FORM 10-Q

For the quarterly period ended September 30, 2004

OR

For the transition period from            to

Commission File Number 000-30698

Room 1802, United Plaza
1468 Nan Jing Road West
Shanghai 200040, China
(86-21) 6289 5678

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

The number of shares outstanding of the registrant’s ordinary shares as of October 30, 2004 was 50,477,694.

SINA CORPORATION

INDEX

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PART I UNAUDITED FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SINA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SINA CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SINA CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

[Continued from above table, first column(s) repeated]

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SINA CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

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SINA CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(unaudited, in U.S. dollars, in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SINA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars, unaudited)

1. The Company and basis of presentation

     SINA CORPORATION (“SINA” or the “Company”), a Cayman Islands corporation, is a leading online media company and value-added information service provider in the People’s Republic of China (the “PRC” or “China”) and the global Chinese communities. With a branded network of localized web sites targeting Greater China and overseas Chinese, SINA provides services through five major business lines including SINA.com (online news and content), SINA Mobile (mobile value-added services), SINA Online (community-based services and games), SINA.net (search and enterprise services) and SINA E-Commerce (online shopping and travel). Together these provide an array of services including region-focused online portals, mobile value-added services, search and directory, interest-based and community-building channels, free and premium email, online games, virtual ISP, classified listings, fee-based services, e-commerce and enterprise e-solutions.

     The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.

     The accompanying unaudited condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary to a fair statement of the results for the interim periods presented. Results for the three and nine months ended September 30, 2004 are not necessarily indicative of results for the entire fiscal year ending December 31, 2004 or future periods. These financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

2. Recent accounting pronouncements

     In September 2004, the EITF Issue No. 04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” (“EITF 04-08”) was issued stating that contingently convertible debt should be included in diluted earnings per share computations regardless of whether the market price trigger has been met. This Issue is effective for reporting periods ending after December 15, 2004. As a result of adopting EITF 04-08, the Company will need to include the dilution effect of its outstanding contingent convertible debt in its diluted earnings per share calculations regardless of whether the market price trigger has been met going forward. In addition, this change will be applied retroactively to all prior periods. The retroactive application of EITF 04-08 will result in a reduction of $0.02 to the diluted earnings per share for the quarter ended September 30, 2004 and will have no impact to the diluted earnings per share for all other prior periods.

     In September 2004, the EITF delayed the effective date for the recognition and measurement guidance previously discussed under EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-01”) as included in paragraphs 10-20 of the proposed statement. The proposed statement will clarify the meaning of other-than-temporary impairment and its application to investments in debt and equity securities, in particular investments within the scope of FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and investments accounted for under the cost method. The Company is currently evaluating the effect of this proposed statement on its financial position and results of operations. If the proposed EITF 03-01 becomes effective and is adopted, the Company may have to record additional impairment charges for certain of its investments in marketable debt securities.

3. Variable interest entities

     The Company has adopted FASB Interpretation No. 46 (“FIN46”) “Consolidation of Variable Interest Entities (“VIEs”), an Interpretation of ARB No. 51”. FIN 46 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns. The Company

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conducts substantially all its Internet content provision, advertising and mobile value-added services in the PRC via its VIEs in order to comply with the PRC laws and regulations. As of September 30, 2004, the Company has nine VIEs and the aggregate accumulated losses of these VIEs were approximately $9.6 million and have been reflected in the consolidated financial statements.

4. Short-term investments

     The Company’s short-term investment in marketable debt securities is classified as available for sale securities. The Company invests in these securities with the intent to make such funds readily available for operating purposes and accordingly, classifies them as short-term investments. The aggregate fair value of marketable debt securities was $128.3 million as of September 30, 2004 and was $69.0 million as of December 31, 2003. During the three and nine months ended September 30, 2004, respectively, the Company recorded $1.7 million of unrealized gain and $0.4 million of unrealized loss, respectively, on its marketable debt securities as a component of comprehensive income. During the three and nine months ended September 30, 2003, respectively, the Company recorded $1.1 million and $1.4 million of unrealized loss on its marketable debt securities as a component of comprehensive income.

5. Acquisitions

     Bravado. In February, 2004, the Company completed the acquisition of Bravado Investments Limited, a British Virgin Islands limited liability corporation (“Bravado”), through a purchase of all of the outstanding shares of Bravado. As a result of such acquisition, Bravado became a wholly-owned subsidiary of SINA. Bravado, through its subsidiary in the PRC, is engaged in the business of providing online and offline hotel reservation services under the brand Fortune Trip in the PRC. The primary purpose of the acquisition was to enter the PRC online travel market.

     The aggregate purchase price is comprised of an initial consideration and a contingent consideration on achieving specified earnings in future periods. The initial consideration of $1,836,414 is comprised of two elements: (a) $1,812,251 in cash; and (b) approximately $24,163 in legal and professional fees related to the acquisition. The contingent consideration is based on Bravado’s financial performance in 2004. The contingent consideration will be $303,000 or $606,000 in cash, provided that Bravado achieves certain earnings targets for 2004.

