Exhibit 10.18
from our F-1 registration statement
(File No. 333-162213),
as amended, initially filed with
the Commission on September 29, 2009).
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4.19
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English translation of Amended and Restated Loan Agreement, dated July 20, 2009, between
Shanghai CRIC Information Technology Co., Ltd. and Xin Zhou. (incorporated by reference to
Exhibit 10.19 from our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Commission on September 29, 2009).
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4.20
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English translation of Loan Agreement, dated July 20, 2009, between Shanghai CRIC Information
Technology Co., Ltd., Xin Zhou and Xudong Zhu. (incorporated by reference to Exhibit 10.20
from our F-1 registration statement (File No. 333-162213), as amended, initially filed with
the Commission on September 29, 2009).
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4.21
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English translation of Loan Agreement, dated April 1, 2008, between Shanghai Tian Zhuo
Advertising Co., Ltd. and Xin Zhou. (incorporated by reference to Exhibit 10.21 from our F-1
registration statement
(File No. 333-162213),
as amended, initially filed with the Commission
on September 29, 2009).
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4.22
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English translation of Loan Agreement, dated September 8, 2008, between Shanghai Tian Zhuo
Advertising Co., Ltd. and Xin Zhou. (incorporated by reference to Exhibit 10.22 from our F-1
registration statement
(File No. 333-162213),
as amended, initially filed with the Commission
on September 29, 2009).
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4.23
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English translation of Shareholder Voting Rights Proxy Agreement, dated July 20, 2009, between
Shanghai CRIC Information Technology Co., Ltd., Shanghai Tian Zhuo Advertising Co., Ltd., Xin
Zhou and Xudong Zhu. (incorporated by reference to Exhibit 10.23 from our F-1 registration
statement (File No. 333-162213), as amended, initially filed with the Commission on September
29, 2009).
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4.24
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English translation of Consulting and Service Agreement, dated April 1, 2008, between Shanghai
CRIC Information Technology Co., Ltd. and Shanghai Tian Zhuo Advertising Co., Ltd.
(incorporated by reference to Exhibit 10.24 from our F-1 registration statement (File No.
333-162213), as amended, initially filed with the Commission on September 29, 2009).
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4.25
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English translation of Exclusive Call Option Agreement dated, September 29, 2009, between
Shanghai SINA Leju Information Technology Co., Ltd., Beijing Yisheng Leju Information Services
Co., Ltd., Xudong Zhu and Jun Luo. (incorporated by reference to Exhibit 10.25 from our F-1
registration statement (File No. 333-162213), as amended, initially filed with the Commission
on September 29, 2009).
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4.26
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English translation of Loan Agreement, dated September 29, 2009, between Shanghai SINA Leju
Information Technology Co., Ltd., Xudong Zhu and Jun Luo. (incorporated by reference to
Exhibit 10.26 from our F-1 registration statement (File No. 333-162213), as amended, initially
filed with the Commission on September 29, 2009).
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4.27
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English translation of Shareholder Voting Rights Proxy Agreement, dated September 29, 2009,
between Shanghai SINA Leju Information Technology Co., Ltd., Beijing Yisheng Leju Information
Services Co., Ltd., Xudong Zhu and Jun Luo. (incorporated by reference to Exhibit 10.27 from
our F-1 registration statement
(File No. 333-162213),
as amended, initially filed with the
Commission on September 29, 2009).
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4.28
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English translation of Equity Pledge Agreement, dated September 29, 2009, between Shanghai
SINA Leju Information Technology Co., Ltd., Beijing Yisheng Leju Information Services Co.,
Ltd., Xudong Zhu and Jun Luo. (incorporated by reference to Exhibit 10.28 from our F-1
registration statement (File No. 333-162213), as amended, initially filed with the Commission
on September 29, 2009).
|
106
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Exhibit
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Number
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Document
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4.29
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English translation of Exclusive Technical Support Agreement, dated May 8, 2008, between
Shanghai SINA Leju Information Technology Co., Ltd. and Beijing Yisheng Leju Information
Services Co., Ltd. (incorporated by reference to Exhibit 10.29 from our F-1 registration
statement (File No. 333-162213), as amended, initially filed with the Commission on September
29, 2009).
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4.30
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English translation of Real Estate Market Information System and Project Consulting Services
Strategic Cooperation Agreement, dated December 2008, between Evergrande Real Estate Group and
Shanghai CRIC Information Technology Co., Ltd. (incorporated by reference to Exhibit 4.30 from
our annual report on Form 20-F (File No. 001-34479), filed with the Commission on April 23,
2010).
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4.31
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English translation of Service Agreement, dated August 2009, between with Shanghai Jinluodian
Development Co., Ltd. and Shanghai CRIC Information Technology Co., Ltd. (incorporated by
reference to Exhibit 4.32 from our annual report on Form 20-F (File No. 001-34479), filed with
the Commission on April 23, 2010).
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4.32
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Share Purchase Agreement, dated July 23, 2009, between the Registrant and SINA Corporation.
(incorporated by reference to Exhibit 10.33 from our F-1 registration statement (File No.
333-162213), as amended, initially filed with the Commission on September 29, 2009).
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4.33
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Amendment Agreement to the Share Purchase Agreement, dated September 29, 2009, between the
Registrant and SINA Corporation. (incorporated by reference to Exhibit 10.34 from our F-1
registration statement
(File No. 333-162213),
as amended, initially filed with the Commission
on September 29, 2009).
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4.34
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Shareholders Agreement, dated October 21, 2009, by and among the Registrant, E-House (China)
Holdings Limited and SINA Corporation (incorporated by reference to Exhibit 4.35 from our
annual report on Form 20-F (File No. 001-34479), filed with the Commission on April 23, 2010).
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4.35
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Registration Rights Agreement, dated October 21, 2009, by and among the Registrant, E-House
(China) Holdings Limited and SINA Corporation (incorporated by reference to Exhibit 4.36 from
our annual report on Form 20-F (File No. 001-34479), filed with the Commission on April 23,
2010).
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4.36
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English translation of Amended and Restated Advertising Inventory Sale Agency Agreement, dated
August 31, 2009, between SINA Corporation and COHT Technology Corporation. (incorporated by
reference to Exhibit 10.37 from our F-1 registration statement (File No. 333-162213), as
amended, initially filed with the Commission on September 29, 2009).
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4.37
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Domain Name and Content License Agreement, dated September 2009, between Beijing SINA Internet
Information Service Co., Ltd. and Beijing Yisheng Leju Information Services Co., Ltd.
(incorporated by reference to Exhibit 10.38 from our F-1 registration statement (File No.
333-162213), as amended, initially filed with the Commission on September 29, 2009).
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4.38
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Trademark License Agreement, dated September 2009, between Beijing SINA Internet Information
Service Co., Ltd. and Beijing Yisheng Leju Information Services Co., Ltd. (incorporated by
reference to Exhibit 10.39 from our F-1 registration statement (File No. 333-162213), as
amended, initially filed with the Commission on September 29, 2009).
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4.39
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Software License and Support Services Agreement, dated September 2009, between SINA.com
Technology (China) Co. Ltd. and Shanghai SINA Leju Information Technology Co., Ltd.
(incorporated by reference to Exhibit 10.40 from our F-1 registration statement (File No.
333-162213), as amended, initially filed with the Commission on September 29, 2009).
|
107
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Exhibit
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Number
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Document
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4.40
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*
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Internet Advertising Placement Contract, January 1, 2010, between Information Services Co.,
Ltd. and Beijing Jiahua Hengshun Media Advertising Co., Ltd.
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8.1
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*
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Subsidiaries of the Registrant
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11.1
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Code of Business Conduct and Ethics of the Registrant. (incorporated by reference to Exhibit
99.1 from our F-1 registration statement (File No. 333-162213), as amended, initially filed
with the Commission on September 29, 2009).
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12.1
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*
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Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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12.2
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*
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Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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13.1
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*
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Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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13.2
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*
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Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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15.1
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*
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Consent of Deloitte Touche Tohmatsu CPA Ltd.
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15.2
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*
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Consent of Fangda Partners
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*
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Filed with this annual report on Form 20-F.
|
108
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
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China Real Estate Information Corporation
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By:
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/s/ Xin Zhou
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Name:
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Xin Zhou
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Title:
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Co-Chairman of the Board of Directors
Chief Executive Officer
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Date: April 26, 2011
109
China Real Estate Information Corporation
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2009 and 2010
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of China Real Estate Information Corporation
We have audited the accompanying consolidated balance sheets of China Real Estate Information
Corporation and subsidiaries (the Group) as of December 31, 2009 and 2010, and the related
consolidated statements of operations, changes in equity and comprehensive income, and cash flows
for each of the three years in the period ended December 31, 2010. These financial statements are
the responsibility of the Groups management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of China Real Estate Information Corporation and subsidiaries as of December
31, 2009 and 2010, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2010, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Groups internal control over financial reporting as of December 31,
2010, based on the criteria established in
Internal ControlIntegrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 26,
2011 expressed an unqualified opinion on the Groups internal control over financial reporting.
/s/ Deloitte Touche Tohmatsu CPA Ltd.
Shanghai China
April 26, 2011
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of China Real Estate Information Corporation
We have audited the internal control over financial reporting of China Real Estate Information
Corporation and subsidiaries (the Group) as of December 31, 2010, based on the criteria
established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Groups management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Managements Annual Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Groups internal control over financial reporting based on our audit.
We conducted our audit 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. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel 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 companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) 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 (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Group maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2010, based on the criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended December
31, 2010 of the Group and our report dated April 26, 2011 expressed an unqualified opinion on
those financial statements.
/s/ Deloitte Touche Tohmatsu CPA Ltd.
