F-1 1 a2205637zf-1.htm F-1

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As filed with the Securities and Exchange Commission on October 28, 2011

Registration No. 333-                   

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549



FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



LaShou Group Inc.
(Exact name of registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands   7389   Not Applicable
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification Number)

Room 1003, H Building (North)
Time Fortune
Jia-6 Shuguang Xili
Chaoyang District
Beijing, PRC 100028
Telephone number: +86-10-8444-0025

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



Law Debenture Corporate Services Inc.
400 Madison Avenue, 4th Floor
New York, New York 10017
(212) 750-6474

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Karen M. Yan
Latham & Watkins LLP
49th Floor, Jin Mao Tower
88 Century Boulevard
Shanghai, PRC 200121
+86-21-6101-6018

 

Alan Seem
Shearman & Sterling LLP
12/F, East Tower, Twin Towers
B-12 Jianguomenwai Dajie
Beijing, PRC 100022
+86-10-5922-8002



          Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement

          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering.    o



CALCULATION OF REGISTRATION FEE

   
Title of each class of
securities to be registered1,2

  Proposed maximum aggregate
offering price3

  Amount of
registration fee

 
   

Class B ordinary shares, par value US$0.0000005 per share

    US$100,000,000     US$11,460  
   
1
Includes (i) ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public and (ii) ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional ADSs. These ordinary shares are not being registered for the purposes of sales outside of the United States.
2
American depositary shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No.333-                   . Each American depositary share represents                   Class B ordinary shares.
3
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act.



          The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

Subject to Completion, dated                                        , 2011

PROSPECTUS


American Depositary Shares

GRAPHIC

LaShou Group Inc.

Representing                  Class B Ordinary Shares


LaShou Group Inc. is offering         American depositary shares or ADSs, each representing             Class B ordinary shares, par value US$0.0000005 per share. This is our initial public offering and no public market currently exists for our ADSs or our ordinary shares.

We have applied to list our ADSs on the NASDAQ Global Market under the symbol "LASO."

We currently anticipate that the initial public offering price of our ADSs will be between US$             and US$             per ADS.

Investing in our ADSs involves a high degree of risk. See "Risk Factors" beginning on page 14.

 
  Per ADS   Total  

Price to the public

  US$     US$    

Underwriting discounts and commissions

  US$     US$    

Proceeds to US (before expenses)

  US$     US$    

We have granted the underwriters a 30-day option to purchase up to             additional ADSs, at the initial public offering price less the underwriting discount and commission.

Upon the completion of this offering, 100,000,000 Class A ordinary shares and                           Class B ordinary shares of our company will be issued and outstanding. Each Class A ordinary share will be entitled to five votes and each Class B ordinary share will be entitled to one vote on all matters subject to a shareholder vote. Accordingly, upon the completion of this offering, holders of our Class A ordinary shares and Class B ordinary shares will hold         % and         % of our aggregate voting power, respectively.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADS to purchasers on or about                  , 2011.


Barclays Capital

CICC HK SECURITIES

 

 

 

Jefferies

 

 

 

 

 

Prospectus dated                         , 2011


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GRAPHIC


TABLE OF CONTENTS

 
  Page

Conventions That Apply to This Prospectus

  ii

Prospectus Summary

  1

The Offering

  8

Risk Factors

  14

Special Note Regarding Forward-Looking Statements

  55

Use of Proceeds

  56

Dividend Policy

  57

Capitalization

  58

Dilution

  60

Exchange Rate Information

  62

Enforceability of Civil Liabilities

  63

Corporate History and Structure

  65

Selected Consolidated Financial Data

  69

Management's Discussion and Analysis of Financial Condition and Results of Operations

  72

Industry

  97

Business

  100

Regulation

  119

Management

  131

Principal Shareholders

  138

Related Party Transactions

  141

Description of Share Capital

  144

Description of American Depositary Shares

  155

Shares Eligible for Future Sale

  166

Taxation

  168

Underwriting

  176

Expenses Related to this Offering

  183

Legal Matters

  183

Experts

  183

Where You Can Find Additional Information

  184



        No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information in this prospectus is current only as of its date.

        Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus or any filed free writing prospectus outside of the United States.