     The initial purchase price of $1,836,414 was allocated as follows (in thousands):

     Amortizable intangible assets acquired, including hotel reservation contracts and non-competition arrangements with certain Bravado executives, have estimated useful lives ranging from twenty-eight to thirty-six months. The amortization expense for the three and nine months ended September 30, 2004 was $93,000 and $248,000, respectively. Goodwill of $824,000 represents the excess of the initial purchase price over the fair value of the net tangible and identifiable intangible assets acquired, and is not deductible for tax purposes. The contingent consideration, if any, will be recorded as additional goodwill. In accordance with SFAS 142, goodwill is not amortized but is subject to periodic impairment assessment. The Company assesses the carrying value of intangible assets and goodwill on an annual basis and when factors are present that indicate an impairment may have occurred. As of September 30, 2004, there was no impairment for the intangible assets and goodwill. Immediately after the closing of the acquisition, the operating results of Bravado were consolidated with those of the Company starting February 1, 2004.

     Crillion. In March, 2004, the Company completed the acquisition of Crillion Corporation, a British Virgin Islands limited liability corporation (“Crillion”), through a purchase of all of the outstanding shares of Crillion. As a result of such acquisition, Crillion became a wholly-owned subsidiary of SINA. Crillion, through its subsidiary and exclusive contractual arrangement with a local entity in the PRC, is engaged in the business of providing mobile value-added services in the PRC. The primary purposes of the acquisition were to enhance the Company’s mobile value-added services as well as increase its market share in the PRC mobile value-added services market.

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     The aggregate purchase price is comprised of an initial consideration and two contingent considerations on achieving specified earnings in future periods. The initial consideration of $18,958,486 is comprised of three elements: (a) $9,898,785 in cash; (b) 195,593 newly issued SINA ordinary shares, valued at $8,534,701 at the time of closing, delivered at the closing of the acquisition; and (c) approximately $525,000 in legal and professional fees related to the acquisition. The two contingent considerations are based on Crillion’s financial performances in 2004 and 2005. The contingent considerations would roughly be 1.5 to 2.0 times 2004 and 2005 earnings basis, respectively, provided that Crillion’s pretax net income for 2004 and 2005 is over $6.7 million and $13.3 million, respectively. The total consideration is subject to a cap of $125.0 million and will be 60% in cash and 40% in SINA ordinary shares.

     The initial purchase price of $18,958,486 was allocated as follows (in thousands):

     Amortizable intangible assets acquired, including customer list, content provider contracts and non-competition arrangements with certain Crillion executives, have estimated useful lives ranging from sixteen to thirty-six months. The amortization expense for the three and nine months ended September 30, 2004 was $0.6 million and $1.3 million, respectively. Goodwill of $9.9 million represents the excess of the initial purchase price over the fair value of the net tangible and identifiable intangible assets acquired, and is not deductible for tax purposes. The contingent consideration, if any, will be recorded as additional goodwill. In accordance with SFAS 142, goodwill is not amortized but is subject to periodic impairment assessment. The Company assesses the carrying value of intangible assets and goodwill on an annual basis and when factors are present that indicate an impairment may have occurred. During the nine months ended September 30, 2004, no factors were presented indicating an impairment may have occurred. The purchase price allocation for the Crillion acquisition is based on an appraisal performed by an independent appraisal firm in the United States. Immediately after the closing of the acquisition, the operating results of Crillion were consolidated with those of the Company starting March 25, 2004.

     Davidhill. On July 1, 2004, the Company entered into an agreement to acquire Davidhill Capital Inc., a British Virgin Islands limited liability corporation (“Davidhill”), and its UC instant messaging technology platform. The closing of the acquisition occurred on October 19, 2004, but the operating results of Davidhill have been consolidated with those of SINA starting July 1, 2004 when the Company took over the effective control of Davidhill. Launched in 2002, the UC instant messaging service allows users to communicate in real-time over the Internet and mobile phone networks, via text messages, images and voice. UC also provides community services such as chat rooms, online games, alumni clubs, online karaoke and other entertainment services. The primary purpose of the acquisition was to leverage UC instant messaging technology platform to SINA’s long-term web and wireless strategy.

     Davidhill owns the UC instant messaging technology platform and certain fixed assets (“the asset group”) via its wholly-owned subsidiary in the PRC. Davidhill and its subsidiary have not commenced generating any revenue from the UC instant messaging services. The Company acquired the asset group through a purchase of all of the outstanding shares of Davidhill. As a result of such acquisition, Davidhill became a wholly-owned subsidiary of SINA. The Company considered EITF 98-3 “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business” and concluded that the asset group constitutes a business. The Company therefore applies FAS141 “Business Combinations” to the acquisition of Davidhill.

     The aggregate purchase price is comprised of an initial consideration and a contingent consideration on achieving specified performances in future periods. The initial consideration of $15,250,000 is comprised of three elements: (a) $12,600,000 in cash; (b) 63,828 newly issued SINA ordinary shares, valued at $2,400,000 in accordance with the average of per share closing prices of SINA ordinary shares on the Nasdaq National Market during the thirty (30) calendar days immediately preceding July 1, 2004, delivered at the closing of the acquisition; and (b) approximately $250,000 in legal and professional fees related to the acquisition. The contingent consideration of the Davidhill acquisition are based on certain simultaneous online user targets being reached by Davidhill in the 15 months after the agreement date. The contingent consideration is subject to a cap of $21.0 million and will be 84% in cash and 16% in SINA ordinary shares.

