SEC Company Response from NetEase, Inc. (NTES, NETTF) (CIK 0001110646) (NTES) — Sep 2, 2011
NetEase, Inc. (NTES, NETTF) (CIK 0001110646)
Date: Sept. 2, 2011 · CIK: 0001110646 · Accession: 0001104659-11-050026
AI Filing Summary & Sentiment
Reasoning
Referenced dates: August 8, 2011, September 22, 2009
Letter
Division of Corporation Finance Securities and Exchange Commission NetEase.com, Inc. (the “Company”) Form 20-F for the Fiscal Year Ended December 31, 2010 Filed June 22, 2011 File No. 0-30666 (the “2010 Form 20-F”)
Dear Ms. Ransom, Ms. Kim, Mr. Thompson, Mr. Allegretto and Mr. Phippen:
The Company is providing the following information in response to the comment letter dated August 8, 2011 received by the Company from the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in connection with the Staff’s review of the Company’s Form 20-F for the fiscal year ended December 31, 2010 (the “Letter”). For your convenience, we have set forth each of your comments below followed by our response to each comment.
Item. 4 Information on the Company, page 23
A. History and Development of the Company, page 23
1. Please discuss your material commitments for capital expenditures currently in progress, if any, and the source of funds needed to fulfill such commitments. As applicable, please provide us with your proposed disclosure. Please see Item 4.A.6. of Form 20-F.
The Company’s commitments for capital expenditures for the year ending December 31, 2011 are RMB6.9 million, as set forth in Item 5.F of the 2010 Form 20F. As such commitments represent less than 1% of the Company’s total cash and cash equivalents as shown on the Company’s audited consolidated balance sheet as of December 31, 2010, the Company does not consider the commitments currently in progress to be material. The Company confirms that it will include an appropriate negative statement in its annual report on Form 20-F for the year
ending December 31, 2011 (the “2011 Form 20-F”) if it has no material commitments for capital expenditures currently in progress or expected at the time such form is filed (or alternately will include a discussion if material commitments exist at that time).
B. Business Overview, page 24
Our Organizational Structure, page 25
2. We note the diagram you provide on page 27 depicting the group structure of your principal subsidiaries and affiliated companies. Please ensure that the disclosure accompanying this diagram explains the role each of those entities plays in your overall business plan. Please also provide us with your proposed disclosure.
The Company notes the Staff’s comment and proposes to include a diagram and accompanying explanations substantially in the form attached to this letter as Annex A in the 2011 Form 20-F.
Item 5. Operating and Financial Review and Prospects, page 43
A. Operating Results, page 43
Our Corporate Structure, page 43
3. Please tell us your consideration of disclosing the nature and significant provisions of the contractual agreements between you and your subsidiaries and the consolidated variable interest entities, including how net income is attributed to non-controlling interest, how contract terms grant power to direct significant activities and the right to economic returns, the risks in enforceability of the contracts and nonperformance by the variable interest entities and the potential impact of those risks, including the potential for deconsolidation.
The Staff’s comment is acknowledged. The Company notes that Item 7.B of the 2010 Form 20-F contains certain disclosure regarding the contractual agreements between the Company and its subsidiaries and consolidated variable interest entities, or VIEs, and Item 3.D contains disclosure regarding the risks associated with the VIE arrangements and potential impact of those risks (See Item 3.D — “Risk Factors — Risks Related to our Company — “We do not own Guangzhou NetEase Computer System Co., Ltd., or Guangzhou NetEase, Beijing Guangyitong Advertising Co., Ltd., or Guangyitong Advertising, Beijing NetEase Youdao Computer System Co., Ltd., or Youdao Computer, Wangyibao Co. Ltd., or Wangyibao, or Shanghai EaseNet, and if they or their ultimate shareholders violate our contractual arrangements with them, our business could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce our rights, which may be time consuming and expensive.”; “— Because our contractual arrangements with Guangzhou NetEase, Guangyitong Advertising, Youdao Computer, Wangyibao and their ultimate shareholders do not detail the parties’ rights and obligations, our remedies for a breach of these arrangements are limited.”; “— A majority of the share capital of Guangzhou NetEase and Guangyitong Advertising, Youdao Computer and the entire share capital of Shanghai EaseNet is held by our major shareholder, who may cause these agreements to be amended in a manner that is adverse to us.”; “— We may not be able to
conduct our operations without the services provided by Guangzhou NetEase, Guangyitong Advertising, Youdao Computer, Wangyibao and Shanghai EaseNet.”; and “— The Chinese government restricts the ability for foreign investors to invest in and operate in the telecommunications and online gaming businesses.”). To address the Staff’s comment, as well as comments #4 and #19 below, the Company proposes to include additional disclosure in Note 1(b) to the Company’s consolidated financial statements in the 2011 Form 20-F to summarize issues related to its VIE arrangements.