        Through and including          , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

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CONVENTIONS THAT APPLY TO THIS PROSPECTUS

        Unless otherwise indicated, references in this prospectus to:

    "we," "us," "our," "our company" or "Lashou" refer to LaShou Group Inc., a Cayman Islands company, and its subsidiaries and consolidated variable interest entity;

    "Shanghai Lashou" refer to Shanghai Lashou Information Technology Co. Ltd., a company incorporated in the PRC;

    "Beijing Lashou" refer to Beijing Lashou Network Technology Co. Ltd., a company incorporated in the PRC, and our variable interest entity that Shanghai Lashou effectively controls through a series of contractual arrangements;

    "Beijing Lashou Technology" refer to Beijing Lashou Technology Co. Ltd., a company incorporated in the PRC;

    "VIE" refer to our variable interest entity, Beijing Lashou;

    "registered users" refer to users that have registered and activated their accounts on our website www.lashou.com. Users must first register with us, and then "activate" by clicking an activation link in an e-mail we automatically send. Not all users activate the accounts they register with us;

    "paying user" refer to a user that has purchased at least once from us;

    "active paying users" refer to registered users that have purchased at least one of our products or services during the applicable measuring period. If the registered user makes more than one purchase during the applicable measuring period, such user will be counted as one active paying user during such period;

    "unique visitors" refer to Internet users who have visited our website at least once during the applicable measuring period;

    "completed transaction" refer to a completed sale of a voucher for services or products on our website;

    "gross billings" refer to the voucher price billed to our users from the sales of vouchers redeemed for service and product offerings provided by our merchants;

    "Class A ordinary shares" refer to ordinary shares of par value US$0.0000005 per share in the capital of our company, each of which is entitled to ten votes on all matters subject to a shareholder vote and will be entitled to five votes on all matters subject to a shareholder vote following this offering;

    "Class B ordinary shares" refer to ordinary shares of par value US$0.0000005 per share in the capital of our company, each of which is and will be entitled to one vote on all matters subject to a shareholder vote;

    "shares" or "ordinary shares" refer collectively to our Class A ordinary shares and Class B ordinary shares;

    "the 2010 Plan" refer to the 2010 Global Share Plan adopted on July 22, 2010;

    "ADSs" refer to our American depositary shares, each of which represents            Class B ordinary share[s];

    "ADRs" refer to the American depositary receipts, which, if issued, evidence our ADSs;

    "China" or the "PRC" refer to the People's Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau for the purposes of this prospectus only;

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    "RMB" or "Renminbi" refer to the legal currency of China; and

    "US$" or "U.S. dollars" refer to the legal currency of the United States.

        Unless otherwise indicated, information in this prospectus assumes that:

    the underwriters do not exercise their option to purchase additional ADSs; and

    all outstanding preferred shares are converted into 404,003,986 Class B ordinary shares upon the closing of this offering.

        References to share information and per share data reflect the 20-for-1 share split effected on December 31, 2010, pursuant to which every ordinary share and Series A preferred share and Series B preferred share was subdivided into 20 ordinary shares and 20 Series A and Series B preferred shares, respectively, and the par value of the shares was changed from US$0.00001 per share to US$0.0000005 per share.

        This prospectus contains translations of certain Renminbi amounts into U.S. dollars at specified rates. All translations from Renminbi to U.S. dollars were made at the noon buying rate in New York City for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been made at the noon buying rate in effect on June 30, 2011, which was RMB6.4635 to US$1.00. We make no representation that the Renminbi or dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On October 21, 2011, the noon buying rate was RMB6.3823 to US$1.00.

        This prospectus contains references to compound annual growth rate, or CAGR, which represents the rate of return on an annualized basis over the relevant time period.

        We have included references to our website www.lashou.com throughout this prospectus and our logo, which appears on the front and back covers of this prospectus, also includes the word "Lashou.com." However, the information contained on our website does not constitute part of this prospectus.

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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in the ADSs, you should carefully read this entire prospectus, including our financial statements and related notes included in this prospectus and the information set forth under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

OUR BUSINESS

        Lashou, meaning "hand-in-hand" in Chinese, is a leading online social commerce company in China. We enrich the online shopping experience of consumers in China by offering attractive group-purchase discounts across a variety of services and products on our website, www.lashou.com, and create a new avenue for large numbers of local merchants in China to grow their businesses. As published by iResearch, we are consistently ranked No. 1 among independent online social commerce companies in China, based on the number of daily unique visitors to online social commerce websites in China during the months of January 2011 through July 2011, with over 22% of total unique visitors viewing our website in each of these months. Our "Lashou.com" brand is one of the most recognizable online social commerce brands in China, according to a consumer survey conducted by CR-Nielsen in July 2011, which was commissioned by us.