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     The initial purchase price of $15,250,000 was allocated as follows (in thousands):

     Amortizable intangible assets acquired, including technology and non-competition arrangements with certain Davidhill executives, have estimated useful lives ranging from twenty-seven months to ten years. The amortization expense for the three months ended September 30, 2004 was $0.3 million. Goodwill of $4.3 million represents the excess of the initial purchase price over the fair value of the net tangible and identifiable intangible assets acquired, and is not deductible for tax purposes. The contingent consideration, if any, will be recorded as additional goodwill. In accordance with SFAS 142, goodwill is not amortized but is subject to periodic impairment assessment. The Company assesses the carrying value of intangible assets and goodwill on an annual basis and when factors are present that indicate an impairment may have occurred. During the three months ended September 30, 2004 after the acquisition, no factors were presented indicating an impairment may have occurred. The purchase price allocation for the Davidhill acquisition is based on an appraisal performed by an independent appraisal firm in the United States.

     The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisitions of Bravado, Crillion and Davidhill had occurred on January 1, 2003 (in thousands, except per share amounts):

     Since Davidhill had not commenced generating any revenue from its UC instant messaging services and had not incurred any significant operating costs and expenses, the inclusion of its operating results only had minimal impact to the above pro forma information.

6. Intangible assets

     The following table summarizes the intangible assets acquired from Bravado, Crillion and Davidhill:

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7. Investment in Sun Media Group

     The investment was accounted for as an investment in marketable equity securities under the provisions of SFAS 115 and was classified as available for sale and reported at fair value with unrealized gains (losses), if any, recorded as a component of comprehensive income (loss) included in shareholders’ equity. During the three months ended March 31, 2004, the Company sold $0.2 million of this investment and obtained a gain of $59,000. The realized gain was recorded as gain on investment in Sun Media Group for the three months ended March 31, 2004. At September 30, 2004, the fair market value of this investment was $4.0 million as compared to its carrying value of $6.6 million. The Company considered the decline in the value of this investment to be other than temporary and recognized $2.6 million as impairment of investment during the three months ended September 30, 2004. The fair market value of this investment was $3.7 million on October 29, 2004. The Company will continue to monitor the investment and if the fair value declines further, the Company may have to recognize additional impairment charges in future periods. The Company recorded $0.7 million and $8.5 million of unrealized loss on this investment, respectively, as a component of comprehensive income for the three and nine months ended September 30, 2003.

8. Income taxes

     The Company is registered in the Cayman Islands and has operations in four tax jurisdictions including the PRC, the United States of America, Hong Kong and Taiwan. The operations in Taiwan represent a branch office of the subsidiary in the United States. For operations in the United States of America, Hong Kong and Taiwan, the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future and hence the Company has not recorded income tax provisions or benefits for these locations as of September 30, 2004. The Company generated substantially all its net income from its PRC operations for the three and nine months ended September 30, 2004 and the Company has recorded income tax provisions for the three and nine months ended September 30, 2004.

     The components of income before income taxes are as follows:

     Pursuant to the PRC Income Tax Laws, the Company’s subsidiaries and VIEs are generally subject to Enterprise Income Taxes (“EIT”) at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax. Some of these subsidiaries and VIEs are qualified new technology enterprises and under PRC Income Tax Laws, they are subject to a preferential tax rate of 15%. In addition, some of the Company’s subsidiaries are Foreign Investment Enterprises and under PRC Income Tax Laws, they are entitled to either a three-year tax exemption followed by three years with a 50% reduction in the tax rate, commencing the first operating year, or a two-year tax exemption followed by three years with a 50% reduction in the tax rate, commencing the first profitable year.

     The provision for income taxes for the three and nine months ended September 30, 2004 and 2003 differs from the amount computed by applying the EIT primarily due to the tax holidays and preferential tax rate enjoyed by certain of the Company’s entities in the PRC. The increase in effective tax rate to approximately 3.8% and 4.4%, respectively, for both the three and nine months ended September 30, 2004 as compared to the same periods in 2003 was primarily due to the increase in net income generated from certain of the Company’s taxable entities.

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9. Earnings per share

     Basic earnings per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of ordinary share and ordinary share equivalents outstanding during the period.

     The following table sets forth the computation of basic and diluted earnings per share for the periods presented:

10. Stock-based compensation

     The Company’s stock-based compensation plans include three stock option plans (collectively the “Stock Plans”) and an Employee Stock Purchase Plan (the “Purchase Plan”). The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” as amended by FASB Interpretation No. (“FIN”) 44 and Emerging Issues Task Force (“EITF”) No. 00-23 and complies with the disclosure provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”. Under APB No. 25, as amended, compensation cost is, in general, recognized based on the difference, if any, on the date of grant between the fair value of the Company’s stock and the amount an employee must pay to acquire the stock. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for companies that voluntarily change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

     Stock Plans: Total compensation cost as determined at the grant date of an option is recorded in shareholders’ equity as additional paid-in capital with an offsetting entry recorded to deferred stock compensation. Deferred stock compensation is amortized over the vesting period of 4 years on an accelerated basis using the model presented in paragraph 24 of FIN 28. Accordingly, the percentages of the deferred compensation amortized in the first, second, third and fourth years following the option grant date are approximately 52%, 27%, 15% and 6%, respectively. Prior to the Company’s initial public offering, the fair value of each option grant was determined using the minimum value method. Options granted subsequent to the initial public offering have been valued using the

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Black-Scholes model considering the expected volatility of SINA’s stock price, determined in accordance with SFAS 123, in arriving at an option valuation. The minimum value method does not consider stock price volatility.