Shanghai China
April 26, 2011
F-3
China Real Estate Information Corporation
Consolidated Balance Sheets
(In U.S. dollar except for share data)
|
|
|
|
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|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
311,066,566
|
|
|
|
340,719,732
|
|
Unbilled accounts receivable, net of
allowance for doubtful accounts of
$5,625,089 and $4,985,475 at December
31, 2009 and 2010, respectively
|
|
|
22,739,129
|
|
|
|
51,175,432
|
|
Accounts receivable, net of allowance
for doubtful accounts of nil and nil at
December 31, 2009 and 2010, respectively
|
|
|
5,690,968
|
|
|
|
9,796,367
|
|
Advance payment for properties
|
|
|
8,108,299
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
6,990,396
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|
|
|
22,231,239
|
|
Amounts due from related parties
|
|
|
2,460,572
|
|
|
|
5,079,850
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
357,055,930
|
|
|
|
429,002,620
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|
Property and equipment, net
|
|
|
7,422,583
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|
|
|
11,177,160
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|
Intangible assets, net
|
|
|
201,138,891
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|
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|
182,622,246
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Goodwill
|
|
|
449,902,711
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|
|
|
450,299,447
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|
Investment in affiliates
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|
|
|
|
|
|
4,444,136
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|
Other non-current assets
|
|
|
4,570,964
|
|
|
|
6,377,153
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
1,020,091,079
|
|
|
|
1,083,922,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (including accounts
payable of the consolidated VIEs
without recourse to CRIC of $2,005,993
and $805,772 as of December 31, 2009 and
2010, respectively)
|
|
|
2,288,650
|
|
|
|
3,299,986
|
|
Advance from customers (including
advance from customers of the
consolidated VIEs without recourse to
CRIC of $1,069,853 and $3,581,008 as of
December 31, 2009 and 2010,
respectively)
|
|
|
2,855,165
|
|
|
|
6,455,298
|
|
Accrued payroll and welfare expenses
(including accrued payroll and welfare
expenses of the consolidated VIEs
without recourse to CRIC of $1,535,879
and $5,998,335 as of December 31, 2009
and 2010, respectively)
|
|
|
3,873,160
|
|
|
|
9,881,731
|
|
Income tax payable (including income tax
payable of the consolidated VIEs without
recourse to CRIC of $1,658,316 and
$3,824,260 as of December 31, 2009 and
2010, respectively)
|
|
|
9,270,321
|
|
|
|
16,935,062
|
|
Other tax payable (including other tax
payable of the consolidated VIEs without
recourse to CRIC of $1,549,522 and
$2,965,717 as of December 31, 2009 and
2010, respectively)
|
|
|
3,085,419
|
|
|
|
5,427,500
|
|
Amounts due to related parties
(including amounts due to related
parties of the consolidated VIEs without
recourse to CRIC of $6,112,070 and
$2,029,595 as of December 31, 2009 and
2010, respectively)
|
|
|
7,300,568
|
|
|
|
2,784,714
|
|
Other current liabilities (including
other current liabilities of the
consolidated VIEs without recourse to
CRIC of $3,561,007 and $3,147,480 as of
December 31, 2009 and 2010,
respectively)
|
|
|
6,965,124
|
|
|
|
7,731,235
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
35,638,407
|
|
|
|
52,515,526
|
|
Deferred tax liabilities, non-current
(including deferred tax liabilities,
non-current of the consolidated VIEs without
recourse to CRIC of $270,607 and $424,931 as
of December 31, 2009 and 2010, respectively)
|
|
|
42,031,640
|
|
|
|
39,969,421
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
77,670,047
|
|
|
|
92,484,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Ordinary
shares ($0.0002 par value): 250,000,000 shares authorized,
142,922,222 and 143,749,405 shares
issued and outstanding as of December
31, 2009 and 2010, respectively
|
|
|
28,584
|
|
|
|
28,750
|
|
Additional paid-in capital
|
|
|
863,169,196
|
|
|
|
882,428,759
|
|
Retained earnings
|
|
|
74,385,774
|
|
|
|
97,556,895
|
|
Accumulated other comprehensive income
|
|
|
3,629,398
|
|
|
|
8,402,643
|
|
Subscription receivables
|
|
|
|
|
|
|
(97,749
|
)
|
|
|
|
|
|
|
|
Total CRIC equity
|
|
|
941,212,952
|
|
|
|
988,319,298
|
|
Non-controlling interest
|
|
|
1,208,080
|
|
|
|
3,118,517
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
942,421,032
|
|
|
|
991,437,815
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
1,020,091,079
|
|
|
|
1,083,922,762
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
China Real Estate Information Corporation
Consolidated Statements of Operations
(In U.S. dollar except for share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party revenues
|
|
|
49,887,948
|
|
|
|
87,384,680
|
|
|
|
155,309,013
|
|
Related party revenues
|
|
|
160,582
|
|
|
|
8,269,130
|
|
|
|
18,845,451
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
50,048,530
|
|
|
|
95,653,810
|
|
|
|
174,154,464
|
|
Cost of revenues
|
|
|
(2,897,247
|
)
|
|
|
(12,810,162
|
)
|
|
|
(41,009,561
|
)
|
Selling, general and administrative expenses
|
|
|
(19,819,873
|
)
|
|
|
(48,048,529
|
)
|
|
|
(109,088,983
|
)
|
Gain from settlement of pre-existing relationship
|
|
|
|
|
|
|
2,100,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
27,331,410
|
|
|
|
36,895,951
|
|
|
|
24,055,920
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
420,517
|
|
|
|
279,079
|
|
|
|
1,726,580
|
|
Other income (expense), net
|
|
|
(1,341,165
|
)
|
|
|
2,725,032
|
|
|
|
3,174,113
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and equity in affiliates
|
|
|
26,410,762
|
|
|
|
39,900,062
|
|
|
|
28,956,613
|
|
Income tax expense
|
|
|
(4,721,015
|
)
|
|
|
(6,306,613
|
)
|
|
|
(2,791,497
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before equity in affiliates
|
|
|
21,689,747
|
|
|
|
33,593,449
|
|
|
|
26,165,116
|
|
Income (loss) from equity in affiliates
|
|
|
153,700
|
|
|
|
22,015,607
|
|
|
|
(276,385
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
21,843,447
|
|
|
|
55,609,056
|
|
|
|
25,888,731
|
|
Less: Net income (loss) attributable to
non-controlling interest
|
|
|
(318,214
|
)
|
|
|
6,765
|
|
|
|
(52,109
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to CRIC shareholders
|
|
|
22,161,661
|
|
|
|
55,602,291
|
|
|
|
25,940,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
0.64
|
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.63
|
|
|
$
|
0.18
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
71,522,222
|
|
|
|
86,610,265
|
|
|
|
143,288,987
|
|
Diluted
|
|
|
71,522,222
|
|
|
|
88,264,301
|
|
|
|
146,193,046
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
China Real Estate Information Corporation
Consolidated Statements of Changes in Equity
and Comprehensive Income
(In U.S. dollar)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Ordinary
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Subscription
|
|
|
Non-controlling
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income
|
|
|
Receivables
|
|
|
Interest
|
|
|
Equity
|
|
|
Income
|
|
|
|
Number
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance at January 1, 2008
|
|
|
71,522,222
|
|
|
|
14,304
|
|
|
|
30,000,000
|
|
|
|
(1,205,488
|
)
|
|
|
923,501
|
|
|
|
(14,304
|
)
|
|
|
|
|
|
|
29,718,013
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,161,661
|
|
|
|
|
|
|
|
|
|
|
|
(318,214
|
)
|
|
|
21,843,447
|
|
|
|
21,843,447
|
|
Capital contribution by
non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,173,582
|
|
|
|
1,173,582
|
|
|
|
|
|
Contribution from E-House
|
|
|
|
|
|
|
|
|
|
|
2,591,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,591,770
|
|
|
|
|
|
Cash contribution from E-House
|
|
|
|
|
|
|
|
|
|
|
8,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,400,000
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,784,353
|
|
|
|
|
|
|
|
|
|
|
|
2,784,353
|
|
|
|
2,784,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
71,522,222
|
|
|
|
14,304
|
|
|
|
40,991,770
|
|
|
|
20,956,173
|
|
|
|
3,707,854
|
|
|
|
(14,304
|
)
|
|
|
855,368
|
|
|
|
66,511,165
|
|
|
|
24,627,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,602,291
|
|
|
|
|
|
|
|
|
|
|
|
6,765
|
|
|
|
55,609,056
|
|
|
|
55,609,056
|
|
Capital contribution and
non-controlling interest recognized
in connection with business
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,260,780
|
|
|
|
1,260,780
|
|
|
|
|
|
Collection of subscription receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
Distribution to E-House
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,001,304
|
)
|
|
|
|
|
|
|
4,304
|
|
|
|
|
|
|
|
(997,000
|
)
|
|
|
|
|
Cash contribution from E-House
|
|
|
|
|
|
|
|
|
|
|
2,499,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,499,977
|
|
|
|
|
|
Replacement of COHT share options
|
|
|
|
|
|
|
|
|
|
|
14,960,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,960,796
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
7,123,911
|
|
|
|
(1,171,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,952,525
|
|
|
|
|
|
Issuance of ordinary shares to
public, net of issuance cost
|
|
|
20,700,000
|
|
|
|
4,140
|
|
|
|
224,700,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,704,600
|
|
|
|
|
|
Issuance of ordinary shares in
connection with business acquisition
|
|
|
47,666,667
|
|
|
|
9,533
|
|
|
|
571,990,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572,000,004
|
|
|
|
|
|
Issuance of ordinary shares in
exchange for a non-controlling
interest
|
|
|
3,033,333
|
|
|
|
607
|
|
|
|
901,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(902,418
|
)
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,456
|
)
|
|
|
|
|
|
|
(12,415
|
)
|
|
|
(90,871
|
)
|
|
|
(90,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
142,922,222
|
|
|
|
28,584
|
|
|
|
863,169,196
|
|
|
|
74,385,774
|
|
|
|
3,629,398
|
|
|
|
|
|
|
|
1,208,080
|
|
|
|
942,421,032
|
|
|
|
55,518,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,940,840
|
|
|
|
|
|
|
|
|
|
|
|
(52,109
|
)
|
|
|
25,888,731
|
|
|
|
25,888,731
|
|
Capital contribution and
non-controlling interest recognized
in connection with business
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,897,582
|
|
|
|
1,897,582
|
|
|
|
|
|
Distribution to E-House
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,044
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
17,443,841
|
|
|
|
(2,709,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,734,166
|
|
|
|
|
|
Vesting of restricted shares
|
|
|
75,000
|
|
|
|
15
|
|
|
|
262,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,500
|
|
|
|
|
|
Exercise of share options
|
|
|
752,183
|
|
|
|
151
|
|
|
|
1,553,237
|
|
|
|
|
|
|
|
|
|
|
|
(97,749
|
)
|
|
|
|
|
|
|
1,455,639
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,773,245
|
|
|
|
|
|
|
|
64,964
|
|
|
|
4,838,209
|
|
|
|
4,838,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
143,749,405
|
|
|
|
28,750
|
|
|
|
882,428,759
|
|
|
|
97,556,895
|
|
|
|
8,402,643
|
|
|
|
(97,749
|
)
|
|
|
3,118,517
|
|
|
|
991,437,815
|
|
|
|
30,726,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
China Real Estate Information Corporation
Consolidated Statements of Cash Flows
(In U.S. dollar)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
21,843,447
|
|
|
|
55,609,056
|
|
|
|
25,888,731
|
|
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
440,613
|
|
|
|
6,744,120
|
|
|
|
23,251,643
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
4,722,707
|
|
|
|
(71,896
|
)
|
Gain from settlement of pre-existing relationship
|
|
|
|
|
|
|
(2,100,832
|
)
|
|
|
|
|
Income (loss) from equity in affiliates
|
|
|
(153,700
|
)
|
|
|
(22,015,607
|
)
|
|
|
276,385
|
|
Share-based compensation
|
|
|
|
|
|
|
5,952,525
|
|
|
|
14,734,166
|
|
Gain from sales of properties held for sale
|
|
|
|
|
|
|
(52,303
|
)
|
|
|
(1,063,322
|
)
|
Others
|
|
|
|
|
|
|
136,145
|
|
|
|
(262,631
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(21,746,362
|
)
|
|
|
3,960,246
|
|
|
|
(30,959,152
|
)
|
Amounts due from related parties
|
|
|
2,690,338
|
|
|
|
(2,432,415
|
)
|
|
|
(2,619,278
|
)
|
Prepaid expenses and other current assets
|
|
|
(11,454,306
|
)
|
|
|
8,488,180
|
|
|
|
(6,982,124
|
)
|
Accounts payable
|
|
|
387,544
|
|
|
|
1,664,048
|
|
|
|
967,694
|
|
Accrued payroll and welfare expenses
|
|
|
718,993
|
|
|
|
2,629,806
|
|
|
|
6,125,547
|
|
Income tax payable
|
|
|
3,182,709
|
|
|
|
5,262,213
|
|
|
|
7,848,071
|
|
Other tax payable
|
|
|
642,958
|
|
|
|
2,309,203
|
|
|
|
2,421,341
|
|
Amounts due to related parties
|
|
|
|
|
|
|
(6,186,987
|
)
|
|
|
(4,399,846
|
)
|
Other current liabilities
|
|
|
(512,730
|
)
|
|
|
(7,036,553
|
)
|
|
|
2,849,587
|
|
Advance from customers
|
|
|
839,354
|
|
|
|
2,414,276
|
|
|
|
3,537,472
|
|
Deferred tax
|
|
|
(124,654
|
)
|
|
|
(3,054,613
|
)
|
|
|
(5,547,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(3,245,796
|
)
|
|
|
57,013,215
|
|
|
|
35,995,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit for and purchase of property and equipment
and intangible assets
|
|
|
(9,478,138
|
)
|
|
|
(2,378,033
|
)
|
|
|
(6,916,843
|
)
|
Purchase of subsidiaries, net of cash acquired
|
|
|
(2,399,326
|
)
|
|
|
3,243,114
|
|
|
|
563,211
|
|
Investment in affiliates
|
|
|
(2,500,000
|
)
|
|
|
|
|
|
|
(4,669,376
|
)
|
Proceeds from disposal of property and equipment
|
|
|
18,645
|
|
|
|
225,444
|
|
|
|
36,580
|
|
Deposit and proceeds for properties held for sale
|
|
|
|
|
|
|
3,042,015
|
|
|
|
4,719,440
|
|
Collection of loans from related parties
|
|
|
2,157,683
|
|
|
|
|
|
|
|
|
|
Deposit for acquisition
|
|
|
|
|
|
|
|
|
|
|
(4,529,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(12,201,136
|
)
|
|
|
4,132,540
|
|
|
|
(10,796,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution from non-controlling interest
|
|
|
270
|
|
|
|
1,175,244
|
|
|
|
249,246
|
|
Proceeds of loans (repayment of loans) from related
parties
|
|
|
5,696,838
|
|
|
|
(5,616,633
|
)
|
|
|
|
|
Collection of subscription receivables
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
Advance from a related party
|
|
|
|
|
|
|
1,050,000
|
|
|
|
|
|
Proceeds from issuance of ordinary shares, net of
paid issuance costs of $23,548,949
|
|
|
|
|
|
|
224,851,051
|
|
|
|
|
|
Proceeds from exercise of options
|
|
|
|
|
|
|
|
|
|
|
1,455,639
|
|
Contribution from E-House
|
|
|
8,400,000
|
|
|
|
2,499,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
14,097,108
|
|
|
|
223,969,639
|
|
|
|
1,704,885
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
729,589
|
|
|
|
159,934
|
|
|
|
2,750,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(620,235
|
)
|
|
|
285,275,328
|
|
|
|
29,653,166
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
26,411,473
|
|
|
|
25,791,238
|
|
|
|
311,066,566
|
|
|
|
|
|
|
|
|
|
|
|
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents at the end of the year
|
|
|
25,791,238
|
|
|
|
311,066,566
|
|
|
|
340,719,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
1,446,702
|
|
|
|
3,379,554
|
|
|
|
5,742,205
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party loans converted to equity
|
|
|
8,400,000
|
|
|
|
2,499,977
|
|
|
|
|
|
Amount due to related party for restricted shares
transferred to equity
|
|
|
|
|
|
|
|
|
|
|
(262,500
|
)
|
Related party receivable paid as dividend or
(payable recorded as a capital contribution)
|
|
|
(2,591,770
|
)
|
|
|
997,000
|
|
|
|
60,044
|
|
Issuance of ordinary shares in connection with
business acquisition
|
|
|
|
|
|
|
572,000,004
|
|
|
|
|
|
Ordinary share issuance costs in payables
|
|
|
|
|
|
|
146,451
|
|
|
|
|
|
Replacement of share options due to acquisition
|
|
|
|
|
|
|
14,960,796
|
|
|
|
|
|
Non-controlling interest recognized in connection
with business acquisition
|
|
|
|
|
|
|
85,536
|
|
|
|
1,648,336
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
China Real Estate Information Corporation
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008, 2009 and 2010
(In U.S. dollar)
1. Organization and Principal Activities
China Real Estate Information Corporation (the Company or CRIC) was
incorporated on August 21, 2008 in the Cayman Islands as an exempted company with
limited liability under the Companies Law of the Cayman Islands. The Company, through
its subsidiaries and consolidated variable interest entities (VIEs), is principally
engaged in providing real estate information and consulting services, real estate online
services, advertising services and promotional event services in the Peoples Republic
of China (PRC). The Company, its subsidiaries and consolidated VIEs are collectively
referred to as the Group.