        Each day, new surprise deals are waiting on our website for our users to discover. Our users can choose from up to 1,000 daily listings of mostly local offerings on substantially discounted services and products in more than 500 cities and towns. These offerings, primarily in food and entertainment, health and beauty, and travel and hospitality, are chosen for their appeal, quality and relevance to our mostly young and urban users. They are typically limited in quantity and conditioned on achieving a minimum number of purchases within a specific time frame. The attractiveness of the deals and the purchase limitations often propel user-initiated sharing of these opportunities with their friends, families and online groups, through word-of-mouth or links to our website, which drives the rapid expansion of our user base.

        Our large user base gives our merchants an affordable and effective means of sales promotion and inventory management. As a result, we are able to negotiate competitive pricing for our users on a wide range of services and products. As of October 23, 2011, our cumulative merchant base had grown to approximately 46,000 merchants supported by over 3,100 sales personnel in 184 cities and towns across 31 provinces in China, Hong Kong and Macau.

        Since we launched our website in March 2010, we have successfully grown to capture the tremendous e-commerce opportunities in China, as evidenced by the following:

    Our average monthly unique visitors, based on data from Google Analytics, grew from approximately 295,000 during the second quarter of 2010 to approximately 29.7  million during the third quarter of 2011;

    Our registered users grew from approximately 53,000 as of March 31, 2010 to approximately 16.8 million as of September 30, 2011;

    Our active paying users grew from approximately 25,000 during the second quarter of 2010 to approximately 3.3 million during the third quarter of 2011;

    Our merchant base grew from less than 400 during the second quarter of 2010 to approximately 24,000 during the third quarter of 2011; and

    The number of vouchers for services and products sold on our website grew from approximately 56,000 during the second quarter of 2010 to approximately 19.6 million during the third quarter of 2011.

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        Since we launched our website in March 2010, approximately 6.8 million paying users had purchased over 43.3 million vouchers for services and products from us as of September 30, 2011. Given that China's Internet users reached 425 million as of December 2010, which represents 32.4% of the Chinese population, and given that 80 million Internet users in China had bought services or products online in 2010 according to International Data Corporation data as of August 2011, we believe significant market opportunities exist for our future growth. See "Industry" for additional information.

        To achieve sustained growth and encourage user loyalty, we have built our firm culture around winning our users' trust through the following initiatives:

    we set the market standard with our "Three Guarantees" that generally promise (i) an unconditional cash refund or credit towards future purchases at the choice of the user within a certain period, (ii) a cash refund or credit towards future purchases at the choice of the user for unsatisfactory services, and (iii) an automatic credit or a cash refund (if requested by the user) for expired and unredeemed vouchers;

    we offer online and offline user and merchant support with over 400 service representatives in three service centers and our network of local offices;

    we follow stringent internal guidelines in our selection of merchants and service and product offerings; and

    we leverage our logistics network and work closely with our merchants to provide timely order fulfillment.

        As of September 30, 2011, 47.3% of our cumulative paying users were repeat purchasers, and 18.1% of our registered users had been referred to us by existing users.

        Our revenues grew from nil for the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB10.5 million (US$1.6 million) for the year ended December 31, 2010 and to RMB57.8 million (US$8.9 million) for the six months ended June 30, 2011. Our gross billings grew from nil for the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB123.2 million (US$19.1 million) for the year ended December 31, 2010 and to RMB626.7 million (US$97.0 million) for the six months ended June 30, 2011.

        We are a growth stage company and incurred sales and marketing expenses for the year ended December 31, 2010 and the six months ended June 30, 2011 of RMB40.0 million (US$6.2 million) and RMB326.5 million (US$50.5 million), respectively. Our net losses were RMB0.7 million for the period from September 15, 2009 (date of inception) to December 31, 2009, RMB53.5 million (US$8.3 million) for the year ended December 31, 2010 and RMB391.3 million (US$60.5 million) for the six months ended June 30, 2011. As of June 30, 2011, our accumulated deficit was RMB474.2 million (US$73.4 million).

        Due to legal restrictions in China, we conduct our business mainly through Beijing Lashou, our consolidated variable interest entity in China, that we effectively control through contractual arrangements.