     Purchase Plan: The Purchase Plan is implemented by a series of overlapping periods of approximately 24 months’ duration, with new offering periods commencing on February 1 and August 1 of each year. The price at which stock is purchased under the Purchase Plan is equal to the lower of 85% of the fair market value of the ordinary shares at the beginning of each offering period or at the end of each purchase period.

     Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates or purchase dates for the awards under a method prescribed by SFAS No. 123, the Company’s earnings per share would have been adjusted to the pro forma amounts as follows:

11. Segment information

     Based on the criteria established by Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company currently operates in three principal business segments globally. The Company does not allocate any operating costs or assets to its advertising, mobile value-added services and other segments as management does not use this information to measure the performance of these operating segments. Management does not believe that allocating these expenses or assets is necessary in evaluating these segments’ performance.

     The following is a summary of revenues and cost of revenues:

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     The following is a summary of the Company’s geographic operation:

12. Concentration of credit risk and major customers

     Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable debt securities and accounts receivable. The Company limits its exposure to credit loss by depositing its cash and cash equivalents with financial institutions in the U.S., the PRC, Hong Kong and Taiwan which management believes are of high credit quality. The Company also limits investment in marketable debt securities to debt securities with A ratings or above.

     Accounts receivable consist primarily of advertising agencies, direct advertising customers and third party mobile operators. As of September 30, 2004, approximately 97% of the accounts receivable, net, were derived from the Company’s operations in the PRC. Regarding its advertising operations, no individual advertising customer accounted for more than 10% of total net revenues for the three and nine months ended September 30, 2004 and 2003. Also, no individual advertising customer accounted for more than 10% of accounts receivables as of September 30, 2004 and December 31, 2003. For its mobile value-added services operations in the PRC, the Company contracts with third party mobile operators, China Mobile Communication Corporation (“China Mobile”) and its subsidiaries and China Unicom Co., Ltd. (“China Unicom”) and its subsidiaries, for utilizing their transmission gateways for message delivery and billing systems to collect subscription or usage fees from its subscribers. Mobile value-added services fees charged to users via these third party mobile operators accounted for 60% and 62% of the Company’s net revenues for the three and nine months ended September 30, 2004, respectively, and 57% and 55% of the Company’s net revenues for the three and nine months ended September 30, 2003, respectively. Mobile value-added services fees charged to users via China Mobile accounts for 52% and 54% of the Company’s net revenues for the three and nine months ended September 30, 2004, respectively. Mobile value-added services fees charged to users via China Unicom accounts for 8% and 8% of the Company’s net revenues for the three and nine months ended September 30, 2004, respectively.

     Accounts receivable from these third party mobile operators represent mobile value-added services fees collected on behalf of the Company after deducting their billing services and transmission charges. The Company maintains allowances for potential credit losses and historically the Company has not had any significant direct write off of bad debts.

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     The following table summarizes accounts receivable concentration from the Company’s significant accounts receivable:

     The Company operates in business segments which are characterized by rapid technological advances, changes in customer requirements and evolving regulatory requirements and industry standards. Any failure by the Company to anticipate or to respond adequately to technological changes in its industry segments, changes in customer requirements or changes in regulatory requirements or industry standards, could have a material adverse effect on the Company’s business and operating results. The Company relies on a number of third-party suppliers for various other services, including web server hosting, banner advertising delivery software, Internet traffic measurement software and transmission and billing of mobile value-added services. Any failure of these suppliers to provide services to the Company or any termination of these services with the Company could have a material adverse effect on the Company’s business and operating results.

     The majority of the Company’s net income was derived from China and was $19.3 million and $57.6 million for the three and nine months ended September 30, 2004, respectively. The operations in China are carried out by the subsidiaries and VIEs. The Company depends on dividend payments from its subsidiaries in China for its revenues after these subsidiaries receive payments from VIEs in China under various services and other arrangements. In addition, under Chinese law, its subsidiaries are only allowed to pay dividends to the Company out of their accumulated profits, if any, as determined in accordance with Chinese accounting standards and regulations. Moreover, these Chinese subsidiaries are required to set aside at least 10% of their respective accumulated profits, if any, up to 50% of their registered capital to fund certain mandated reserve funds that are not payable or distributable as cash dividends. The appropriation to mandated reserve funds are assessed annually. As of December 31, 2003, the Company had appropriated totaling $4.3 million to these non-distributable reserve funds.

     Besides, the majority of the Company’s revenues derived and expenses incurred were in Chinese renminbi. In addition, approximately $100.4 million of the Company’s cash and short-term investment balance at September 30, 2004 was denominated in Chinese renminbi. Accordingly, the Company may experience economic losses and negative impacts on earnings and equity as a result of exchange rate fluctuations in the currency of the PRC. Moreover, the Chinese government imposes controls on the convertibility of renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency.

13. Convertible debt

     As of September 30, 2004, the Company has issued $100 million of zero coupon convertible subordinated notes (the “Notes”) due 2023. The Notes were issued at par and bear no interest. The Notes will be convertible into SINA ordinary shares, upon satisfaction of certain conditions, at an initial conversion price of $25.79 per share, subject to adjustments for certain events.