E-House (China) Holdings Limited (E-House Holdings) is the Companys parent
company. E-House Holdings, its subsidiaries, excluding the Group, are collectively
referred to as E-House. E-House began developing a proprietary real estate database
system, or the CRIC system, in 2002, initially to support services to its clients. In
April 2006, E-House incorporated a subsidiary, CRIC (China) Information Technology Co.,
Ltd., in the British Virgin Islands (CRIC BVI). In July 2006, E-House, through CRIC
BVI, established a new PRC subsidiary, Shanghai CRIC Information Technology Co., Ltd.
(Shanghai CRIC), and transferred its assets and staff relating to the CRIC system to
Shanghai CRIC. Prior to the establishment of Shanghai CRIC, the real estate information
and consulting services were carried out by various companies owned by E-House Holdings.
Shanghai CRIC began commercializing the CRIC system and offering information and related
consulting services in 2006.
Shanghai CRIC began offering real estate advertising services in 2008 through an
acquired VIE in China, Shanghai Tian Zhuo Advertising Co., Ltd. and its majority owned
subsidiaries (Tian Zhuo).
E-House Holdings transferred all of the outstanding shares of CRIC BVI to CRIC in
October 2008. The restructuring process has been accounted for as a reorganization of
entities under common control.
In October 2009, the Company completed its initial public offering (IPO) on the
NASDAQ Global Select Market and acquisition of SINA Corporations (SINA) (NASDAQ:
SINA) 66% equity interest in China Online Housing Technology Corporation (COHT), an
online real estate media platform in the PRC. COHT provides online advertising,
information and updates related to the real estate and home furnishing industries in
China through a consolidated VIE, Beijing Yisheng Leju Information Service Co., Ltd.
(Beijing Leju).
Upon incorporation, the Company had 500,000,000 ordinary shares authorized, 1,000
ordinary shares issued and outstanding with a par value of $0.0001 per share, all of
which were held by E-House Holdings. On January 1, 2009, the Company issued an
additional 99,999,000 ordinary shares to E-House Holdings for par value, or $10,000. On
August 29, 2009, the Company effected a reverse share split whereby all of 100,000,000
issued and outstanding ordinary shares, having a par value of $0.0001 per share, were
converted into 50,000,000 ordinary shares, having a par value of $0.0002 per share, and
the number of authorized shares was reduced from 500,000,000 to 250,000,000. On
September 28, 2009, the Company issued 21,522,222 additional ordinary shares at par
value to E-House Holdings. Both the reverse share split and the ordinary share issuance
to E-House Holdings have been retroactively reflected for all periods presented herein.
Upon completion of its IPO and acquisition of COHT in October 2009, the Company
issued 20,700,000 additional ordinary shares to the public, 47,666,667 shares in
connection with the acquisition of COHT and 3,033,333 shares in exchange for a
non-controlling interest.
In April 2010, Shanghai CRIC acquired 55% of the equity interest in Shanghai Dehu
PR Consulting Co., Ltd., (Shanghai Dehu). Shanghai Dehu provides promotional events
services.
The following table lists major subsidiaries and the consolidated VIEs of the
Company as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of
|
|
|
Place of
|
|
|
Percentage of
|
|
|
|
incorporation
|
|
|
incorporation
|
|
|
Ownership
|
|
Shanghai CRIC Information Technology Co., Ltd.
|
|
3-Jul-06
|
|
PRC
|
|
|
100
|
%
|
Shanghai Dehu PR Consulting Co., Ltd.
|
|
9-Feb-07
|
|
PRC
|
|
|
55
|
%
|
Shanghai Tian Zhuo Advertising Co., Ltd.
|
|
27-Feb-08
|
|
PRC
|
|
VIE
|
|
Beijing Yisheng Leju Information Services Co., Ltd.
|
|
13-Feb-08
|
|
PRC
|
|
VIE
|
|
The Groups consolidated financial statements for periods prior to the Companys
IPO in October 2009 have been prepared on a carve-out basis and represent the assets and
liabilities and the related results of operations and cash flows of the Group, which
represent two operating segments of E-House Holdings. The financial data of previously
separate entities have been combined, to the extent included in the aforementioned
operating segments of E-House Holdings, for all periods presented up to the IPO date as
all such entities were under common control. However, such presentation may not
necessarily reflect the results of operations, financial position and cash flows if the
Group had actually existed on a standalone basis during the periods presented. Transactions between the Group and
E-House are herein referred to as related party transactions.
F-9
In connection with its IPO, the Company entered into non-competition arrangements
with E-House Holdings on July 29, 2009, according to which E-House has agreed not to
compete with the Group in the real estate information and consulting services and real
estate advertising services business anywhere in the world and the Group has agreed not
to compete with E-House in any services then provided or contemplated by E-House. Prior
to these non-competition arrangements, both E-House and the Group conducted real estate
information and consulting services and primary real estate agency services. Shanghai
CRIC began offering real estate advertising services in 2008, and there were no
advertising activities prior to the formation of CRIC BVI and Shanghai CRIC.
The consolidated financial statements for periods prior to CRICs IPO include the
Groups direct expenses as well as allocations for various selling, general and
administrative expenses of E-House that are not directly related to real estate
information and consulting services or real estate advertising services. These expenses
consist primarily of share-based compensation expenses of senior management and shared
marketing and management expenses including marketing, finance, legal, technology, human
resources, administration and internal audit. These allocations were made using a
proportional cost allocation method and were based on revenues, expenses and headcount
as well as estimates of actual time spent on the provision of services attributable to
the Group. Management believes these allocations are reasonable. Total selling, general
and administrative expenses allocated from E-House are $3,516,284 and $2,477,446 for the
years ended December 31, 2008 and for the period from January 1, 2009 to the IPO date,
respectively. Income tax liability is calculated based on a separate return basis as if
the Group had filed a separate tax return. Subsequent to the IPO, there have not been
any selling, general and administrative expenses allocations as E-House began charging
the Group transitional corporate service fees pursuant to agreements entered into on
July 29, 2009 in connection with the Companys IPO. Under these transitional services
arrangements, E-House provides various corporate support services to the Group,
including general finance and accounting, human resource management, administrative,
internal control and internal audit, operational management, legal and information
technology. E-House charges the Group a fee based on an estimate of the actual cost
incurred to provide such services, which amounted to $583,650 and $1,522,497 for the
period from the IPO date to December 31, 2009 and the year ended December 31, 2010,
respectively.
2. Summary of Principal Accounting Policies
(a) Basis of presentation
The consolidated financial statements are prepared and presented in accordance with
accounting principles generally accepted in the United States of America (US GAAP).
(b) Basis of consolidation
The consolidated financial statements include the financial statements of CRIC, its
majority owned subsidiaries and its VIEs, Tian Zhuo and Beijing Leju. All significant
inter-company transactions and balances have been eliminated in consolidation.
The Group evaluates each of its interests in private companies to determine whether
or not the entity is a VIE and, if so, whether the Group is the primary beneficiary of
such VIE. If deemed the primary beneficiary, the Group consolidates the VIE.
PRC regulations currently prohibit or restrict foreign ownership of companies that
provide Internet content and advertising services. To comply with these regulations, the
Group provides substantially all of its real estate advertising services through the
investments held by Tian Zhuo, a PRC entity controlled by Xin Zhou, the Groups
co-chairman and chief executive officer. On April 1, 2008, Tian Zhuo entered into
various agreements with Shanghai CRIC, including a Consultancy Service Agreement,
Shareholder Voting Rights Proxy Agreement and Exclusive Equity Transfer Call Agreement.
Under these agreements, Shanghai CRIC provides Tian Zhuo with consulting and related
services and information services and is entitled to receive service fees. In addition,
the shareholder of Tian Zhuo irrevocably granted Shanghai CRIC the power to exercise all
voting rights to which it was entitled. Finally, Shanghai CRIC has the option to acquire
all or part of the equity interests in Tian Zhuo, to the extent permitted by the
then-effective PRC laws and regulations, for nominal consideration.
Through the contractual arrangements described above, Shanghai CRIC is deemed the
primary beneficiary of Tian Zhuo. Accordingly, the results of Tian Zhuo and its
subsidiaries have been included in the accompanying consolidated financial statements,
beginning April 1, 2008.
During 2008, the Group funded Tian Zhuos capital requirements of $146,314 and
provided an additional $5,120,989 for the purpose of acquisitions and $9,949,353 as
prepayment and deposit for a three-year period for real estate advertising placements to
certain Shanghai newspapers via a $15,216,656 interest-free loan to Xin Zhou. Tian Zhuo
repaid $2,621,870 and nil during the year ended December 31, 2009 and 2010,
respectively.
F-10
The following financial statement amounts and balances of Tian Zhuo were included
in the accompanying consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents
|
|
|
9,631,554
|
|
|
|
12,133,157
|
|
Unbilled accounts receivable, net of allowance for doubtful accounts
|
|
|
3,803,925
|
|
|
|
2,864,778
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
2,105,244
|
|
|
|
784,813
|
|
Prepaid expenses and other current assets
|
|
|
2,675,884
|
|
|
|
1,511,617
|
|
Amounts due from related parties
|
|
|
410,401
|
|
|
|
195,639
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,627,008
|
|
|
|
17,490,004
|
|
Total noncurrent assets
|
|
|
6,450,738
|
|
|
|
6,562,186
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
25,077,746
|
|
|
|
24,052,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
1,887,725
|
|
|
|
319,812
|
|
Accrued payroll and welfare expenses
|
|
|
640,283
|
|
|
|
611,029
|
|
Income tax payable
|
|
|
836,915
|
|
|
|
1,156,467
|
|
Other tax payable
|
|
|
576,058
|
|
|
|
412,247
|
|
Other current liabilities
|
|
|
736,553
|
|
|
|
960,528
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,677,534
|
|
|
|
3,460,083
|
|
Deferred tax liabilities, non-current
|
|
|
270,607
|
|
|
|
202,955
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,948,141
|
|
|
|
3,663,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Total revenues
|
|
|
1,659,801
|
|
|
|
14,428,584
|
|
|
|
10,394,582
|
|
Net income (loss)
|
|
|
(890,998
|
)
|
|
|
620,258
|
|
|
|
37,030
|
|
To comply with PRC laws and regulations, COHT provides substantially all its
Internet content and advertising services in China via its VIE, Beijing Leju. Beijing
Leju is an advertising agency that sells the advertisements for its real-estate and home
furnishing channels. Beijing Leju is wholly-owned by certain PRC officers of the Group
and was funded by COHT through interest-free loans to such officers. These officers are
contractually required to transfer their ownership interest in Beijing Leju to COHT when
permitted by PRC laws and regulations at any time for the amount of loans outstanding.
The shareholders of Beijing Leju irrevocably granted COHT the power to exercise all
voting rights to which it was entitled. COHT has also entered into exclusive technical
service agreements with Beijing Leju under which COHT provides technical and other
services to Beijing Leju in exchange for substantially all of Beijing Lejus net income.
In addition, the employee shareholders have pledged their shares in Beijing Leju as
collateral for the non-payment of loans and technical and other service fees. As of
December 31, 2010, the total amount of interest-free loans extended to Beijing Lejus
employee shareholders was $1,509,960 and the accumulated gain of Beijing Leju subsequent
to acquisition were $1,173,456 which has been included in the consolidated financial
statements.