The Company also supplementally notes that the Company’s net income attributable to non-controlling interest has been and is expected to remain insignificant (in 2010, net loss attributable to non-controlling interests was RMB3.7 million, while net income was RMB2,232.0 million for the same period). As such, the Company respectfully submits that disclosure on that particular item is unnecessary.
4. Please disclose information that allows investors to evaluate the nature of assets held by, and the operations of, entities apart from your consolidated variable interest entities. The information should be in sufficient detail to convey the assets and operations that are not subject to involvement with your consolidated variable interest entities.
Please see the response to comment #3 above and comment #19 below regarding the inclusion of additional disclosure on the VIEs in Note 1(b) to the Company’s consolidated financial statements in the 2011 Form 20-F, including disclosure which explains that the Company conducts substantially all of its business through its VIEs, with certain of its directly owned subsidiaries providing technical consulting and related services to the VIEs. In addition, the Company notes that page F-8 of the 2010 Form 20-F provides quantitative and qualitative information on the total assets and liabilities of the Company’s consolidated VIEs and their subsidiaries and the business activities of each VIE are disclosed in the 2010 Form 20-F, including on page 6 (Shanghai EaseNet) and page 11 (Guangzhou NetEase, Guangyitong Advertising, Youdao Computer and Wangyibao).
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009, page 52
Gross Profit, page 54
5. We note your statement on page 55 that “[t]he decrease in gross profit margin for online game services in 2010 was mainly due to the increased cost of revenues which outpaced the increase in net revenues, and this was in line with [y]our expectation.” Please enhance your disclosure of these “expectations” with a view to providing investors an outlook on the anticipated trend(s) for your gross profit margins (i.e. whether you expect this decrease to continue and if so, why) and provide us with your proposed disclosure. Please see Item 5.D of Form 20-F. We reissue comment one in our letter dated September 22, 2009 as it pertains to this point.
The Company confirms that it will include disclosure in the 2011 Form 20-F regarding any known trends or expectations regarding its gross profit margins. As disclosed in the 2010 Form 20-F and the prior year’s Form 20-F, gross profit margins decreased in 2009 due in large part to the partial year effect of royalties and other payments related to the re-launch of World of
Warcraft in September 2009 and decreased further in 2010 due to the full-year effects of such payments. At the present time, the Company is not aware of similar trends which might significantly affect gross profit margins in future periods, although market competition, popularity of games and other factors discussed in Item 3.D — “Risk Factors” could nonetheless cause additional fluctuations in margins. The Company will update future disclosure accordingly.
B. Liquidity and Capital Resources, page 60
6. Please disclose how cash is transferred to your PRC subsidiaries and variable interest entities, and conversely, how earnings and cash are transferred from your PRC subsidiaries and variable interest entities to offshore companies. In addition, please disclose restrictions that impact ability to transfer cash within the corporate structure.
The Company has historically transferred funds from non-PRC entities to its PRC entities infrequently, and such transfers have usually involved loans to the shareholders of newly formed VIEs so that they could contribute the loan proceeds to the VIEs to fund their registered capital requirements. Currently, there are certain requirements for loans and contributions to PRC entities. For example, loans by a non-PRC entity to its PRC subsidiaries cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE, or its local branches, and loans by a non-PRC entity to a VIE must be approved by the National Development and Reform Commission (other than short-term loans) and must also be registered with SAFE or its local branches. In addition, capital contributions to PRC subsidiaries, whether existing or newly established, must be approved by the PRC Ministry of Commerce or its local counterparts.