     One of the conditions for conversion of the Notes to SINA ordinary shares is conversion upon satisfaction of a market price condition, when the sale price (defined as closing per share sales price) of SINA ordinary shares reaches a specified threshold for a defined period of time. The specified thresholds are (i) during the period from issuance to July 15, 2022, if the sale price of SINA ordinary shares, for each of any five consecutive trading days in the immediately preceding fiscal quarter, exceeds 115% of the conversion price per ordinary share, and (ii) during the period from July 15, 2022 to July 15, 2023, if the sale price of SINA ordinary shares on the previous trading day is more than 115% of the conversion price per ordinary share. For the fiscal quarter ended June 30, 2004, the sale price of SINA ordinary shares exceeded 115% of the conversion price per ordinary share for five consecutive trading days. The Notes were therefore convertible into SINA ordinary shares according to the threshold (i) during the quarter ended September 30, 2004. As of September 30, 2004, the Company did not receive any request for conversion of the Notes to SINA ordinary shares. For the fiscal quarter ended September 30, 2004, the sale price of SINA ordinary shares did not exceed the threshold set forth in item (i) above for the required period of time; therefore, the Notes are not convertible into SINA ordinary shares pursuant to the threshold set forth in item (i) above during the quarter ending December 31, 2004.

     Upon conversion, the Company has the right to deliver cash in lieu of ordinary shares, or a combination of cash and ordinary shares. The Company may redeem for cash all or part of the Notes on or after July 15, 2012, at a price equal to 100% of the principal amount of the Notes being redeemed. The purchasers may require the Company to repurchase all or part of the Notes for cash on July 15 annually

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from 2007 through 2013, and on July 15, 2018, or upon a change of control, at a price equal to 100% of the principal amount of the Notes.

14. Commitments and contingencies

     The following table sets forth the contractual commitments and obligations of the Company excluding those items have been reflected in the balance sheet as of September 30, 2004:

     Operating lease obligations include the commitments under the lease agreements for the Company’s office premises. Purchase obligations mainly include the commitments for Internet connection fees associated with web sites production, content fees associated with web sites production and mobile value-added services, advertising serving services, advertising tracking services and marketing activities.

     Besides the above contractual obligations, the Company is also obligated to pay contingent consideration on its acquisitions of Bravado, Crillion and Davidhill in addition to the initial consideration with respect to each. The contingent consideration of the Bravado acquisition is based on Bravado’s financial performance in 2004. The contingent consideration will be $303,000 or $606,000 in cash, provided that Bravado achieves certain earnings targets for 2004. The contingent consideration of the Crillion acquisition is based on Crillion’s financial performances in 2004 and 2005. The contingent consideration would roughly be 1.5 to 2.0 times 2004 and 2005 earnings basis, respectively, provided that Crillion’s pretax net income for 2004 and 2005 is over $6.7 million and $13.3 million, respectively. The total consideration is subject to a cap of $125.0 million and will be 60% in cash and 40% in SINA ordinary shares. The contingent consideration in the Davidhill acquisition is based on certain simultaneous online user targets being reached by Davidhill in the 15 months after the agreement date. The contingent consideration is subject to a cap of $21.0 million and will be 84% in cash and 16% in SINA ordinary shares.

     Apart from the above, the Company did not have any other material long-term debt obligations, capital lease obligations, operating lease obligations or purchase obligations as of September 30, 2004.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect”, “anticipate”, “intend”, “believe”, or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth below under the caption “Risk Factors” set forth herein. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties, including the factors identified in “Risk Factors,” that could cause actual results to differ materially from those in the forward-looking statements.

Overview

     We are a leading online media company and value-added information services provider in the People’s Republic of China (the “PRC” or “China”) and the global Chinese communities. With a branded network of localized web sites targeting Greater China and overseas Chinese, we provide services through five major business lines including SINA.com (online news and content), SINA

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Mobile (mobile value-added services), SINA Online (community-based services and games), SINA.net (search and enterprise services) and SINA E-Commerce (online shopping and travel). Together these provide an array of services including region-focused online portals, mobile value-added services, search and directory, interest-based and community-building channels, free and premium email, online games, virtual ISP, classified listings, fee-based services, e-commerce and enterprise e-solutions.

     Our focus of business is our operation in the PRC where we derived approximately 98% and 97% of our net revenues for the three and nine months ended September 30, 2004, respectively.

     From 1999 to 2001, our growth was mainly driven by online advertising business and revenues from online advertising accounted for a majority of our total revenues. We began offering mobile value-added services under arrangements with third party mobile operators in the PRC in late 2001 and have since experienced significant growth in mobile value-added services revenues. Our advertising revenues and mobile value-added services revenues accounted for 35% and 60%, respectively, of our net revenues for the three months ended September 30, 2004, and 33% and 62%, respectively, of our net revenues for the nine months ended September 30, 2004. We expect they will continue to be the major sources of our revenues in the near future.

Acquisitions and investments

     In January 2004, we formed a joint venture with Yahoo! to provide online auctions in the PRC. In February 2004, we acquired Bravado Investments Limited (“Bravado”) to enter the PRC online travel market. In March 2004, we acquired Crillion Corporation (“Crillion”) to enhance our mobile value-added services as well as increase our market share in the PRC mobile value-added services market. In October 2004, we completed the acquisition of Davidhill Capital Inc. (“Davidhill”) and its instant messaging technology platform. The instant messaging technology platform allows users to communicate in real-time over the Internet and mobile phone networks, via text messages, images and voice. The instant messaging technology platform also provides community services such as chat rooms, online games, alumni clubs, online karaoke and other entertainment services.