The following financial statement amounts and balances of Beijing Leju were
included in the accompanying consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents
|
|
|
2,128,200
|
|
|
|
41,914,203
|
|
Unbilled accounts receivable, net of allowance for doubtful accounts
|
|
|
13,814,540
|
|
|
|
35,028,633
|
|
Prepaid expenses and other current assets
|
|
|
2,661,465
|
|
|
|
10,192,141
|
|
Amounts due from related parties
|
|
|
9,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,613,670
|
|
|
|
87,134,977
|
|
Total noncurrent assets
|
|
|
1,273,393
|
|
|
|
5,402,561
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
19,887,063
|
|
|
|
92,537,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
118,268
|
|
|
|
485,960
|
|
Advance from customers
|
|
|
1,069,853
|
|
|
|
3,581,008
|
|
Accrued payroll and welfare expenses
|
|
|
895,596
|
|
|
|
5,387,306
|
|
Income tax payable
|
|
|
821,401
|
|
|
|
2,667,793
|
|
Other tax payable
|
|
|
973,464
|
|
|
|
2,553,470
|
|
Amounts due to related parties
|
|
|
6,112,070
|
|
|
|
2,029,595
|
|
Other current liability
|
|
|
2,824,454
|
|
|
|
2,186,952
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,815,106
|
|
|
|
18,892,084
|
|
Deferred tax liabilities, non-current
|
|
|
|
|
|
|
221,976
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,815,106
|
|
|
|
19,114,060
|
|
|
|
|
|
|
|
|
F-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Total revenues
|
|
|
|
|
|
|
13,813,076
|
|
|
|
66,876,338
|
|
Net income
|
|
|
|
|
|
|
147,922
|
|
|
|
1,025,534
|
|
There are no consolidated VIEs assets that are collateral for the VIEs
obligations and are not restricted solely to settle the VIEs obligations.
(c) Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from such estimates. Significant
accounting estimates reflected in the Groups financial statements include estimated
useful lives and valuation of long-lived assets, valuation of goodwill, allowance for
doubtful accounts, assumption related to share-based compensation arrangements,
assumption related to the consolidation of entities in which the Group holds variable
interest, uncertain tax position and the valuation allowance on deferred tax assets.
(d) Fair value of financial instruments
The Group records certain of its financial assets and liabilities at fair value on
a recurring basis. Fair value reflects the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for
assets and liabilities required or permitted to be recorded at fair value, the Group
considers the principal or most advantageous market in which it would transact and
considers assumptions that market participants would use when pricing the asset or
liability.
The Group applies a fair value hierarchy that requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. A financial instruments categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. The
hierarchy is as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in
active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than
quoted prices included within Level 1 that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices
for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model- derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable
market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to
the valuation methodology that are significant to the measurement of the fair value of
the assets or liabilities.
The carrying amount of cash, accounts receivable, advance payment for properties,
other receivables, accounts payable, other payables and amounts due from/to related
parties approximates fair value due to their short-term nature.
(e) Business combinations
Business combinations are recorded using the purchase method of accounting and,
accordingly, the acquired assets and liabilities are recorded at their fair market value
at the date of acquisition. Any excess of acquisition cost over the fair value of the
acquired assets and liabilities, including identifiable intangible assets, is recorded
as goodwill.
(f) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and demand deposits, which are
unrestricted as to withdrawal and use, and which have original maturities of three
months or less.
(g) Unbilled accounts receivable
Unbilled accounts receivable represents amounts recognized in revenue prior to
issuing official tax receipts to customers. The Group regularly reviews the
collectability of unbilled accounts receivable in the same method as accounts
receivable.
(h) Advance payment for properties and properties held for sale
In May 2008, the Group prepaid $7,791,586 for an office building, which the Group
intended to use as its corporate office. As of December 31, 2009, the Group had recorded
the prepayment as an advance payment for properties. In 2010, the Group obtained legal
ownership of the office building, which includes 41 separate units in total. The Group
has the ability and intent to sell the properties and has been actively marketing them
for that purpose after the Group obtained a 20-year lease of another office building
through the acquisition of Portal Overseas Limited in April 2009, and accordingly, has
classified the 41 units properties held for sale.
F-12
Properties held for sale are stated at the lower of cost or net realizable value.
Cost comprises the cost of purchase and direct costs associated with the purchase. The
Group evaluates its properties held for sale for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. There was no
impairment for properties held for sale for the years ended December 31, 2010. The
realized gain from selling of the properties was $52,303 and $1,063,322 for the years
ended December 31, 2009 and 2010, respectively. As of December 31, 2010, the Group still
holds 10 of the 41 units of the above office buildings with a total carrying value of
$1,871,062, which is included as a component of prepaid expenses and other current
assets.
(i) Investment in affiliates
Affiliated companies are entities over which the Group has significant influence,
but which it does not control. The Group generally considers an ownership interest of
20% or higher to represent significant influence. Investments in affiliates are
accounted for by the equity method of accounting. Under this method, the Groups share
of the post-acquisition profits or losses of affiliated companies is recognized in the
income statement and its share of post-acquisition movements in other comprehensive
income is recognized in other comprehensive income. Unrealized gains on transactions
between the Group and its affiliated companies are eliminated to the extent of the
Groups interest in the affiliated companies; unrealized losses are also eliminated
unless the transaction provides evidence of an impairment of the asset transferred. When
the Groups share of losses in an affiliated company equals or exceeds its interest in
the affiliated company, the Group does not recognize further losses, unless the Group
has incurred obligations or made payments on behalf of the affiliated company. An
impairment loss is recorded when there has been a loss in value of the investment that
is other than temporary. The Group has not recorded any impairment losses in any of the
periods reported.
(j) Property and equipment, net
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the following estimated useful
lives:
|
|
|
Leasehold improvements
|
|
Over the shorter of the lease term or
their estimated useful lives
|
Furniture, fixtures and equipment
|
|
5 years
|
Motor vehicles
|
|
5 years
|
Gains and losses from the disposal of property and equipment are included in income
from operations.
(k) Intangible assets, net
Acquired intangible assets mainly consist of license agreements with SINA, a real
estate advertising agency agreement with SINA, CRIC database license agreement,
favorable lease terms, customer relationships and non-compete agreements from business
combinations and are recorded at fair value on the acquisition date. All intangible
assets, with the exception of customer relationships, are amortized ratably over the
contract period. Intangible assets resulting out of acquired customer relationships are
amortized based on the timing of the revenue expected to be derived from the respective
customer.
(l) Internally developed software
Qualifying costs incurred during the application development stage, which consist
primarily of internal labor costs and external cost, are capitalized and amortized over
the estimated useful life of the asset. All other costs are expensed as incurred.
Historically the costs incurred have been immaterial and, as a result, expensed as
incurred.
(m) Impairment of long-lived assets
The Group evaluates its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable.
When these events occur, the Group measures impairment by comparing the carrying amount
of the assets to future undiscounted net cash flows expected to result from the use of
the assets and their eventual disposition. If the sum of the expected undiscounted cash
flow is less than the carrying amount of the assets, the Group would recognize an
impairment loss equal to the excess of the carrying amount over the fair value of the
assets.
(n) Impairment of goodwill
The Group performs an annual goodwill impairment test comprised of two steps. The
first step compares the fair value of each reporting unit to its carrying amount,
including goodwill. If the fair value of each reporting unit exceeds its carrying
amount, goodwill is not considered to be impaired and the second step will not be
required. If the carrying amount of a reporting unit exceeds its fair value, the second
step compares the implied fair value of goodwill to the carrying value of a reporting
units goodwill. The implied fair value of goodwill is determined in a manner similar to
accounting for a business combination with the allocation of the assessed fair value
determined in the first step to the assets and liabilities of the reporting unit. The
excess of the fair value of the reporting unit over the amounts assigned to the assets
and liabilities is the implied fair value of goodwill. This allocation process is only
performed for purposes of evaluating goodwill impairment and does not result in an entry
to adjust the value of any assets or liabilities. An impairment loss is recognized for
any excess in the carrying value of goodwill over the implied fair value of goodwill.
F-13
Management performs its annual goodwill impairment test on December 31. No goodwill
has been impaired during any of the periods presented.
(o) Income taxes
Deferred income taxes are recognized for temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial statements,
net operating loss carryforwards and credits by applying enacted statutory tax rates
applicable to future years. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Current income taxes are provided for
in accordance with the laws of the relevant taxing authorities. The components of the
deferred tax assets and liabilities are individually classified as current and
non-current based on the characteristics of the underlying assets and liabilities.
The Group only recognizes tax benefits related to uncertain tax positions when such
positions are more likely than not of being sustained upon examination. For such
positions, the amount of tax benefit that the Group recognizes is the largest amount of
tax benefit that is more than fifty percent likely of being sustained upon the ultimate
settlement of such uncertain position. The Group records interest and penalties as a
component of income tax expense.
(p) Share-based compensation
Share-based compensation cost is measured on the grant date, based on the fair
value of the award, and recognized as an expense over the requisite service period.
Management has made an estimate of expected forfeitures and recognizes compensation cost
only for those equity awards expected to vest.
(q) Revenue recognition
The Group recognizes revenues when there is persuasive evidence of an arrangement,
service has been rendered, the sales price is fixed or determinable and collectability
is reasonably assured. Revenues are recorded, net of sales related taxes.
The Group provides real estate consulting services to customers in relation to land
acquisition and property development. In certain instances, the Group agrees to a
consulting arrangement wherein payment is contingent upon the delivery of a final
product, such as closing a land acquisition transaction or providing a market study
report. The Group recognizes revenue under such arrangements upon delivery of the final
product, assuming customer acceptance has occurred and the fee is no longer contingent.
In other instances, the Group provides services periodically during the development
stage of a real estate project, such as monthly market updates. The contractual period
for such arrangements is usually between one and twelve months with revenue being
recognized ratably over such period.
The Group sells subscriptions to its proprietary CRIC system for which revenues are
recognized ratably over the subscription period, which is usually six to twelve months.
When an arrangement includes periodic consulting services and subscriptions for the
CRIC system, revenues are recognized ratably over the longer of the consulting and CRIC
system subscription period. When an arrangement includes project-based consulting
services and subscriptions for the CRIC system, the entire arrangement is considered a
single unit of account as the Group does not have objective and reliable evidence of
fair value for each deliverable. Revenue is recognized based on the revenue recognition
model for the final deliverable in the arrangement, which is typically the subscription
for the CRIC system which requires ratable recognition over the subscription period. The
Group has objective and reliable evidence of the fair value for the CRIC system
subscription service. As such, upon delivery of the consulting product, the Group defers
the fair value of the remaining CRIC system subscription and recognizes the residual
amount, or the difference between the remaining fair value of the CRIC system
subscription and the total arrangement fee, as revenue, assuming all other revenue
recognition criteria have been met. The residual amount recognized is limited to the
cumulative amount due under the terms of the arrangement.
The Groups parent company, E-House, has multiple element arrangements that have
included the provision of primary real estate services, payment of which is based on a
commission rate that is contingent upon the sale of real estate, consulting services
and/or subscription for the CRIC system. E-House has determined that the commission rate
for the primary real estate services under these multiple element arrangements has been
at fair value. Fixed arrangement fees associated with the consulting services and/or
subscription for the CRIC system under multiple element arrangements have been
recognized in accordance with the preceding paragraph.
The Group generates online real estate revenues principally from online
advertising, sponsorship arrangements and, to a lesser extent, hosting arrangements.
Online advertising arrangements allow advertisers to place advertisements on particular
areas of the Groups websites, in particular formats and over particular periods of
time. Advertising revenues from online advertising arrangements are recognized ratably
over the contract period of display when collectability is reasonably assured.
Sponsorship arrangements allow advertisers to sponsor a particular area on the Groups
websites in exchange for a fixed payment over the contract period. Advertising revenues
from sponsorship arrangements are recognized ratably over the contract period. Revenues
for advertising services are recognized net of agency rebates. The Group also generates
advertising revenues from outsourcing certain regional sites for a fixed period of time
to local hosting partners, who are responsible for both website operation and related
advertising sales. Advertising revenues from hosted websites are recognized ratably over
the term of the contract.
F-14
The Group also generates revenues from real estate advertising design services,
which are recognized ratably over the specified contract period ranging from three to
twelve months. The Group also provides advertising sales services by acquiring
advertising space and subsequently reselling such space. Revenues under such
arrangements are recognized when the related advertisement is placed. Advertising sales
revenues are recognized on a gross basis because the Group acts as the principal and is
the primary obligor in the arrangement.
The Group also provides promotional events services and recognizes revenues when
such services are rendered and assuming all other revenue recognition criteria have been
met.
Deferred revenues are recognized when payments are received in advance of revenue
recognition.