With respect to cash transfers from PRC subsidiaries and VIEs to non-PRC entities within the Company’s consolidated group, conversion of the Renminbi into foreign exchange for current account items, including the distribution of dividends, interest and trade and service-related transactions, is permissible. As a result, the Company’s subsidiaries and VIEs may purchase foreign exchange for the payment of dividends to the Company and of license, content or other royalties, fees and expenses to offshore licensors and content partners, for example. In practice, the Company’s PRC subsidiaries collect the substantial portion of the profits of the VIEs in the form of technical consulting and related service fees pursuant to contracts with the VIEs. In turn, such subsidiaries can exchange such amounts for foreign currency and pay them to their non-PRC parent companies in the form of dividends. One restriction to the foregoing, however, is that Chinese law permits payment of dividends only out of net income as determined in accordance with Chinese accounting standards and regulations. Under such law, NetEase Beijing, Guangzhou Interactive, Boguan, Guangzhou Information and NetEase Hangzhou are required to set aside a portion of their net income each year to fund certain reserve funds, except in cases where a company’s cumulative appropriations have already reached the statutory limit of 50% of that company’s registered capital. These reserves are not distributable as cash dividends. In addition, capital account transactions, which include foreign direct investment and loans, must be approved by SAFE. Information on the conversion of current account and capital account items, as well as the reserve fund requirements, is disclosed on pages 17, 18, 19, 81 and 82 of the 2010 Form 20-F.
The Company will include a consolidated summary of the foregoing in Item 3.D — “Risk Factors” and Item 10.D — “Exchange Controls” in the 2011 Form 20-F, with any updates as appropriate. Except as described above, the Company is not currently subject to any material restrictions that impact its ability to transfer cash within its corporate structure.
7. Please disclose the amount of cash and time deposits held by your PRC subsidiaries and variable interest entities, whether you intend to transfer the funds to your non-PRC entities and whether you would need to accrue and pay withholding and other taxes if funds were transferred to your non-PRC entities.
The Company notes that disclosure regarding withholding taxes and accruals can be found on page F-31 of the 2010 Form 20-F. As disclosed on page F-31, the Company has accrued withholding tax on retained earnings held by StormNet IT HK and StormNet IT SH that it does not expect to permanently reinvest. Such accrual totaled RMB1.5 million as at December 31, 2010 and was not disclosed in the 2010 Form 20-F because it is immaterial in amount. For all other entities, the Company expects that its PRC entities in China will indefinitely reinvest all post-2007 earnings such that no withholding tax is expected to be incurred, as disclosed on page F-31. Accordingly, the Company did not record any provision for withholding tax on the retained earnings of its other entities in China for all post-2007 periods presented.
The Company also submits that, as noted in response to comment #6 above, the regulatory requirements for transfers of funds into and out of China are disclosed in the 2010 Form 20-F, with certain additional disclosure to be included in the 2011 Form 20-F regarding loans and contributions into China (which the Company has historically done infrequently). To date, the Company has not experienced any significant difficulties moving funds into or out of China for its business operations. Accordingly, when considering the ability of the Company to make transfers of funds out of China, the Company believes that the relevant disclosure is the amount of restricted net assets, which is discussed on page F-42 of the 2010 Form 20-F, rather than the amount of cash and time deposits held in China. The Company plans to include a discussion of its restricted net assets in Item 5.B of the 2011 Form 20-F.
Item 6. Directors, Senior Management and Employees, page 66
B. Compensation, page 67
Director Compensation, page 67
8. Please provide the details of your directors’ service contracts with the company or any of your subsidiaries providing for benefits upon termination of employment, or an appropriate negative statement. Please provide us with your proposed disclosure. Please see Item 6.C.2 of Form 20-F. We reissue comment three in our letter dated September 22, 2009 as it pertains to this point.
The Company notes the Staff’s comment and plans to include in the 2011 Form 20-F the following statement: “We do not have service contracts with any of our directors which provide for benefits upon termination.”
E. Share Ownership, page 72
9. As appropriate, please disclose any significant change in the percentage ownership held by any major shareholders during the past three years and provide us with your proposed disclosure. Please see Item 7.A.1.b of Form 20-F or tell us why you believe this is unnecessary.