OUR INDUSTRY

        China's retail and service sectors have experienced substantial growth in recent years. According to Euromonitor International data as of August 2011, China's retail market reached RMB7.5 trillion (US$1.2 trillion) in 2010 and is forecasted to grow at a CAGR of 11.1% to RMB12.7 trillion (US$2.0 trillion) by 2015.

        China's online social commerce market has grown rapidly since the first online social commerce site emerged in January 2010. There are currently over one thousand online social commerce sites in

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China, according to iResearch. The number of unique Internet users buying services or products online in China is also on the rise. The number of unique Internet users buying services or products online in China grew to 80 million in 2010 and is expected to reach 183 million by 2015, compared to 176 million in the United States in 2010, according to International Data Corporation data as of August 2011. This represents a penetration rate of 18.9% and 34.2% in 2010 and 2015 in China, respectively, among Internet users, compared to a penetration rate of 66.1% in the United States in 2010. See "Industry—Rapid Growth of China's E-Commerce Market" for additional information.

        Given the considerable size of China's retail and service industries, the market opportunity to bring local commerce online is substantial. There were approximately 40 million small and medium enterprises in China in 2010, according to an article published by China's National Bureau of Statistics. For local merchants, which usually are smaller in scale and have limited access to effective sales and marketing channels, online promotions allow them to cost-effectively acquire new consumers in existing or new cities. Furthermore, the majority of local businesses, especially those established in Tier 2 or Tier 3 cities in China, have no online presence. For these companies, establishing an online presence represents a significant market opportunity that they could not otherwise achieve on their own.

OUR STRENGTHS

        We believe the following strengths have contributed to our becoming a leading online social commerce brand in China and differentiated us from our competitors:

    innovation-based growth, through the development of new features such as multiple listings of featured group-purchase offerings and mobile platform applications for Internet-enabled smart phones and tablets;

    integrity as our core value, as evidenced by our consistently applied guarantees to our users and other policies to ensure the quality of services and products;

    large, active and loyal user base, with approximately 16.8 million registered users located in over 500 cities and towns in China as of September 30, 2011;

    nationwide merchant base and fulfillment network of approximately 46,000 cumulative merchants in more than 500 cities and towns in China, 31 distribution stations in eight cities throughout China and over 3,100 sales personnel in 184 cities in China, Hong Kong and Macau; and

    strong management and execution capabilities, resulting from our senior management team's extensive experience in building and managing rapidly growing online businesses.


OUR STRATEGY

        Our goal is to integrate Lashou into the daily life of Chinese consumers and become the dominant brand in China's online social commerce market. We plan to achieve our goal by implementing the following key strategies:

    solidify our market leadership position;

    continue to innovate and increase monetization;

    continue to improve user and merchant experiences; and

    focus on long-term growth and sustainable partnerships.

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OUR CHALLENGES

        We believe that the following are some of the major risks and uncertainties that may materially and adversely affect us:

    our limited operating history;

    our history of net losses and uncertainty with respect to our ability to achieve and maintain profitability in the future;

    our ability to respond to competitive pressures and negative publicity in a highly fragmented and competitive market;

    uncertainties regarding the growth and acceptance of the online social commerce industry;

    our inability to register the trademark, Lashou, could expose us to the use of the trademark by third parties and infringement claims. We initially filed two applications for the registration of the Lashou trademark in June and July of 2010, which applications were denied in December 2010 and April 2011, respectively, due to similarities of the trademark with an existing trademark. We submitted a request for the re-examination for one of the applications in April 2011 and the re-examination is currently in progress;

    uncertainties regarding potential conflicts between the fiduciary duties owed by our management to our PRC and Cayman Islands entities and the lack of a framework for resolving conflicts in fiduciary duty between these jurisdictions;

    our ability to implement our growth strategies successfully;

    our ability to adapt to technological advances; and

    uncertainties in the regulatory environment in China, including regulation of the VIE structure.

        See "Risk Factors" and other information included in this prospectus for a discussion of these and other risks and uncertainties.


OUR CORPORATE HISTORY AND STRUCTURE

        We commenced operations of our online social commerce business in September 2009 through Beijing Lashou, which is owned by Mr. Ming Guan, the nominee shareholder and cousin of Mr. Bo Wu, our co-founder, chairman and chief executive officer, and Mr. Xiaobo Jia, our co-founder and director. Beijing Lashou holds the Internet information services license, which is required for our business under PRC laws, and operates our website for our online social commerce business in China.