(r) Cost of revenue
Cost of revenue for real estate information and consulting services primarily
consists of costs incurred for developing, maintaining and updating the CRIC system,
which includes cost of data purchased or licensed from third-party sources, personnel
related costs and associated equipment depreciation. Cost of revenue for online real
estate services consists of costs associated with the production of websites, which
includes fees paid to third parties for internet connection, content and services,
personnel related costs, amortization of intangible assets, depreciation associated with
website production equipment and fees paid to SINA for advertising inventory on non-real
estate channels and fees paid to Baidu, Inc (Baidu) for the exclusive right to build
and operate all of Baidus web channels related to real estate and home furnishing. Cost
of revenue also consists of fees paid to third parties for the services directly related
to advertising design and promotional event services and the cost incurred to acquire
advertising space for resale. Cost of revenue for promotional event services includes
salaries of sales and support staff and fees paid to third parties for the services
directly related to promotional event services.
(s) Advertising expenses
Advertising expenses are charged to the statements of operations in the period
incurred and amounted to $1,424,240, $1,814,442 and $14,276,536 for the years ended
December 31, 2008, 2009 and 2010, respectively.
(t) Foreign currency translation
The functional currency of the Company is the United States dollar (U.S. dollar)
and is used as the reporting currency of the Company. Monetary assets and liabilities
denominated in currencies other than the U.S. dollar are translated into U.S. dollar at
the rates of exchange ruling at the balance sheet date. Equity accounts are translated
at historical exchange rates and revenues, expenses, gains and losses are translated
using the average rate for the year. Translation adjustments are reported as foreign
currency translation adjustment and are shown as a separate component of other
comprehensive income in the consolidated statements of shareholders equity and
comprehensive income.
The financial records of certain of the Companys subsidiaries are maintained in
local currencies other than the U.S. dollar, such as Renminbi (RMB), which are their
functional currencies. Transactions in other currencies are recorded at the rates of
exchange prevailing when the transactions occur.
The Group recorded an exchange loss of $1,341,165, exchange gain of $159,933 and
exchange loss of $641,043 for the years ended December 31, 2008, 2009 and 2010,
respectively.
(u) Government subsidies
Government subsidies include cash subsidies received by the Companys subsidiaries
and VIEs in the PRC from local governments. These subsidies are generally provided as
incentives for investing in certain local districts. Cash subsidies of nil, $2,426,546
and $2,143,869 for the years ended December 31, 2008, 2009 and 2010 are included in
other income (expense) in the consolidated statements of operations. There is no
assurance that the Group will receive similar or any subsidies in the future.
(v) Concentration of credit risk
Financial instruments that potentially expose the Group to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable. The Group
places its cash and cash equivalents with reputable financial institutions.
The Group regularly reviews the creditworthiness of its customers, but generally
does not require collateral or other security from its customers. The Group establishes
an allowance for doubtful accounts primarily based on factors surrounding the credit
risk of specific customers, including overall relationship with the customer, past and
ongoing business
relationship, past record and pattern of settling receivables, length of the
receivable and other specific information indicating the collectability of the
receivables.
F-15
Movement of the allowance for doubtful accounts for accounts receivable, unbilled
accounts receivable and other receivables is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
Balance as of January 1,
|
|
|
|
|
|
|
5,625,089
|
|
Provisions for doubtful accounts
|
|
|
4,722,707
|
|
|
|
656,333
|
|
Business acquisition
|
|
|
2,440,358
|
|
|
|
|
|
Recovery of provisions for doubtful accounts
|
|
|
|
|
|
|
(728,229
|
)
|
Write offs
|
|
|
(1,539,914
|
)
|
|
|
(728,707
|
)
|
Changes due to foreign exchange
|
|
|
1,938
|
|
|
|
160,989
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
|
5,625,089
|
|
|
|
4,985,475
|
|
|
|
|
|
|
|
|
(w) Earnings per share
Basic earnings per share is computed by dividing income attributable to holders of
ordinary shares by the weighted average number of ordinary shares outstanding during the
period.
Diluted earnings per ordinary share reflects the potential dilution that could
occur if securities or other contracts to issue ordinary shares were exercised or
converted into ordinary shares.
The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Net income attributable to CRIC
|
|
$
|
22,161,661
|
|
|
$
|
55,602,291
|
|
|
$
|
25,940,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding basic
|
|
|
71,522,222
|
|
|
|
86,610,265
|
|
|
|
143,288,987
|
|
Share options
|
|
|
|
|
|
|
1,654,036
|
|
|
|
2,904,059
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares
outstanding diluted
|
|
|
71,522,222
|
|
|
|
88,264,301
|
|
|
|
146,193,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.31
|
|
|
$
|
0.64
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.31
|
|
|
$
|
0.63
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
(x) Comprehensive income
Comprehensive income includes all changes in equity except those resulting from
investments by owners and distributions to owners. For the years presented, total
comprehensive income included net income and foreign currency translation adjustments.
(y) Recently issued accounting pronouncements
In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605)
Multiple- Deliverable Revenue Arrangements (previously EITF 08-1, Revenue Arrangements
with Multiple Deliverables). This ASU addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services (deliverables)
separately rather than as a combined unit. Specifically, this guidance amends the
criteria for separating consideration in multiple-deliverable arrangements. This
guidance establishes a selling price hierarchy for determining the selling price of a
deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) estimates. This guidance also eliminates the residual method of
allocation and requires that arrangement consideration be allocated at the inception of
the arrangement to all deliverables using the relative selling price method. In
addition, this guidance significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. This accounting standard will be effective
prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. Early adoption is permitted. The Group does
not believe the application of this ASU will have a material effect on its consolidated
financial statements.
In December 2010, the FASB issued ASU 2010-28, Intangibles Goodwill and Others
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units
with Zero or Negative Carrying Amounts. This ASU specifies that an entity with
reporting units that have carrying amounts that are zero or negative is required to
assess whether it is more likely than not that the reporting units goodwill is
impaired. If the entity determines that it is more likely than not that the
goodwill of one or more of its reporting units is impaired, the entity should
perform Step 2 of the goodwill impairment test for those reporting unit(s). Any
resulting goodwill impairment should be recorded as a cumulative-effect adjustment to
beginning retained earnings in the period of adoption. Any goodwill impairments
occurring after the initial adoption of the revised guidance should be included in
earnings as required by Section 350-20-35. The revised guidance is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2010. Early
adoption is not permitted. The Group does not believe the application of this ASU will
have an effect on its consolidated financial statements.
F-16
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805):
Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU
addresses that if a public entity presents comparative financial statements, the entity
should disclose revenue and earnings of the combined entity as though the business
combination(s) that occurred during the current year had occurred as of the beginning of
the comparable prior annual reporting period only. The revised guidance also expands the
supplemental pro forma disclosures to include a description of the nature and amount of
material, nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. The revised
guidance is effective prospectively for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2010. The Group will apply the revised disclosure provisions in the
notes to its consolidated financial statements prospectively, as applicable. The
application of this ASU will not have an effect on the Groups consolidated financial
statements.
3. Investment in Affiliates
On February 24, 2008, the Group entered into a joint venture agreement with SINA to
form COHT, which operates a real estate Internet business in China that provides online
advertising, information and updates related to the real estate and home furnishing
industries in China. The Group contributed $2.5 million in cash and a 10-year license to
its proprietary CRIC database and SINA contributed $2.5 million in cash and the right to
its real estate and home decoration channel operations for a period of 10 years. Upon
COHTs formation, the Group and SINA held a 34% and 66% interest in COHT, respectively.
The Group recorded an initial investment cost of $4,908,694, including $2.5 million cash
contribution, $2,400,951 in the portion of the fair value of the 10-year license to its
proprietary CRIC database ascribed to SINA, proportional to its 66% interest, and $7,743
in transaction cost. The Group recorded deferred revenue of $2,400,951, which was
recognized as revenue over the ten-year term of the contributed CRIC database license
given the Groups ongoing obligation to continually maintain and update the content
contained within the CRIC database. Deferred revenue was classified as current or
non-current depending on when the revenue was expected to be recognized.
This transaction was accounted for using the equity method with the purchase price
of COHT allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
Allocated
|
|
|
Amortization
|
|
|
|
Value
|
|
|
Period
|
|
|
|
$
|
|
|
|
|
Cash acquired
|
|
|
1,700,000
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
Advertising rights
|
|
|
2,894,775
|
|
|
10 years
|
|
Customer contract backlog
|
|
|
313,919
|
|
|
6 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,908,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The initial purchase price resulted in negative goodwill of $325,395, which
has been reflected above as a reduction in the recorded amount of intangible assets
acquired.
In October 2009, the Company acquired SINAs 66% equity interest in COHT,
increasing its interest from 34% to 100%
(Note 4).
In August 2010, the Group entered into a cooperation agreement with China Real
Estate Research Association (CRERA) and China Real Estate Association (CREA) to form
a joint venture, Beijing China Real Estate Research Association Technology Ltd
(CRERAT), which has the exclusive rights to host exhibition and activities sponsored
by CRERA or CREA. The new entity also provides other real estate related research
reports and consulting services. CRIC paid $4,669,376 for a 51% equity interest in the
joint venture. CRERA and CREA, collectively own the remaining 49%. The Group does not
control the board of CRERAT, who has the power to direct the entitys significant
operating activities. Therefore, the transaction was accounted for using the equity
method. Under the cooperation agreement, the Group has guaranteed profits of up to
$18,119,520 to CRERA and CREA over the eight year term of the joint venture. The Groups
maximum exposure to loss as a result of its involvement with the joint venture amounted
to $22,788,896, which includes the initial investment in the joint venture and the
potential future contingency related to the profit guarantee. The Group believes that
the likelihood that it will be required to provide payments under the profit guarantee
is remote.
4. Acquisitions of Subsidiaries
In October 2009, the Company acquired SINAs 66% equity interest in COHT,
increasing its interest from 34% to 100%, in exchange for 47,666,667 of the Companys
ordinary shares. The Company acquired COHT in an effort to create substantial synergies
between its current operations and COHTs real estate business by, among other things,
providing its real estate developer clients with access to SINAs large Internet user
base and leveraging its established relationships with real estate developers to attract
more advertising clients for COHTs real estate websites.
F-17
The following table summarizes the purchase consideration to acquire COHT:
|
|
|
|
|
|
|
Amount
|
|
|
|
$
|
|
Fair value of Companys shares issued *
|
|
|
572,000,004
|
|
Replacement of COHTs share options (Note 10)
|
|
|
14,960,796
|
|
|
|
|
|
|
|
|
|
|
Consideration
|
|
|
586,960,800
|
|
Fair value of the Companys investment in COHT held before the business combination **
|
|
|
27,078,000
|
|
|
|
|
|
|
|
|
|
|
Total value to be allocated in purchase accounting
|
|
|
614,038,800
|
|
|
|
|
|
|
|
|
|
*
|
|
The fair value of the 47,666,667 ordinary shares issued by the
Company was based on the IPO offering price of the Companys
American depositary shares (ADS).
|
|
**
|
|
As a result of the Company obtaining control over COHT, the
Companys previously held equity interest was remeasured to fair
value of $27,078,000, with the excess of fair value over the
carrying amount recognized as a gain of $21,453,221.
|
The purchase price has been allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
Allocated
|
|
|
Amortization
|
|
|
|
Value
|
|
|
Period
|
|
|
|
$
|
|
|
|
|
Total tangible assets acquired
|
|
|
26,703,269
|
|
|
|
|
|
Liabilities assumed
|
|
|
(17,432,772
|
)
|
|
|
|
|
Intangible assets acquired:
|
|
|
|
|
|
|
|
|
License agreements with SINA
|
|
|
80,660,000
|
|
|
10 years
|
|
Real estate advertising agency agreement with SINA
|
|
|
106,790,000
|
|
|
10 years
|
|
CRIC database license agreement
|
|
|
8,300,000
|
|
|
9 years
|
|
Customer relationship
|
|
|
5,580,000
|
|
|
10 years
|
|
Customer contract backlog
|
|
|
110,000
|
|
|
1 year
|
|
Goodwill
|
|
|
444,885,665
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(41,557,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
614,038,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The acquisition was accounted for as a purchase transaction, and accordingly,
the assets and liabilities of the acquired entity were recorded at their estimated fair
values at the date of acquisition. The primary items that generated the goodwill were
the value of the synergies between COHT and the Company and the acquired assembled
workforce, neither of which qualified as an amortizable intangible asset. The Goodwill
was assigned to a new segment created as a result of this acquisition, online real
estate advertising services segment. The goodwill is not deductible for tax purposes.
The fair value of the assets acquired includes accounts receivable of $13,177,212.
The gross amount due under contracts is $15,617,292, of which $2,440,080 is expected to
be uncollectible. The Company did not acquire any other class of receivable as a result
of this acquisition.
Prior to the acquisition of COHT, CRIC had a pre-existing relationship with COHT in
the form of an ongoing obligation to maintain and update the CRIC database, which was
contributed to COHT through a 10-year license. CRIC had recorded deferred revenue of
$2,400,951 at the date of COHTs inception in 2008. Upon completion of its acquisition
of COHT in October 2009, the Company recorded a $2,100,832 gain on settlement of this
pre-existing relationship that equals the remaining unamortized deferred revenue.