The Company respectfully submits that its principal major shareholder from the time of the Company’s initial public offering in 2000 to the present time has been William Lei Ding, the Company’s founder, chief executive officer and a director. There has been no significant change in his percentage ownership during the past three y
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CORRESP 1 filename1.htm [Letterhead of NetEase.com, Inc.] September 2, 2011 Ms. Mara Ransom Ms. Angie Kim Mr. William Thompson Mr. James Allegretto Mr. Adam Phippen Division of Corporation Finance Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: NetEase.com, Inc. (the “Company”) Form 20-F for the Fiscal Year Ended December 31, 2010 Filed June 22, 2011 File No. 0-30666 (the “2010 Form 20-F”) Dear Ms. Ransom, Ms. Kim, Mr. Thompson, Mr. Allegretto and Mr. Phippen: The Company is providing the following information in response to the comment letter dated August 8, 2011 received by the Company from the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in connection with the Staff’s review of the Company’s Form 20-F for the fiscal year ended December 31, 2010 (the “Letter”). For your convenience, we have set forth each of your comments below followed by our response to each comment. Item. 4 Information on the Company, page 23 A. History and Development of the Company, page 23 1. Please discuss your material commitments for capital expenditures currently in progress, if any, and the source of funds needed to fulfill such commitments. As applicable, please provide us with your proposed disclosure. Please see Item 4.A.6. of Form 20-F. The Company’s commitments for capital expenditures for the year ending December 31, 2011 are RMB6.9 million, as set forth in Item 5.F of the 2010 Form 20F. As such commitments represent less than 1% of the Company’s total cash and cash equivalents as shown on the Company’s audited consolidated balance sheet as of December 31, 2010, the Company does not consider the commitments currently in progress to be material. The Company confirms that it will include an appropriate negative statement in its annual report on Form 20-F for the year 1 ending December 31, 2011 (the “2011 Form 20-F”) if it has no material commitments for capital expenditures currently in progress or expected at the time such form is filed (or alternately will include a discussion if material commitments exist at that time). B. Business Overview, page 24 Our Organizational Structure, page 25 2. We note the diagram you provide on page 27 depicting the group structure of your principal subsidiaries and affiliated companies. Please ensure that the disclosure accompanying this diagram explains the role each of those entities plays in your overall business plan. Please also provide us with your proposed disclosure. The Company notes the Staff’s comment and proposes to include a diagram and accompanying explanations substantially in the form attached to this letter as Annex A in the 2011 Form 20-F. Item 5. Operating and Financial Review and Prospects, page 43 A. Operating Results, page 43 Our Corporate Structure, page 43 3. Please tell us your consideration of disclosing the nature and significant provisions of the contractual agreements between you and your subsidiaries and the consolidated variable interest entities, including how net income is attributed to non-controlling interest, how contract terms grant power to direct significant activities and the right to economic returns, the risks in enforceability of the contracts and nonperformance by the variable interest entities and the potential impact of those risks, including the potential for deconsolidation. The Staff’s comment is acknowledged. The Company notes that Item 7.B of the 2010 Form 20-F contains certain disclosure regarding the contractual agreements between the Company and its subsidiaries and consolidated variable interest entities, or VIEs, and Item 3.D contains disclosure regarding the risks associated with the VIE arrangements and potential impact of those risks (See Item 3.D — “Risk Factors — Risks Related to our Company — “We do not own Guangzhou NetEase Computer System Co., Ltd., or Guangzhou NetEase, Beijing Guangyitong Advertising Co., Ltd., or Guangyitong Advertising, Beijing NetEase Youdao Computer System Co., Ltd., or Youdao Computer, Wangyibao Co. Ltd., or Wangyibao, or Shanghai EaseNet, and if they or their ultimate shareholders violate our contractual arrangements with them, our business could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce our rights, which may be time consuming and expensive.”; “— Because our contractual arrangements with Guangzhou NetEase, Guangyitong Advertising, Youdao Computer, Wangyibao and their ultimate shareholders do not detail the parties’ rights and obligations, our remedies for a breach of these arrangements are limited.”; “— A majority of the share capital of Guangzhou NetEase and Guangyitong Advertising, Youdao Computer and the entire share capital of Shanghai EaseNet is held by our major shareholder, who may cause these agreements to be amended in a manner that is adverse to us.”; “— We may not be able to 2 conduct our operations without the services provided by Guangzhou