        Our holding company, LaShou Group Inc., was incorporated under the laws of the Cayman Islands on May 19, 2010. On June 22, 2010, we incorporated Lashou HK Limited, or Lashou HK, our wholly owned subsidiary in Hong Kong, which serves as an operating company for our online social commerce business in Hong Kong and the holding company of our subsidiaries in China. On August 25, 2010, Lashou HK established its wholly owned subsidiary, Beijing Lashou Technology Co. Ltd., in China, which is currently dormant and in the process of liquidation. On October 5, 2010, Lashou HK established its second wholly owned subsidiary, Lashou Macau Sociedade Unipessoal Limitada in Macau, which will serve as an operating company for our online social commerce business in Macau. On January 7, 2011, we incorporated Lashou Group Hong Kong Limited, our second wholly owned subsidiary in Hong Kong, which will serve our future business needs. On April 21, 2011, Lashou HK established its third wholly owned subsidiary, Shanghai Lashou, in China, through which we control the operations of Beijing Lashou.

        PRC laws currently restrict foreign-invested entities from engaging in value-added telecommunications services. To comply with PRC laws, we operate our online social commerce

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business through our VIE, Beijing Lashou. We exercise effective control over the operations of Beijing Lashou through a series of contractual arrangements among Shanghai Lashou, Beijing Lashou and its shareholders, which allows us to consolidate the financials of our VIE into our financial statements. The signing of VIE contracts by Shanghai Lashou, Beijing Lashou and its shareholders does not require approval from PRC authorities. See "Corporate History and Structure—Corporate Structure—Contractual Arrangements with Beijing Lashou and its Shareholders" for additional information. If our VIE or its shareholders fail to perform their obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over our VIE. Considering that we derive substantially all of our revenues from our VIE, if we are unable to maintain effective control over our VIE, we would not be able to continue to consolidate our VIE's financial results, which will materially and adversely affect our financial condition. Also, although we are able to derive substantially all of the economic benefits from our VIE through the contractual arrangements, we do not have unfettered access to our VIE's revenues due to substantial PRC legal restrictions, such as those on payments of dividends by PRC companies, foreign exchange control and foreign investment. Under the exclusive service agreement between Shanghai Lashou and Beijing Lashou, Shanghai Lashou is entitled to collect from Beijing Lashou service fees, which include (i) monthly fixed fees of RMB50,000, (ii) performance-based service fees calculated as a certain percentage of Beijing Lashou's annual revenues, and (iii) other fees payable in consideration for other services to be provided by Shanghai Lashou to Beijing Lashou. As of the date of this prospectus, Shanghai Lashou has waived the collection of such service fees from Beijing Lashou and we have not received any dividends from our PRC operating subsidiaries. Nonetheless, we expect to substantially rely on service fees from Beijing Lashou and dividends from our PRC operating subsidiaries. Future collection of the service fees depends on, among others, the profitability and financial condition of our VIE and PRC operating subsidiaries, and it is uncertain when we may reasonably expect to collect any such fees or dividends in the future.

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        The following diagram illustrates our corporate structure as of the date of this prospectus:

GRAPHIC


1
LaShou Group Inc., a company incorporated in the Cayman Islands that serves as our holding company.
2
Lashou HK Limited, a company incorporated in Hong Kong that serves as an operating company for our online social commerce business in Hong Kong; it also serves as the holding company of Beijing Lashou Technology, Shanghai Lashou and Lashou Macau Sociedade Unipessoal Limitada.
3
Lashou Group Hong Kong Limited, a company incorporated in Hong Kong that will serve as a holding company in the future.

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4
Lashou Macau Sociedade Unipessoal Limitada, a company incorporated in Macau that is currently inactive and will serve as an operating company for our online social commerce business in Macau.
5
Shanghai Lashou Information Technology Co. Ltd, a company incorporated in China that serves as a technical and consulting service provider to, and exercises effective control over, Beijing Lashou.
6
Beijing Lashou Technology Co. Ltd., a company incorporated in China that is currently dormant and in the process of liquidation.
7
Beijing Lashou Network Technology Co. Ltd, our VIE and a company incorporated in China that serves as an operating company for our online social commerce business in China.
8
Mr. Ming Guan is the nominee shareholder and cousin of Mr. Bo Wu, co-founder, chairman and chief executive officer of LaShou Group Inc.