In April 2009, the Group acquired Portal Overseas Limited (Portal Overseas), a
company incorporated in the British Virgin Islands, for $7,193,030. Portal Overseas was
a development stage company that had acquired a 20-year lease for an office building in
Shanghai and was developing such building for subsequent sub-lease. The Group acquired
Portal Overseas to obtain the lease of the office building, which the Group uses as its
corporate office. The purchase price was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
Allocated
|
|
|
Amortization
|
|
|
|
Value
|
|
|
Period
|
|
|
|
$
|
|
|
|
|
Cash
|
|
|
1,265,772
|
|
|
|
|
|
Other current assets
|
|
|
1,463,529
|
|
|
|
|
|
Liabilities assumed
|
|
|
(4,390,507
|
)
|
|
|
|
|
Leasehold improvements
|
|
|
2,077,479
|
|
|
5-20 years
|
|
Prepaid rent
|
|
|
4,348,647
|
|
|
20 years
|
|
Favorable lease term
|
|
|
2,428,110
|
|
|
20 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,193,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
To expand its real estate consulting and real estate advertising services, the
Group completed the following two acquisitions in 2008:
In September 2008, the Group acquired a 60% equity interest in Wushi Consolidated
(Beijing) Advertising Media Co., Ltd. for $2,678,728. The transaction was accounted for
using the purchase method with the purchase price allocated as follows:
|
|
|
|
|
|
|
|
|
Allocated
|
|
|
Amortization
|
|
|
Value
|
|
|
Period
|
|
|
$
|
|
|
|
Cash acquired
|
|
|
1,759,969
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
Customer advertising designing contracts
|
|
|
81,438
|
|
|
3 months
|
Non-compete agreements
|
|
|
191,424
|
|
|
5 years
|
Goodwill
|
|
|
666,257
|
|
|
|
Deferred tax liabilities
|
|
|
(20,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,678,728
|
|
|
|
|
|
|
|
|
|
The goodwill was allocated to other services segment. Goodwill is not
deductible for tax purposes.
In October, 2008, the Group purchased a 100% interest in Guangzhou Integrated
Residential Building Industry Facility Co., Ltd. for $4,451,118. The transaction was
accounted for using the purchase method, with the purchase price allocated as follows:
|
|
|
|
|
|
|
|
|
Allocated
|
|
|
Amortization
|
|
|
Value
|
|
|
Period
|
|
|
$
|
|
|
|
Tangible assets acquired
|
|
|
1,217,304
|
|
|
|
Liabilities assumed
|
|
|
(1,434,594
|
)
|
|
|
Intangible assetsNon-compete agreements
|
|
|
1,420,688
|
|
|
5 years
|
Goodwill
|
|
|
3,602,892
|
|
|
|
Deferred tax liabilities
|
|
|
(355,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,451,118
|
|
|
|
|
|
|
|
|
|
The goodwill was allocated to the real estate information and consulting services
segment. Goodwill is not deductible for tax purposes.
5. Property and Equipment, Net
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
Leasehold improvements
|
|
|
4,020,790
|
|
|
|
5,097,636
|
|
Furniture, fixtures and equipment
|
|
|
5,215,145
|
|
|
|
9,868,278
|
|
Motor vehicles
|
|
|
353,492
|
|
|
|
997,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,589,427
|
|
|
|
15,963,687
|
|
Less: Accumulated depreciation
|
|
|
(2,166,844
|
)
|
|
|
(4,786,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
7,422,583
|
|
|
|
11,177,160
|
|
|
|
|
|
|
|
|
Depreciation expense was $274,644, $1,246,567 and $2,473,490 for the years ended
December 31, 2008, 2009 and 2010, respectively.
6. Intangible Assets, Net
Intangible assets subject to amortization are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
License agreements with SINA
|
|
|
80,660,000
|
|
|
|
80,660,000
|
|
Real estate advertising agency agreement with SINA
|
|
|
106,790,000
|
|
|
|
106,790,000
|
|
CRIC database license agreement
|
|
|
8,300,000
|
|
|
|
8,300,000
|
|
Favorable lease term
|
|
|
2,428,110
|
|
|
|
2,428,110
|
|
Customer relationship
|
|
|
5,788,603
|
|
|
|
7,443,088
|
|
Customer contract backlog
|
|
|
110,000
|
|
|
|
|
|
Non-compete agreements
|
|
|
1,612,112
|
|
|
|
2,074,417
|
|
Computer software licenses
|
|
|
1,207,744
|
|
|
|
1,352,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,896,569
|
|
|
|
209,048,076
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
|
|
|
|
|
|
License agreements with SINA
|
|
|
(2,016,500
|
)
|
|
|
(10,082,500
|
)
|
Real estate advertising agency agreement with SINA
|
|
|
(2,617,402
|
)
|
|
|
(13,087,008
|
)
|
CRIC database license agreement
|
|
|
(244,118
|
)
|
|
|
(1,220,589
|
)
|
Favorable lease term
|
|
|
(91,054
|
)
|
|
|
(212,460
|
)
|
Customer relationship
|
|
|
(40,622
|
)
|
|
|
(541,013
|
)
|
Customer contract backlog
|
|
|
(110,000
|
)
|
|
|
|
|
Non-compete agreements
|
|
|
(388,634
|
)
|
|
|
(768,887
|
)
|
Computer software licenses
|
|
|
(249,348
|
)
|
|
|
(513,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,757,678
|
)
|
|
|
(26,425,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization, net
|
|
|
201,138,891
|
|
|
|
182,622,246
|
|
|
|
|
|
|
|
|
F-19
Amortization expense was $165,969, $5,497,553 and $20,778,153 for the years ended
December 31, 2008, 2009 and 2010, respectively. The Group expects to record amortization
expense of $21,360,550, $21,008,185, $21,297,246, $20,767,186 and $20,514,450 for the
years ending December 31, 2011, 2012, 2013, 2014 and 2015, respectively.
7. Goodwill
Changes in the carrying amount of goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
Online
|
|
|
Other
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance as of January 1, 2009
|
|
|
3,602,892
|
|
|
|
|
|
|
|
666,257
|
|
|
|
4,269,149
|
|
Goodwill recognized upon acquisition
|
|
|
747,897
|
|
|
|
444,885,665
|
|
|
|
|
|
|
|
445,633,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
4,350,789
|
|
|
|
444,885,665
|
|
|
|
666,257
|
|
|
|
449,902,711
|
|
Goodwill recognized upon acquisition
|
|
|
|
|
|
|
396,736
|
|
|
|
|
|
|
|
396,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
4,350,789
|
|
|
|
445,282,401
|
|
|
|
666,257
|
|
|
|
450,299,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Other Income (Expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Government subsidies
|
|
|
|
|
|
|
2,426,546
|
|
|
|
2,143,869
|
|
Reimbursement income from depository agent
|
|
|
|
|
|
|
86,250
|
|
|
|
215,441
|
|
Gain from sales of properties held for sale
|
|
|
|
|
|
|
52,303
|
|
|
|
1,063,322
|
|
Gain from bargain purchase
|
|
|
|
|
|
|
|
|
|
|
392,524
|
|
Foreign exchange gain (loss)
|
|
|
(1,341,165
|
)
|
|
|
159,933
|
|
|
|
(641,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(1,341,165
|
)
|
|
|
2,725,032
|
|
|
|
3,174,113
|
|
|
|
|
|
|
|
|
|
|
|
F-20
9. Income Tax
The provision for income taxes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Current Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
|
3,976,671
|
|
|
|
9,172,473
|
|
|
|
5,879,728
|
|
Other
|
|
|
848,852
|
|
|
|
2,655
|
|
|
|
2,316,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,825,523
|
|
|
|
9,175,128
|
|
|
|
8,196,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
|
(104,508
|
)
|
|
|
(2,868,515
|
)
|
|
|
(5,405,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
4,721,015
|
|
|
|
6,306,613
|
|
|
|
2,791,497
|
|
|
|
|
|
|
|
|
|
|
|
Cayman Islands and British Virgin Islands
Under the current laws of the Cayman Islands and the British Virgin Islands, the
Company and CRIC BVI are not subject to tax on their respective income or capital gains.
In addition, the Cayman Islands and the British Virgin Islands do not impose withholding
tax on dividend payments.
Hong Kong
The Companys subsidiaries in Hong Kong is subject to a profit tax at the rate of
16.5%, 16.5% and 16.5% on assessable profit determined under relevant Hong Kong tax
regulations for 2008, 2009 and 2010, respectively.
PRC
On January 1, 2008, a new Enterprise Income Tax Law in China took effect. The new
law applies a uniform 25% enterprise income tax rate to both foreign invested
enterprises and domestic enterprises.
Shanghai CRIC was approved as a high and new technology enterprise and is therefore
subject to a 15% preferential income tax rate for the years from 2008 through 2010. In
May 2010, Shanghai CRIC was granted software enterprise status, which exempted it from
income taxes for 2009 and provided a 50% reduction in its income tax rate from 2010
through 2012. Shanghai CRIC received a $4,286,591 tax refund in the second quarter of
2010 related to its 2009 tax payment, which was recognized as a component of income tax
benefit during 2010.
In February 2009, Shanghai SINA Leju Information Technology Co., Ltd. (SHLJ),
COHTs subsidiary in China, was granted software enterprise status, which qualifies the
subsidiary to be exempted from income taxes for 2009, followed by a 50% reduction in
income tax rate from 2010 through 2012.
Note: The aggregate amount and per share effect of the tax holiday are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
The aggregate dollar effect
|
|
|
|
|
|
|
1,433,584
|
|
|
|
8,006,036
|
|
Per share effectbasic
|
|
|
|
|
|
|
0.02
|
|
|
|
0.06
|
|
Per share effectdiluted
|
|
|
|
|
|
|
0.02
|
|
|
|
0.05
|
|
The Group has made its assessment of the level of tax authority for each tax
position (including the potential application of interest and penalties) based on the
technical merits, and has measured the unrecognized tax benefits associated with the tax
positions. The Group had no material uncertain tax positions as of December 31, 2009 or
2010 or material unrecognized tax benefit which would favorably affect the effective
income tax rate in future periods. The Group classifies interest and penalties related
to income tax matters in income tax expense. As of December 31, 2010, the amount of
interest and penalties related to uncertain tax positions was immaterial.
The Group does not anticipate any significant increases or decreases to its
liability for unrecognized tax benefits within the next 12 months.
According to the PRC Tax Administration and Collection Law, the statute of
limitations is three years if the underpayment of taxes is due to computational errors
made by the taxpayer. The statute of limitations will be extended to five years under
special circumstances, which are not clearly defined, but an underpayment of tax
liability exceeding RMB100,000 (approximately $15,100 under the current exchange rate)
is specifically listed as a special circumstance. In the case of a transfer pricing
related adjustment, the statute of limitations is ten years. There is no statute of
limitations in the case of tax evasion. The Groups major operating entity, CRIC
Shanghai, is therefore subject to examination by the PRC tax authorities from inception
through 2010 on both transfer pricing and non-transfer pricing matters.
F-21
The principal components of the deferred income tax asset and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued salary expenses
|
|
|
782,048
|
|
|
|
2,022,840
|
|
Bad debt provision
|
|
|
1,576,713
|
|
|
|
1,204,525
|
|
Net operating loss carryforwards
|
|
|
808,325
|
|
|
|
2,310,837
|
|
Others
|
|
|
44,553
|
|
|
|
629,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross and net deferred tax assets
|
|
|
3,211,639
|
|
|
|
6,167,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis as:
|
|
|
|
|
|
|
|
|
Current
|
|
|
3,046,040
|
|
|
|
4,738,649
|
|
Non-current
|
|
|
165,599
|
|
|
|
1,428,862
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Amortization of intangible and other assets
|
|
|
42,031,640
|
|
|
|
39,969,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
42,031,640
|
|
|
|
39,969,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis as:
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
42,031,640
|
|
|
|
39,969,421
|
|
Reconciliation between the provision for income tax computed by applying the
statutory tax rate to income before income taxes and the actual provision for income
taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
PRC income tax rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
Expenses not deductible for tax purposes
|
|
|
3.40
|
%
|
|
|
4.86
|
%
|
|
|
13.52
|
%
|
Effect of tax preference
|
|
|
(9.04
|
)%
|
|
|
(12.79
|
)%
|
|
|
(12.84
|
)%
|
Effect of different tax rate of subsidiary operations in other jurisdiction
|
|
|
(1.59
|
)%
|
|
|
(0.53
|
)%
|
|
|
(1.48
|
)%
|
Tax refund
|
|
|
|
|
|
|
|
|
|
|
(14.80
|
)%
|
Other
|
|
|
|
|
|
|
(0.73
|
)%
|
|
|
0.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.77
|
%
|
|
|
15.81
|
%
|
|
|
9.64
|
%
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Group had net operating loss carryforwards of
$9,243,347, which will expire if not used between 2013 and 2015.