Critical accounting policies and estimates

     Our discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period reported. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We based our estimates and judgments on historical experience, market trends, and other factors that we believed to be reasonable under the circumstances. The results of these estimates form the basis for judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have discussed the development, selection, and disclosure of these estimates with the Audit Committee of our Board of Directors. We believe there have been no material changes to our critical accounting policies and estimates during the three and nine months ended September 30, 2004 compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2003.

     We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our financial statements.

     Revenue recognition policies

     Advertising revenues are derived principally from online advertising arrangements, sponsorship arrangements, or a combination of them. Online advertising arrangements allow advertisers to place advertisements on particular areas of our web sites, in particular formats and over particular periods of time. Advertising revenues from online advertising arrangements are recognized ratably over the displayed period of the contract when the collectibility is reasonably assured. Multiple element advertising arrangements are broken down to single element arrangement based on relative fair value for revenue recognition purpose. Sponsorship arrangements allow advertisers to sponsor a particular area on our web sites in exchange for a fixed payment over the contract period. Advertising revenues are recognized ratably over the period of sponsorship. Advertising revenues derived from the design, coordination and integration of online advertising and sponsorship arrangements to be placed on our web sites are recognized ratably over the term of such programs.

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     Non-advertising revenues are mainly derived from mobile value-added services, fee-based services, e-commerce and enterprise services.

     Mobile value-added services revenues are derived principally from providing mobile phone users with SMS, MMS, WAP services and IVR services. These services include news and other content subscriptions, mobile dating service, picture and logo download, ring tones, ring back tones, mobile games, chat rooms and access to music files. Revenues from mobile value-added services are charged on monthly or on per usage basis. Such revenues are recognized in the period in which the service is performed, provided that no significant company obligations remain, collection of the receivables is reasonably assured and the amounts can be accurately estimated.

     We contract with third party mobile operators for billing and transmission services related to the mobile value-added services transmitted to our users. We considered EITF 99-19 in determining whether we should recognize such revenues at gross or net of revenue sharing by mobile operators for billing and transmission services. If we are primary obligor to the user with respect to the mobile value-added services, we record the revenue on a gross basis. We record the gross amount we bill to our users for our mobile value-added services as revenues and the fees charged or retained by the third party mobile operators as cost of revenues. If we are not primary obligor to the user with respect to the mobile value-added services, we record the revenue on a net basis. We record the net amount after fees charged or retained by the third party mobile operators as revenues. Revenues recorded on a net basis were not significant to our mobile value-added services revenues historically.

     Our estimate of mobile value-added services revenue is based on our internal records of billings and transmissions for the month, adjusted by prior periods’ confirmation rates with the third party mobile operators, and further adjusted by prior periods’ discrepancies between our estimated revenue and actual revenue confirmed by the third party mobile operators. Historically, there were no significant true up adjustments to our estimates. To the extent that such revenues cannot be accurately estimated, we rely on the billing statements from the third party mobile operators to record revenues. When we started to offer mobile value-added services in China, we relied almost entirely on billing statements from mobile operators to record revenues as the historical information was not adequate to make the estimates. Due to the time lag of receiving the billing statements from the third party mobile operators, we had adopted a one-month lag reporting policy for mobile value-added service revenues. Such policy has been applied on a consistent basis even though we are now more relying on estimates to record the revenues from mobile value-added services with more accurate historical information. However, this one-month lag reporting policy does not apply to acquired entities including Memestar and Crillion. For the three and nine months ended September 30, 2004, we recorded $31.3 million and $88.2 million of revenues from our mobile value-added services, respectively. If we had not used the one-month lag reporting policy, our revenues from our mobile value-added services for those periods would have been $31.0 million and $89.7 million, respectively. For the three and nine months ended September 30, 2003, we recorded $18.1 million and $41.5 million of revenues from our mobile value-added services, respectively. If we had not used the one-month lag reporting policy, our revenues from our mobile value-added services for those periods would have been $18.8 million and $44.3 million, respectively.

     China Mobile and its subsidiaries have recently started transitioning mobile value-added service providers to a new billing platform. Certain of their provincial subsidiaries have required us to switch to this new billing platform recently. They will require us to switch to the new billing platform in other provinces in the future. China Unicom and its subsidiaries are also in the process of implementing a new billing system. The new billing platforms may result in more controls by the mobile operators in the operation, a higher failure rate for fee collection from our users or make it more difficult for us to recruit new users and hence may reduce our revenues from mobile value-added services significantly. We have been monitoring the extent of the impact of the new billing platforms to our business and our confirmation rates used. We have been also evaluating the current mobile value-added services revenue recognition policy. If there were no consistent confirmation rates trend or there are continuous significant true up adjustments to our estimates under the new billing platforms, our current policy of estimating mobile value-added services revenues may not be appropriate. We may have to record the mobile value-added services revenues when we receive the billing statements from third party mobile operators. Due to the time lag of receiving the billing statements, our mobile value-added services revenues may fluctuate with the collection of billing statements. As of September 30, 2004, we had moved 5 provinces onto China Mobile’s new billing platform and we had mixed results from these five provinces. Due to the limited history, we are not yet able to isolate the effect of the new platform on the failure rates yet. We plan to move another 8 provinces onto the new China Mobile billing platform in the quarter ending December 31, 2004.