OUR CORPORATE INFORMATION

        Our principal executive offices are located at Room 1003, H Building (North), Time Fortune, Jia-6 Shuguang Xili, Chaoyang District, Beijing 100028, People's Republic of China. Our telephone number at this address is +86-10-8444-0025 and our fax number is +86-10-8444-0015. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104 Cayman Islands.

        Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our agent for service of process in the United States is Law Debenture Corporate Services Inc. located at 400 Madison Avenue, 4th Floor, New York, New York 10017. Law Debenture Corporate Services Inc.'s telephone number is (212) 750-6474.

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THE OFFERING

        The following assumes that the underwriters will not exercise their option to purchase additional ADSs in the offering, unless otherwise indicated.

Offering price

  We currently estimate that the initial public offering price will be between US$            and US$            per ADS.

ADSs offered by us

 

            ADSs.

ADS to Class B ordinary share ratio

 

Each ADS represents            Class B ordinary share[s].

ADSs outstanding immediately after this offering

 

            ADSs (or            ADSs if the underwriters exercise their option to purchase additional ADSs in full).

Ordinary shares outstanding immediately after this offering

 

            ordinary shares (or            ordinary shares if the underwriters exercise their option to purchase additional ADSs in full) comprised of (i) 100,000,000 Class A ordinary shares and (ii)             Class B ordinary shares (or            Class B ordinary shares if the underwriters exercise their option to purchase additional ADSs in full).

 

Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share will be entitled to five votes and each Class B ordinary share will be entitled to one vote on all matters subject to a shareholder vote.

NASDAQ Global Market symbol

 

LASO.

The ADSs

 

The ADSs may be evidenced by ADRs.

 

The depositary will hold the shares underlying your ADSs and you will have rights as provided in the deposit agreement.

 

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.

 

You may turn in your ADSs to the depositary in exchange for ordinary shares. The depositary will charge you fees for any exchange.

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.

 

To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Option to purchase additional ADSs

 

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an additional            ADSs.

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Use of proceeds

 

We estimate that we will receive net proceeds of approximately US$             million from this offering (or US$             million if the underwriters exercise their option to purchase additional ADSs in full), after deducting the underwriting discounts, commissions and estimated offering expenses payable by us and assuming an initial public offering price of US$            per ADS, being the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus. We plan to use the net proceeds we receive from this offering to increase our marketing efforts and expand our sales network, increase our delivery and fulfillment infrastructure, build and establish a call center and an operations center, research and development, improve our enterprise resource planning system, further enhance our technology infrastructure, and for general corporate purposes. See "Use of Proceeds" for additional information.

Lock-up

 

We, our directors and executive officers, and all of our existing shareholders as well as option holders under our employee share incentive plan have agreed with the underwriters for a period of 180 days after the date of this prospectus not to sell, transfer or otherwise dispose of, and not to announce an intention to sell, transfer or otherwise dispose of any ADSs, ordinary shares or similar securities. See "Underwriting" for more information.

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

Depositary

 

JPMorgan Chase Bank, N.A.

        The number of ordinary shares that will be outstanding immediately after this offering:

    is based on 541,025,625 shares outstanding as of the date of this prospectus, assuming the conversion of all outstanding preferred shares into 404,003,986 Class B ordinary shares immediately prior to the completion of this offering;

    excludes 139,370,165 ordinary shares issuable upon the exercise of options to purchase ordinary shares outstanding as of the date of this prospectus (including options to purchase 28,411,100 Class A ordinary shares issued to Mr. Bo Wu, our co-founder, chairman and chief executive officer, and options to purchase 110,959,065 Class B ordinary shares), at a weighted average exercise price of US$0.0004946 per share; and

    excludes 66,353,495 Class B ordinary shares reserved for future issuances under our employee share incentive plan as of the date of this prospectus.