Undistributed earnings of the Companys PRC subsidiaries of approximately
$97.4 million at December 31, 2010 are considered to be indefinitely reinvested and,
accordingly, no provision for PRC dividend withholding tax has been provided thereon.
Upon distribution of those earnings generated after January 1, 2008, in the form of
dividends or otherwise, the Group would be subject to the then applicable PRC tax laws
and regulations. For distribution of those earnings generated before January 1, 2008,
the distributions are exempt from PRC withholding tax.
10. Share-Based Compensation
E-House Holdings Share Incentive Plan (the E-House Plan)
During the year ended December 31, 2006, E-House Holdings adopted the E-House Plan,
which allows E-House Holdings to offer a variety of share-based incentive awards to
employees, officers, directors and individual consultants who render services to
E-House. Under the plan, E-House Holdings authorized 3,636,364 ordinary shares or 5% of
the then total shares outstanding of E-House Holdings, to grant as
options or restricted
shares over a three-year period. In October 2010, E-House Holdings authorized 4,013,619
ordinary shares to be added to the award pool on the third anniversary of July 16, 2007,
i.e., July 16, 2010, so that the total number of shares reserved for future issuance
under the E-House Plan equal 5% of the total number of outstanding shares of E-house
Holdings as of July 16, 2010. Options have a ten-year life. Share options granted under
the E-House Plan can be settled by the employee either by cash or net settled by shares.
E-House allocated $1,253,890, $1,068,397 and $641,956 of share-based compensation
expense under the E-House Plan to CRIC for the three years presented (Note 1).
The Companys Share Incentive Plan (the CRIC Plan)
On September 9, 2008, the Company adopted the CRIC Plan to provide additional
incentives to employees, directors and consultants who render services to CRIC. Under
the CRIC Plan, the maximum number of shares that may be issued shall be 15% of the total
outstanding shares of the Company on an as-converted basis assuming all options
outstanding were converted into shares as of the effective date of the CRIC Plan, plus
an additional number of shares to be added on each of the third, sixth and ninth
anniversary of the effective date of the CRIC Plan.
F-22
Share Options:
During 2009, the Company granted 7,591,500 and 1,100,500 options to purchase its
ordinary shares to certain of the Groups employees and E-Houses employees,
respectively, at an exercise price from $3.00 to $8.00 per share pursuant to the CRIC
plan. The options expire ten years from the date of grant and vest ratably at each grant
date anniversary over a period of one to four years.
The Company used the binomial model to estimate the fair value of the options
granted under the CRIC Plan, using the following assumptions:
|
|
|
|
|
|
|
2009
|
|
Average risk-free rate of return
|
|
|
3.22
|
%
|
Contractual life of option
|
|
10 years
|
|
Average estimated volatility rate
|
|
|
71.79
|
%
|
Average dividend yield
|
|
|
0.00
|
%
|
On July 15, 2009, the Company modified the number and vesting schedule of 756,000
options previously granted on January 1, 2009. The modification decreased the number of
options to 251,500 and reduced the vesting period from four years to one to two years.
The modification did not result in any incremental compensation expense.
On July 30, 2009, the Company granted 300,000 restricted shares to an E-House
employee to replace the same number of options previously granted under the CRIC Plan.
The purchase price of the restricted shares is $3.00 per share for 250,000 shares and
$6.00 per share for 50,000 shares, which was the exercise price of the options that were
replaced. The vesting and other requirements imposed on the restricted shares were also
the same as under the original option grant. The modification did not result in any
incremental compensation expense. Cash received from the purchase of the restricted
shares that remain unvested are recorded as an amount due to related party as of
December 31, 2009 and 2010. During 2010, 75,000 restricted shares were vested.
The weighted-average grant-date fair value of the options granted in 2009 was $3.72
per share. For the year ended December 31, 2009 and 2010, the Group recorded
compensation expense of $3,732,944 and $6,055,002 for the share options granted to the
Groups employees and recorded dividends to E-House of $1,023,329 and $2,529,353 for the
share options granted to E-Houses employees, respectively.
Replacement of the Companys Option for COHTs Option (Options Replacement Program)
Effective upon the Companys IPO and in connection with its acquisition of COHT
(Replacement Date), the Company exchanged 3,609,000 of its options (Replacement
Options) under the CRIC Plan for the same number of the options (Replaced Options)
that had been previously granted to certain employees of SINA and COHT under COHTs 2008
Share Incentive Plan (the 2008 COHT Plan), with other terms unchanged. The Company
capitalized $14,960,796 as part of the cost of acquiring COHT in regard to the Options
Replacement Program, which the Company computed as the fair value of the Replaced
Options on the Replacement Date multiplied by the ratio of pre-acquisition services to
the requisite service period of the Replaced Options, which is the same requisite
service period of the Replacement Options. The difference between the fair value of the
Replacement Options on the Replacement Date and the amount capitalized as part of the
cost of acquiring COHT of $27,720,433 will be recognized over the remaining requisite
service period of approximately 3.3 years.
The Company used the binomial model to estimate the fair value of both the Replaced
Options and Replacement Options using the following assumptions:
|
|
|
|
|
|
|
2009
|
|
Average risk-free rate of return
|
|
|
2.47
|
%
|
Contractual life of option
|
|
5.2 years
|
|
Average estimated volatility rate
|
|
|
63.18
|
%
|
Average dividend yield
|
|
|
0.00
|
%
|
The Replacement Date fair value of the Replaced Options and Replacement Options was
$10.64 and $11.44 per share, respectively. For the year ended December 31, 2009 and
2010, the Company recorded compensation expense of $2,219,581 and $8,679,164 associated
with the Replacement Options, respectively.
F-23
A summary of option activity under the CRIC Plan during the year ended December 31,
2010 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value of
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Options
|
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
Outstanding, as of January 1, 2010
|
|
|
11,342,000
|
|
|
|
3.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(752,183
|
)
|
|
|
2.07
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(153,788
|
)
|
|
|
3.06
|
|
|
|
|
|
|
|
|
|
Modified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, as of December 31, 2010
|
|
|
10,436,029
|
|
|
|
3.24
|
|
|
6.94 years
|
|
|
66,324,196
|
|
Vested and expected to vest as of
December 31, 2010
|
|
|
10,170,559
|
|
|
|
3.24
|
|
|
6.94 years
|
|
|
64,706,092
|
|
Exercisable as of December 31, 2010
|
|
|
3,176,323
|
|
|
|
2.82
|
|
|
6.38 years
|
|
|
21,533,694
|
|
The total intrinsic value of options exercised was nil, nil and $5,167,543 during
the year ended December 31, 2008, 2009 and 2010, respectively
As of December 31, 2010, there was $32,650,256 of total unrecognized compensation
expense related to unvested share options granted under the CRIC Plan. That cost is
expected to be recognized over a weighted-average period of 2.06 years.
Restricted Shares:
A summary of restricted shares activity under the CRIC Plan as of December 31, 2010
and changes for the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
No. of
|
|
|
Average
|
|
|
|
Restricted
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested as of January 1, 2010
|
|
|
300,000
|
|
|
|
2.59
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(75,000
|
)
|
|
|
2.59
|
|
Forfeited
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2010
|
|
|
225,000
|
|
|
|
2.59
|
|
The Company recorded a dividend to E-House of $148,056 and $180,322 for restricted
shares granted to the E-House employee for the year ended December 31, 2009 and 2010,
respectively.
The total fair value of restricted shares vested was nil, nil and $194,196 during
the year ended December 31, 2008, 2009 and 2010, respectively
As of December 31, 2010, there was $392,905 of total unrecognized compensation
expense related to restricted shares granted under the CRIC Plan. That cost is expected
to be recognized over a weighted-average period of 2.21 years.
11. Employee Benefit Plans
The Companys PRC subsidiaries are required by law to contribute a certain
percentages of applicable salaries for retirement benefit, medical insurance benefits,
housing funds, unemployment and other statutory benefits. The PRC government is directly
responsible for the payments of such benefits. The Group contributed $1,337,295,
$2,779,901 and $7,810,794 for the years ended December 31, 2008, 2009 and 2010,
respectively, for such benefits.
12. Distribution of Profits
Pursuant to laws applicable to entities incorporated in the PRC, the Companys
subsidiaries must make appropriation from after-tax profit to non-distributable reserve
funds. These reserve funds include one or more of the following: (i) a general reserve,
(ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to
certain cumulative limits, the general reserve fund requires annual appropriations of
10% of after-tax profit (as determined under accounting principles generally accepted in
the PRC at each year-end) until such cumulative appropriation reaches 50% of the
registered capital; the other fund appropriations are at the Groups discretion. These
reserve funds can only be used for specific purposes of enterprise expansion and staff
bonus and welfare and are not distributable as cash dividends. The amount of the reserve
fund for the Group as of December 31, 2009 and 2010 was $5,960,287 and $10,257,883,
respectively.
In addition, the share capital of the Companys PRC subsidiaries of $43,073,186 and
$60,273,186 as of December 31, 2009 and 2010, respectively, was considered restricted
due to restrictions on the distribution of share capital.
As a result of these PRC laws and regulations, the Companys PRC subsidiaries are
restricted in their ability to transfer a portion of their net assets, including general
reserve and registered capital, either in the form of dividends, loans or advances. Such
restricted portion amounted to $70,531,069 as of December 31, 2010.
13. Segment Information
The Group uses the management approach to determine operating segments. The
management approach considers the internal organization and reporting used by the
Groups chief operating decision maker (CODM) for making decisions, allocating
resources and assessing performance. The Groups CODM has been identified as the chief
executive officer, who reviews consolidated and segment results when making decisions
about allocating resources and assessing performance of the Group.
F-24
The Group has four operating segments: 1) real estate information and consulting
services, 2) real estate online services, 3) real estate advertising services and 4)
promotional events services. The real estate advertising services segment commenced in
2008. The real estate online services segment started as a result of the acquisition of
COHT in October 2009. The promotional events service segment started as a result of the
acquisition of a promotional events provider in 2010. In 2010, the real estate
advertising services segment and promotional events services segment did not meet the
significance threshold for separate disclosure and have been combined in the other services segment.
The Groups CODM reviews net revenue, cost of sales, operating expenses, income
from operations and net income for each operating segment and does not review balance
sheet information. Corporate expenses such as selling, general and administrative
expenses and interest income are not allocated among segments and are recorded as
non-allocated items.