     We purchase certain content from third party content providers for our mobile value-added services. Most of these arrangements state that the fees payable to the third party content providers are calculated based on certain percentages of the revenue earned by their content after deducting the fees paid to third party mobile operators. Our mobile value-added service revenue is inclusive of such

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fees since we act as the principal in these arrangements by having the ability to determine the fees charged to end users and being the primary obligor to the end users with respect to providing such services.

     Fee-based services allow our users to subscribe for services on our web sites including online games, virtual ISP and paid email services. Revenues from these services are recognized in the period in which the service is performed, provided that no significant company obligations remain, collection of the receivables is reasonably assured and the amounts can be accurately estimated.

     E-commerce revenues are derived principally from slotting fees charged to merchants for selective positioning and promoting their goods or services within our online mall, SinaMall, and from commissions calculated as a percentage of the online sales transaction value of the merchants. Slotting fee revenue is recognized ratably over the period the products are shown on our web site while the commission revenue is recognized on a net basis after both successful on-line verification of customers’ credit cards and shipment of products. Product returns have not been significant and are assumed by vendors.

     Enterprise services mainly include paid search and directory listings, corporate emails, classified listings and enterprise e-solutions. Revenues are recognized in the period in which the service is performed, provided that no significant company obligations remain, collection of the receivables is reasonably assured and the amounts can be accurately estimated.

     In accordance with generally accepted accounting principles in the United States of America, the recognition of these revenues is partly based on our assessment of the probability of collection of the resulting accounts receivable balance. As a result, the timing or amount of revenue recognition may have been different if different assessments of the probability of collection of accounts receivable had been made at the time the transactions were recorded in revenue.

     Allowances for doubtful accounts

     We use the rolling average bad debt rate for the previous twelve months to estimate the provisions for accounts receivable. We also provide specific provisions for bad debts when facts and circumstances indicate that the receivable is unlikely to be collected. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

     Available for sale securities investment

     Investments classified as available for sale securities are reported at fair value with unrealized gains (losses), if any, recorded as accumulated other comprehensive income in shareholders’ equity. Realized gains or losses are charged to income during the period in which the gain or loss is realized. If we determine a decline in fair value is other-than-temporary, the cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the write-down will be accounted for a realized loss. The new cost basis will not be changed for subsequent recoveries in fair value. Determination of whether declines in value are other-than –temporary requires significant judgment. Subsequent increase in the fair value of available for sale securities will be included in comprehensive income in shareholders’ equity while subsequent decrease in fair value, if not an other-than-temporary impairment, will also be included in comprehensive income in shareholders’ equity.

     The investment in marketable equity securities of Sun Media Group is classified as available for sale securities. We recognized an other-than-temporary impairment charge of $2.6 million for the investment in Sun Media Group during the three months ended September 30, 2004 based on our assessment of the duration and amount of the decline.

     The investment in marketable debt securities is classified as available for sale securities. We invest in these securities with the intent to make such funds readily available for operating purposes and accordingly, classify them as short-term investments. The aggregate fair value of marketable debt securities was $128.3 million as of September 30, 2004 and was $69.0 million as of December 31, 2003. During the three and nine months ended September 30, 2004, respectively, we recorded $1.7 million of unrealized gain and $0.4 million of unrealized loss, respectively, on our marketable debt securities as a component of comprehensive income. During the three and nine months ended September 30, 2003, respectively, we recorded $1.1 million and $1.4 million of unrealized loss on our marketable debt securities as a component of comprehensive income.

     Impairment of intangible assets and goodwill

     We assess the carrying value of our intangible assets and goodwill on an annual basis and when factors are present that indicate an impairment may have occurred. During the nine months ended September 30, 2003, we recorded an impairment charge in the amount

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of $0.9 million to write off the remaining value of the intangible assets relating to the acquisition of Shanghai Techur Technology Developing Co., Limited. At September 30, 2004 we had net intangible assets of $14.3 million and goodwill of $33.1 million, relating to the Memestar, Bravado, Crillion and Davidhill acquisition. There was no impairment as to the carrying value of these assets as of September 30, 2004.

     We use estimates and judgments in our impairment tests and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

     Purchase price allocation

     We account for our acquisitions using purchase method of accounting. This method requires that the acquisition cost to be allocated to the assets and liabilities we acquired based on their fair values. We make estimates and judgments in determining the fair value of the acquired assets and liabilities. We base our determination on independent appraisal reports as well as our experience with similar assets and liabilities in the similar industries. If we were to use different judgments or assumptions, the amounts assigned to the individual acquired assets or liabilities could be materially different.

Recent accounting pronouncements

     In September 2004, the EITF Issue No. 04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” (“EITF 04-08”) was issued stating that contingently convertible debt should be included in diluted earnings per share computations regardless of whether the market price trigger has been met. This Issue is effective for reporting periods ending after December 15, 2004. As a result of adopting EITF 04-08, we will need to include the dilution effect of our outstanding contingent convertible debt in our diluted earnings per share calculations regardless of whether the market price trigger has been met going forward. In addition, this change will be applied retroactively to all prior periods. The retroactive application of EITF 04-08 will result in a reduction of $0.02 to the diluted earnings per share for the quarter ended September 30, 2004 and will have no impact to the diluted earnings per share for all other prior periods.