    If in the event the initial public offering price is lower than US$1.502809 per Class B ordinary share, the issue price for the Series C preferred shares, the conversion ratio of Series C preferred shares to ordinary shares will be greater than 1:1 and the number of ordinary shares outstanding immediately prior to this offering and after this offering will increase. Any US$            decrease in the initial offering price will result in the issuance of                        additional Class B ordinary shares to Series C preferred shareholders upon conversion.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

        We present below our summary consolidated financial and other operating data for the periods indicated. We have restated our consolidated financial statements for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2010 (unaudited) and June 30, 2011 as a result of the reasons disclosed in Note 2 to our consolidated financial statements, included elsewhere in this prospectus. The following summary consolidated statement of operations data for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2010 (unaudited) and June 30, 2011 and the consolidated balance sheets data as of December 31, 2009 and 2010 and June 30, 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated statement of operations data for the six months ended June 30, 2010 has been prepared on the same basis as our audited consolidated financial statements. The unaudited financial information for the six months ended June 30, 2010 includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the period presented. The summary consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of our results for any future periods.

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  For the Six Months Ended
June 30,
 
 
  For the Period from
September 15, 2009
(date of inception) to
December 31, 2009
   
   
 
 
  For the Year Ended
December 31, 2010
  2010
(Unaudited)
  2011
(Unaudited)
 
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (Restated)
  (Restated)
  (Restated)
  (Restated)
  (Restated)
 
 
  (in thousands, except for share, per share and per ADS data)
 

Consolidated Statement of Operations Data:

                                     

Revenues, net (Gross billings of nil, RMB123.2 million US$19.1 million, RMB1.0 million (unaudited) and RMB626.7 million US$97.0 million)

        10,468     1,620     24     57,817     8,945  

Cost of revenues

        (2,322 )   (359 )   (552 )   (6,114 )   (946 )
                           

Gross profit (loss)

        8,146     1,261     (528 )   51,703     7,999  

Operating expenses:

                                     
 

Sales and marketing1

    (308 )   (40,043 )   (6,195 )   (2,216 )   (326,452 )   (50,507 )
 

Product development1

    (98 )   (1,144 )   (177 )   (50 )   (4,086 )   (632 )
 

General and administrative1

    (278 )   (18,808 )   (2,910 )   (1,037 )   (112,296 )   (17,374 )
                           

Total operating expenses

    (684 )   (59,995 )   (9,282 )   (3,303 )   (442,834 )   (68,513 )
                           

Loss from operations

    (684 )   (51,849 )   (8,021 )   (3,831 )   (391,131 )   (60,514 )

Debt extinguishment loss

        (1,818 )   (281 )   (1,818 )        

Interest and other income

        1,283     198     1,283     514     80  

Interest and other expenses

        (1,111 )   (172 )       (652 )   (101 )
                           

Loss before income taxes

    (684 )   (53,495 )   (8,276 )   (4,366 )   (391,269 )   (60,535 )

Income taxes

                         
                           

Net loss

    (684 )   (53,495 )   (8,276 )   (4,366 )   (391,269 )   (60,535 )
                           

Accretion of Series A Preferred Shares to redemption value

        (67 )   (10 )       (76 )   (12 )

Accretion of Series B Preferred Shares to redemption value

                    (79 )   (12 )

Accretion of Series C Preferred Shares to redemption value

                    (96 )   (15 )

Repurchase of Series A-4 Preferred Shares

        (11,497 )   (1,880 )            
                           

Net loss attributable to ordinary shareholders

    (684 )   (65,059 )   (10,066 )   (4,366 )   (391,520 )   (60,574 )
                           

Loss per share:

                                     
 

Basic

    (0.00 )   (0.23 )   (0.02 )   (0.02 )   (1.75 )   (0.27 )
 

Diluted

    (0.00 )   (0.23 )   (0.02 )   (0.02 )   (1.75 )   (0.27 )

Loss per ADS:

                                     
 

Basic

                                                                                  
 

Diluted

                                                                                  

Shares used in loss per share computation for the ordinary shares:

                                     
 

Basic

    284,375,000     283,428,000     283,428,000     284,375,000     223,289,819        
 

Diluted

    284,375,000     283,428,000     283,428,000     284,375,000     223,289,819        

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1
Includes share-based compensation expenses as follows:

   
   
   
   
  For the Six Months Ended June 30,  
   
  For the Period From
September 15, 2009
(date of inception) to
December 31, 2009
  For the
Year Ended
December 31,
2010
 
   
  2010
(Unaudited)
  2011  
   
  RMB   RMB   US$   RMB   RMB   US$  
   
  (in thousands)
 
 

Share-based compensation expenses:

                                     
 

Sales and marketing

                    2,930     453  
 

Product development

                    1,639     254  
 

General and administrative

        7,377     1,141         91,835     14,208  
                             
 