NetEase, Guangyitong Advertising, Youdao Computer, Wangyibao and Shanghai EaseNet.”; and “— The Chinese government restricts the ability for foreign investors to invest in and operate in the telecommunications and online gaming businesses.”). To address the Staff’s comment, as well as comments #4 and #19 below, the Company proposes to include additional disclosure in Note 1(b) to the Company’s consolidated financial statements in the 2011 Form 20-F to summarize issues related to its VIE arrangements. The Company also supplementally notes that the Company’s net income attributable to non-controlling interest has been and is expected to remain insignificant (in 2010, net loss attributable to non-controlling interests was RMB3.7 million, while net income was RMB2,232.0 million for the same period). As such, the Company respectfully submits that disclosure on that particular item is unnecessary. 4. Please disclose information that allows investors to evaluate the nature of assets held by, and the operations of, entities apart from your consolidated variable interest entities. The information should be in sufficient detail to convey the assets and operations that are not subject to involvement with your consolidated variable interest entities. Please see the response to comment #3 above and comment #19 below regarding the inclusion of additional disclosure on the VIEs in Note 1(b) to the Company’s consolidated financial statements in the 2011 Form 20-F, including disclosure which explains that the Company conducts substantially all of its business through its VIEs, with certain of its directly owned subsidiaries providing technical consulting and related services to the VIEs. In addition, the Company notes that page F-8 of the 2010 Form 20-F provides quantitative and qualitative information on the total assets and liabilities of the Company’s consolidated VIEs and their subsidiaries and the business activities of each VIE are disclosed in the 2010 Form 20-F, including on page 6 (Shanghai EaseNet) and page 11 (Guangzhou NetEase, Guangyitong Advertising, Youdao Computer and Wangyibao). Year Ended December 31, 2010 Compared to Year Ended December 31, 2009, page 52 Gross Profit, page 54 5. We note your statement on page 55 that “[t]he decrease in gross profit margin for online game services in 2010 was mainly due to the increased cost of revenues which outpaced the increase in net revenues, and this was in line with [y]our expectation.” Please enhance your disclosure of these “expectations” with a view to providing investors an outlook on the anticipated trend(s) for your gross profit margins (i.e. whether you expect this decrease to continue and if so, why) and provide us with your proposed disclosure. Please see Item 5.D of Form 20-F. We reissue comment one in our letter dated September 22, 2009 as it pertains to this point. The Company confirms that it will include disclosure in the 2011 Form 20-F regarding any known trends or expectations regarding its gross profit margins. As disclosed in the 2010 Form 20-F and the prior year’s Form 20-F, gross profit margins decreased in 2009 due in large part to the partial year effect of royalties and other payments related to the re-launch of World of 3 Warcraft in September 2009 and decreased further in 2010 due to the full-year effects of such payments. At the present time, the Company is not aware of similar trends which might significantly affect gross profit margins in future periods, although market competition, popularity of games and other factors discussed in Item 3.D — “Risk Factors” could nonetheless cause additional fluctuations in margins. The Company will update future disclosure accordingly. B. Liquidity and Capital Resources, page 60 6. Please disclose how cash is transferred to your PRC subsidiaries and variable interest entities, and conversely, how earnings and cash are transferred from your PRC subsidiaries and variable interest entities to offshore companies. In addition, please disclose restrictions that impact ability to transfer cash within the corporate structure. The Company has historically transferred funds from non-PRC entities to its PRC entities infrequently, and such transfers have usually involved loans to the shareholders of newly formed VIEs so that they could contribute the loan proceeds to the VIEs to fund their registered capital requirements. Currently, there are certain requirements for loans and contributions to PRC entities. For example, loans by a non-PRC entity to its PRC subsidiaries cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE, or its local branches, and loans by a non-PRC entity to a VIE must be approved by the National Development and Reform Commission (other than short-term loans) and must also be registered with SAFE or its local branches. In addition, capital contributions to PRC subsidiaries, whether existing or newly established, must be approved by the PRC Ministry of Commerce or its local counterparts. With respect to cash transfers from PRC subsidiaries and VIEs to non-PRC entities within the Company’s consolidated group, conversion of the Renminbi into foreign exchange for current account items, including the distribution of dividends, interest and trade and service-related