     In September 2004, the EITF delayed the effective date for the recognition and measurement guidance previously discussed under EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-01”) as included in paragraphs 10-20 of the proposed statement. The proposed statement will clarify the meaning of other-than-temporary impairment and its application to investments in debt and equity securities, in particular investments within the scope of FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and investments accounted for under the cost method. We are currently evaluating the effect of this proposed statement on our financial position and results of operations. If the proposed EITF 03-01 becomes effective and is adopted, we may have to record additional impairment charges for certain of our investments in marketable debt securities.

Results of operations

Three and nine months ended September 30, 2004 and 2003

Net revenues

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Non-advertising

Mobile value-added services

     The growth of our net revenues for the three and nine months ended September 30, 2004 was mainly driven by the increase in advertising and mobile value-added services revenues. The change in the composition of our net revenues was primarily driven by the increase in revenues from our mobile value-added services, which benefited from the growth in the PRC mobile value-added services market and the acquisition of companies in this market.

     Advertising. Our advertising revenues were $18.5 million and $47.2 million for the three and nine months ended September 30, 2004, respectively, representing growth of 62% and 67% as compared to the same periods in 2003. The increase in our advertising revenues was primarily due to the growth of on line advertising spending in the PRC market as more advertisers began to accept the Internet as a medium for advertisement. For the three and nine months ended September 30, 2004, advertising revenues from the PRC accounted for 95% and 94% of our total advertising revenues, respectively, compared to 92% and 89% of our total advertising revenues for the same periods in 2003. The number of advertising customers in the PRC was approximately 382 and 661 for the three and nine months ended September 30, 2004, respectively, as compared to 315 and 491 for the same periods in 2003. Average revenues per advertising customer in the PRC were $46,000 and $67,000 for the three and nine months ended September 30, 2004, respectively, as compared to $33,000 and $51,000 for the same periods in 2003.

     Non-advertising. Our non-advertising revenues were $34.0 million and $95.9 million for the three and nine months ended September 30, 2004, respectively, representing growth of 66% and 101% as compared to the same period in 2003. The increases in non-advertising revenues were primarily driven by the growth in revenues from mobile value-added services in the PRC which represent 92% of our total non-advertising revenues for both the three and nine months ended September 30, 2004, respectively, as compared to 89% and 87%, respectively, of our total non-advertising revenues for the same periods in 2003.

     The growth our mobile value-added services revenues for the three and nine months ended September 30, 2004 was attributable to the acquisition of Crillion and introduction of new products. Our product offerings for mobile value-added services mainly include SMS, MMS, WAP and IVR. We launched SMS in late 2001, WAP services in December 2002, MMS in April 2003 and IVR services in December 2003.

     SMS is our primary mobile value-added service, contributing $24.3 million and $74.5 million revenue for the three and nine months ended September 30, 2004, respectively. SMS revenue accounted for 78% and 84% of our mobile value-added services revenues for the three and nine months ended September 30, 2004, respectively, as compared to nearly 98% of our mobile value-added services revenues for the same periods in 2003. The growth of SMS revenue in absolute amount was primarily attributable to the acquisition of Crillion in March 2004. Due to the changes in regulatory environment and mobile operators’ policies, there was a decline in our SMS business excluding the results of Crillion during the three months ended June 30, 2004 and a further decline in our SMS business despite the growth of Crillion during the three months ended September 30, 2004. SMS revenues decreased from $26.0 million for three months ended June 30, 2004 to $24.3 million for three months ended September 30, 2004.

     New product offerings like WAP, MMS and IVR services, etc. in aggregate contributed approximately $7.0 million and $13.8 million of our mobile value-added services revenues for the three and nine months ended September 30, 2004, respectively. They represent 22% and 16% of our mobile value-added services revenues for the three and nine months ended September 30, 2004, respectively. They constituted a minimal portion of our mobile value-added services revenues for the same periods in 2003. During the three months ended September 30, 2004, our IVR service was temporarily suspended by China Mobile due to the violation of certain operating procedures. Excluding the effect of the IVR service, revenues from other new mobile value-added service revenues for the three months ended September 30, 2004 grew by 77.6% from the three months ended June 30, 2004. In conjunction with this

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suspension, China Mobile also suspended our application for new products under existing wireless platforms for three months and our applications for news products under new wireless platforms for six months starting from August 15, 2004. On October 15, 2004, our IVR service was resumed by China Mobile. However, we do not expect that we will generate significant revenues from IVR service in near future as we have to start from the beginning.

     For the month of September 2004, we had approximately 15.3 million unique paid users for our mobile value-added services. This compared to 11.7 million unique paid users for the month of June 2004 and 12.5 million unique paid users, including the users from the acquisition of Crillion on a pro forma basis, assuming acquisition had occurred on March 1, 2004, for the month of March 2004.

     Our other non-advertising revenues include fee-based services such as paid search and directory listings, virtual ISP, paid email services, online hotel booking commission income as well as e-commerce and other enterprise services. Online hotel booking commission income was a new income stream after our acquisition of Bravado in February 2004. For the three and nine months ended September 30, 2004, the slight increase in our other non-advertising revenues was mainly attributed to the online hotel booking commission income and our paid search services and directory listings which in aggregate accounted for 66% and 65%, respectively, of our other non-advertising revenues. Our revenues for paid search services and directory listings accounted for 47% and 36%, respectively, of our other non-advertising revenues for the same periods in 2003.

Cost of revenues