The following table summarizes the selected revenue and expense information for
each operating segment for the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
Online
|
|
|
Other
|
|
|
|
|
|
|
|
2010
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
Non-Allocated
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues from external
customers
|
|
|
87,567,438
|
|
|
|
66,855,128
|
|
|
|
19,731,898
|
|
|
|
|
|
|
|
174,154,464
|
|
Cost of revenues
|
|
|
(3,016,516
|
)
|
|
|
(26,361,391
|
)
|
|
|
(11,631,654
|
)
|
|
|
|
|
|
|
(41,009,561
|
)
|
Selling, general and
administrative expenses
|
|
|
(35,270,399
|
)
|
|
|
(54,741,152
|
)
|
|
|
(8,218,179
|
)
|
|
|
(10,859,253
|
)
|
|
|
(109,088,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
|
|
49,280,523
|
|
|
|
(14,247,415
|
)
|
|
|
(117,935
|
)
|
|
|
(10,859,253
|
)
|
|
|
24,055,920
|
|
Interest income
|
|
|
1,156,337
|
|
|
|
286,154
|
|
|
|
109,521
|
|
|
|
174,568
|
|
|
|
1,726,580
|
|
Other income (loss), net
|
|
|
2,360,398
|
|
|
|
(22,831
|
)
|
|
|
733,717
|
|
|
|
102,829
|
|
|
|
3,174,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
taxes and equity in
affiliates
|
|
|
52,797,258
|
|
|
|
(13,984,092
|
)
|
|
|
725,303
|
|
|
|
(10,581,856
|
)
|
|
|
28,956,613
|
|
Income tax benefit
(expense)
|
|
|
(2,911,786
|
)
|
|
|
455,815
|
|
|
|
(335,526
|
)
|
|
|
|
|
|
|
(2,791,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
equity in affiliates
|
|
|
49,885,472
|
|
|
|
(13,528,277
|
)
|
|
|
389,777
|
|
|
|
(10,581,856
|
)
|
|
|
26,165,116
|
|
Income from equity in
affiliates
|
|
|
(271,300
|
)
|
|
|
(5,085
|
)
|
|
|
|
|
|
|
|
|
|
|
(276,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
49,614,172
|
|
|
|
(13,533,362
|
)
|
|
|
389,777
|
|
|
|
(10,581,856
|
)
|
|
|
25,888,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
Online
|
|
|
Other
|
|
|
|
|
|
|
|
2009
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
Non-Allocated
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues from
external customers
|
|
|
68,045,340
|
|
|
|
13,829,937
|
|
|
|
13,778,533
|
|
|
|
|
|
|
|
95,653,810
|
|
Cost of revenues
|
|
|
(1,865,697
|
)
|
|
|
(4,930,280
|
)
|
|
|
(6,014,185
|
)
|
|
|
|
|
|
|
(12,810,162
|
)
|
Selling, general
and administrative
expenses
|
|
|
(22,723,019
|
)
|
|
|
(11,359,944
|
)
|
|
|
(5,690,497
|
)
|
|
|
(8,275,069
|
)
|
|
|
(48,048,529
|
)
|
Gain from
settlement of
pre-existing
relationship
|
|
|
2,100,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
|
|
45,557,456
|
|
|
|
(2,460,287
|
)
|
|
|
2,073,851
|
|
|
|
(8,275,069
|
)
|
|
|
36,895,951
|
|
Interest income
|
|
|
166,521
|
|
|
|
23,722
|
|
|
|
27,635
|
|
|
|
61,201
|
|
|
|
279,079
|
|
Other income, net
|
|
|
2,481,451
|
|
|
|
5,814
|
|
|
|
|
|
|
|
237,767
|
|
|
|
2,725,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes and
equity in
affiliates
|
|
|
48,205,428
|
|
|
|
(2,430,751
|
)
|
|
|
2,101,486
|
|
|
|
(7,976,101
|
)
|
|
|
39,900,062
|
|
Income tax benefit
(expense)
|
|
|
(6,710,032
|
)
|
|
|
957,085
|
|
|
|
(553,666
|
)
|
|
|
|
|
|
|
(6,306,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before equity in
affiliates
|
|
|
41,495,396
|
|
|
|
(1,473,666
|
)
|
|
|
1,547,820
|
|
|
|
(7,976,101
|
)
|
|
|
33,593,449
|
|
Income from equity
in affiliates
|
|
|
|
|
|
|
22,015,607
|
|
|
|
|
|
|
|
|
|
|
|
22,015,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
41,495,396
|
|
|
|
20,541,941
|
|
|
|
1,547,820
|
|
|
|
(7,976,101
|
)
|
|
|
55,609,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
and Consulting
|
|
|
Other
|
|
|
|
|
|
|
|
2008
|
|
Services
|
|
|
Services
|
|
|
Non-Allocated
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues from external customers
|
|
|
49,116,061
|
|
|
|
932,469
|
|
|
|
|
|
|
|
50,048,530
|
|
Cost of revenues
|
|
|
(2,855,398
|
)
|
|
|
(41,849
|
)
|
|
|
|
|
|
|
(2,897,247
|
)
|
Selling, general and
administrative expenses
|
|
|
(13,776,504
|
)
|
|
|
(1,865,669
|
)
|
|
|
(4,177,700
|
)
|
|
|
(19,819,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
32,484,159
|
|
|
|
(975,049
|
)
|
|
|
(4,177,700
|
)
|
|
|
27,331,410
|
|
Interest income
|
|
|
415,512
|
|
|
|
3,779
|
|
|
|
1,226
|
|
|
|
420,517
|
|
Foreign exchange loss
|
|
|
(1,323,858
|
)
|
|
|
|
|
|
|
(17,307
|
)
|
|
|
(1,341,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and
equity in affiliates
|
|
|
31,575,813
|
|
|
|
(971,270
|
)
|
|
|
(4,193,781
|
)
|
|
|
26,410,762
|
|
Income tax benefit (expense)
|
|
|
(4,917,503
|
)
|
|
|
196,488
|
|
|
|
|
|
|
|
(4,721,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
affiliates
|
|
|
26,658,310
|
|
|
|
(774,782
|
)
|
|
|
(4,193,781
|
)
|
|
|
21,689,747
|
|
Income from equity in affiliates
|
|
|
|
|
|
|
|
|
|
|
153,700
|
|
|
|
153,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
26,658,310
|
|
|
|
(774,782
|
)
|
|
|
(4,040,081
|
)
|
|
|
21,843,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Substantially all of the Groups revenues from external customers and long-lived
assets are located in the PRC.
Major customers
Details of the revenues for customers accounting for 10% or more of total revenues
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Customer A
|
|
|
28,321,400
|
|
|
|
28,374,431
|
|
|
|
23,715,171
|
|
Customer B
|
|
|
*
|
|
|
|
10,846,980
|
|
|
|
*
|
|
Customer C
|
|
|
7,788,385
|
|
|
|
*
|
|
|
|
*
|
|
Customer D
|
|
|
5,144,560
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
*
|
|
indicates the revenue from these customers was less than 10% in the stated periods.
|
Details of the accounts receivable from customers accounting for 10% or more of
total accounts receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
Customer B
|
|
|
6,150,942
|
|
|
|
*
|
|
Customer E
|
|
|
4,210,564
|
|
|
|
12,701,252
|
|
Customer F
|
|
|
5,179,182
|
|
|
|
*
|
|
Customer G
|
|
|
3,368,519
|
|
|
|
*
|
|
Customer I
|
|
|
*
|
|
|
|
7,337,703
|
|
|
|
|
*
|
|
indicates the accounts receivable from the customer was less than 10% as of the stated year end.
|
F-26
14. Related Party Balances and Transactions
The table below sets forth major related parties and their relationships with the
Group:
|
|
|
Company Name
|
|
Relationship with the Group
|
E-House
|
|
Under common control of E-House Holdings
|
|
|
|
E-House China Real Estate
Investment Fund I, L.P.
(the Fund)
|
|
Partially owned by Mr. Xin Zhou, co-chairman
of CRIC and executive chairman of E-House
|
|
|
|
SINA
|
|
Mr. Charles Chao, co-chairman of CRIC and
director and chief executive officer of SINA
(related party since October 16, 2009)
|
These consolidated financial statements include transactions with E-House and its
subsidiaries. Furthermore, E-House provided certain corporate services for the
consolidated financial statement periods presented. During the year ended December 31,
2008, E-House waived net receivables from the Group of $2,591,770, which the Group
recorded as a capital contribution. During the years ended December 31, 2009 and 2010,
the Group waived net receivables from E-House and its consolidated subsidiaries of
$997,000 and $60,044, respectively, and recorded such amounts as distributions to
E-House in equity.
During the years ended December 31, 2008 and 2009, E-House loaned $8,400,000 and
$2,499,977, respectively, to fund capital injections into CRICs PRC subsidiaries. Such
amounts have been waived by E-House and have been reflected as capital contributions as
of the date such loans were originally made.
During the years ended December 31, 2008, 2009 and 2010, significant related party
transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Corporate selling, general and administrative expenses
allocated from E-House (Note 1)
|
|
|
3,516,284
|
|
|
|
2,477,446
|
|
|
|
|
|
Corporate service provided by E-House under
onshore/offshore transitional service agreement (Note
1)
|
|
|
|
|
|
|
583,650
|
|
|
|
1,522,497
|
|
Online advertising agency fee paid to SINA
|
|
|
|
|
|
|
852,153
|
|
|
|
2,545,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Information and consulting services provided to E-House
|
|
|
|
|
|
|
6,338,045
|
|
|
|
16,157,318
|
|
Online advertising services provided to E-House
|
|
|
|
|
|
|
|
|
|
|
50,457
|
|
Advertising and promotional events services provided
to E-House
|
|
|
169,928
|
|
|
|
2,378,823
|
|
|
|
1,828,127
|
|
Other services provided to SINA
|
|
|
|
|
|
|
|
|
|
|
1,824,458
|
|
|
|
|
|
|
|
|
|
|
|
Related party revenues subtotal*
|
|
|
169,928
|
|
|
|
8,716,868
|
|
|
|
19,860,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
related party revenues include sales related taxes of $9,346, $447,738 and
$1,014,909 for the years ended December 31, 2008, 2009 and 2010, respectively.
|
The transactions are measured at the amount of consideration established and agreed
to by the related parties, which approximate amounts charged to third parties.
In connection with the Companys acquisition of SINAs interest in COHT, COHT and
SINA have entered into a new advertising agency agreement, which took effect upon the
closing of the transaction. Under the new advertising agency agreement, COHT will
continue to operate SINAs existing real estate and home furnishing channels and will
develop a new real estate-related channel on sina.com.cn, and will have the exclusive
right to sell advertising relating to real estate, home furnishing and construction
materials on these three channels as well as SINAs other websites. If COHT sells
advertising on SINAs websites other than the real estate and home furnishing channels,
it pays SINA a fee for the revenues generated from these sales.
Amounts due from related parties was $2,460,572 as of December 31, 2009, which
includes $1,025,157 due from the Fund, representing a deposit payment made on behalf of
the Fund, and $1,435,415 due from E-House for real estate
information and consulting services and advertising services. Amounts due from
related parties was $5,079,850 as of December 31, 2010, which represents amounts due
from E-House for real estate information and consulting services, online services and
other services provided.
F-27
As of December 31, 2009 and 2010, amounts due to related parties were comprised of
the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
E-House
|
|
|
147,962
|
|
|
|
25,294
|
|
SINA
|
|
|
6,102,606
|
|
|
|
1,971,920
|
|
E-House management
|
|
|
1,050,000
|
|
|
|
787,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,300,568
|
|
|
|
2,784,714
|
|
|
|
|
|
|
|
|
The amount due to E-House as of December 31, 2009 and 2010 reflects the expenses
paid on behalf of CRIC by E-House. The balance is interest free and payable on demand.
The amount due to SINA as of December 31, 2009 and 2010 represents online advertising
agency fees payable to SINA. The amount due to E-House management represents
consideration paid by management for unvested restricted shares.
The rollforward of the intercompany receivable balance with E-House for the years
ended December 31, 2009 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
|
|
|
|
|
1,435,415
|
|
Collection of loans granted to E-House
|
|
|
|
|
|
|
|
|
Loans received from E-House
|
|
|
(2,499,977
|
)
|
|
|
|
|
Corporate expenses allocated from E-House
|
|
|
(2,477,446
|
)
|
|
|
|
|
Group revenues, net of expenses, collected by E-House
|
|
|
3,474,446
|
|
|
|
|
|
Related party balance waivers
|
|
|
1,502,977
|
|
|
|
60,044
|
|
Services provided to E-House
|
|
|
8,716,868
|
|
|
|
18,035,902
|
|
Consulting services fee collected by E-House on behalf of CRIC
|
|
|
1,148,711
|
|
|
|
|
|
Transitional services fee charged from E-House
|
|
|
(583,650
|
)
|
|
|
(1,522,497
|
)
|
Payments received for services
|
|
|
(7,846,514
|
)
|
|
|
(12,929,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
|
1,435,415
|
|
|
|
5,079,850
|
|
|
|
|
|
|
|
|
15. Commitments and contingencies
a) Operating lease commitments
The Group has operating lease agreements principally for its office properties in
the PRC. Such leases have remaining terms ranging from six to 60 months and are
renewable upon negotiation. Rental expense was $833,976, $3,289,241 and $6,098,060 for
the years ended December 31, 2008, 2009 and 2010, respectively.
Future minimum lease payments under non-cancelable operating lease agreements at
December 31, 2010 were as follows:
|
|
|
|
|
Year Ending December 31
|
|
$
|
|
2011
|
|
|
4,689,150
|
|
2012
|
|
|
2,626,216
|
|
2013
|
|
|
1,579,594
|
|
2014
|
|
|
195,593
|
|
2015
|
|
|
105,118
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,195,671
|
|
|
|
|
|
b) Baidus web channels commitments
In August 2010, the Group entered into a cooperation agreement with a four-year term with Baidu
for the exclusive rights to build and operate Baidus web channels related to real
estate and home furnishing.
Future minimum payments under the non-cancelable agreements at December 31, 2010
were as follows:
|
|
|
|
|
Year Ending December 31
|
|
$
|
|
2011
|
|
|
7,549,800
|
|
2012
|
|
|
7,549,800
|
|
2013
|
|
|
7,549,800
|
|
|
|
|
|
Total
|
|
|
22,649,400
|
|
|
|
|
|
F-28
c) Contingencies
The Group is subject to claims and legal proceedings that arise in the ordinary
course of its business. Each of these matters is subject to various uncertainties, and
it is possible that some of these matters may be decided unfavorably to the Group. The
Group does not believe that any of these matters will have a material adverse effect on
its business, assets or operations.
16. Subsequent Events
In March 2011, the Group acquired Firmway Holdings Limited (Firmway), which holds a
20-year lease for a building in Shanghai, which the Group intends to use as its
corporate offices upon construction completion. The Group acquired Firmway for $12
million from the Fund.
In March 2011, the Company granted 2,782,000 options to purchase its ordinary
shares to certain of the Groups employees at an exercise price of $7.02 per share
pursuant to CRIC plan. The options expire ten years from the date of grant and vest
ratably at each grant date anniversary over a period of two to three years. The Company
expects to recognize $11.0 million in compensation expense ratably over the vesting
period.
In March 2011, the Company was authorized, but not obligated, by its board of
directors to repurchase up to $50 million of the Companys ADSs within one year.
F-29
China Real Estate Information Corp. ADS, Each Representing One Ordinary Share (MM) (NASDAQ:CRIC)
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