transactions, is permissible. As a result, the Company’s subsidiaries and VIEs may purchase foreign exchange for the payment of dividends to the Company and of license, content or other royalties, fees and expenses to offshore licensors and content partners, for example. In practice, the Company’s PRC subsidiaries collect the substantial portion of the profits of the VIEs in the form of technical consulting and related service fees pursuant to contracts with the VIEs. In turn, such subsidiaries can exchange such amounts for foreign currency and pay them to their non-PRC parent companies in the form of dividends. One restriction to the foregoing, however, is that Chinese law permits payment of dividends only out of net income as determined in accordance with Chinese accounting standards and regulations. Under such law, NetEase Beijing, Guangzhou Interactive, Boguan, Guangzhou Information and NetEase Hangzhou are required to set aside a portion of their net income each year to fund certain reserve funds, except in cases where a company’s cumulative appropriations have already reached the statutory limit of 50% of that company’s registered capital. These reserves are not distributable as cash dividends. In addition, capital account transactions, which include foreign direct investment and loans, must be approved by SAFE. Information on the conversion of current account and capital account items, as well as the reserve fund requirements, is disclosed on pages 17, 18, 19, 81 and 82 of the 2010 Form 20-F. 4 The Company will include a consolidated summary of the foregoing in Item 3.D — “Risk Factors” and Item 10.D — “Exchange Controls” in the 2011 Form 20-F, with any updates as appropriate. Except as described above, the Company is not currently subject to any material restrictions that impact its ability to transfer cash within its corporate structure. 7. Please disclose the amount of cash and time deposits held by your PRC subsidiaries and variable interest entities, whether you intend to transfer the funds to your non-PRC entities and whether you would need to accrue and pay withholding and other taxes if funds were transferred to your non-PRC entities. The Company notes that disclosure regarding withholding taxes and accruals can be found on page F-31 of the 2010 Form 20-F. As disclosed on page F-31, the Company has accrued withholding tax on retained earnings held by StormNet IT HK and StormNet IT SH that it does not expect to permanently reinvest. Such accrual totaled RMB1.5 million as at December 31, 2010 and was not disclosed in the 2010 Form 20-F because it is immaterial in amount. For all other entities, the Company expects that its PRC entities in China will indefinitely reinvest all post-2007 earnings such that no withholding tax is expected to be incurred, as disclosed on page F-31. Accordingly, the Company did not record any provision for withholding tax on the retained earnings of its other entities in China for all post-2007 periods presented. The Company also submits that, as noted in response to comment #6 above, the regulatory requirements for transfers of funds into and out of China are disclosed in the 2010 Form 20-F, with certain additional disclosure to be included in the 2011 Form 20-F regarding loans and contributions into China (which the Company has historically done infrequently). To date, the Company has not experienced any significant difficulties moving funds into or out of China for its business operations. Accordingly, when considering the ability of the Company to make transfers of funds out of China, the Company believes that the relevant disclosure is the amount of restricted net assets, which is discussed on page F-42 of the 2010 Form 20-F, rather than the amount of cash and time deposits held in China. The Company plans to include a discussion of its restricted net assets in Item 5.B of the 2011 Form 20-F. Item 6. Directors, Senior Management and Employees, page 66 B. Compensation, page 67 Director Compensation, page 67 8. Please provide the details of your directors’ service contracts with the company or any of your subsidiaries providing for benefits upon termination of employment, or an appropriate negative statement. Please provide us with your proposed disclosure. Please see Item 6.C.2 of Form 20-F. We reissue comment three in our letter dated September 22, 2009 as it pertains to this point. The Company notes the Staff’s comment and plans to include in the 2011 Form 20-F the following statement: “We do not have service contracts with any of our directors which provide for benefits upon termination.” 5 E. Share Ownership, page 72 9. As appropriate, please disclose any significant change in the percentage ownership held by any major shareholders during the past three years and provide us with your proposed disclosure. Please see Item 7.A.1.b of Form 20-F or tell us why you believe this is unnecessary. The Company respectfully submits that its principal major shareholder from the time of the Company’s initial public offering in 2000 to the present time has been William Lei Ding, the Company’s founder, chief executive officer and a director. There has been no significant change in his percentage ownership during the past three y