Total

        7,377     1,141         96,404     14,915  
                             

 

 
  As of December 31,   As of June 30, 2011  
 
  2009   2010    
   
   
 
 
  RMB   RMB   US$   RMB   US$   US$  
 
   
  (Restated)
  (Restated)
  (Restated)
  (Restated)
  Pro Forma
 
 
   
   
   
   
  Actual
  As
 
 
   
   
   
   
   
  Adjusted1
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                                     

Cash and cash equivalents

    382     102,970     15,931     748,874     115,862        

Funds receivable

        3,958     612     7,286     1,127        

Deposits with merchants

        25,080     3,880     45,488     7,038        

Total current assets

    397     182,345     28,211     828,131     128,124        

Total assets

    406     186,560     28,864     850,338     131,560        

Payables to merchants

        11,552     1,787     110,126     17,038        

Advances from registered users

        57,777     8,939     128,315     19,852        

Total current liabilities

    9     81,114     12,550     276,615     42,796        

Total convertible redeemable preferred shares

        185,673     28,726     959,464     148,443        

Total shareholders' equity (deficit)

    397     (80,227 )   (12,412 )   (385,741 )   (59,679 )      

Total liabilities, convertible redeemable preferred shares and shareholders' equity (deficit)

    406     186,560     28,864     850,338     131,560        

1
Pro forma as adjusted consolidated balance sheet information assumes the automatic conversion of all of our outstanding preferred shares into 404,003,986 ordinary shares immediately prior to the closing of this offering, and the issuance and sale of the                Class B ordinary shares in the form of ADSs by us in this offering, assuming an initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs. A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS would increase (decrease) total shareholders' equity (deficit) by US$             million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

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  Three Months Ended  
 
  Year Ended
December 31,
2010
  March 31,
2010
  June 30,
2010
  September 30,
2010
  December 31,
2010
  March 31,
2011
  June 30,
2011
  September 30,
2011
 
 
  (in millions, except for number of featured merchants and gross billings per active paying user)
 

Selected Operating Data*

                                                 
 

Monthly average unique visitors1

    3.9     0.02     0.3     3.0     9.6     17.5     25.8     29.7  
 

Registered users2**

    4.5     0.05     0.3     1.0     4.5     8.1     12.4     16.8  
 

Active paying users3**

    1.5         0.03     0.3     1.3     1.8     2.9     3.3  
 

Number of completed transactions4**

    5.1         0.1     0.8     4.3     5.0     13.7     19.6  
   

Products

    1.6         0.01     0.1     1.5     0.8     7.3     13.1  
   

Services

    3.6         0.1     0.7     2.8     4.2     6.4     6.5  
 

Number of featured merchants5

    6,743     13     370     1,738     4,989     7,789     16,732     23,530  
 

Gross billings per active paying user6 (RMB)

    82.1         38.4     42.5     84.3     114.1     143.4        

*
We believe these data are important to the evaluation of our performance by our investors as they measure our overall growth, our ability to convert visitors into paying users and completed transactions as well as potential revenue opportunities from deals we can offer from our merchant base.
1
Represents the monthly average number of unique visitors that visited our website in the applicable measuring period. The data is based on application of Google Analytics, a third-party tool to analyze website traffic. The data does not include users of our mobile application or visitors to our mobile WAP site.
2
Represents the total number of registered users as of the end of the applicable measuring period.
3
Represents the total number of registered users who purchased our offerings at least once in the applicable measuring period. If any registered user makes more than one purchase during the applicable measuring period, such user will be counted as one active paying user during such period. We use calendar quarters and the calendar year of 2010 as the measuring periods for active paying users in this table.
4
Represents the total number of vouchers for services and products sold in the applicable measuring period.
5
Represents the total number of merchants whose services or products were featured on our website in the applicable period.
6
Gross billings per active paying user is calculated as gross billings for the applicable measuring period divided by the number of active paying users during the applicable measuring period. We believe gross billings per active paying user provides useful information to investors as it allows investors to measure our ability to convert registered users into paying users and compare us to other industry participants.
**
In order to more accurately report the number of our registered users, active paying users and completed transactions, we have excluded from these data actual and estimated returns of vouchers and suspected fictitious user accounts. For example, some registered users use software to open multiple accounts in order to increase their chance of winning prizes in lucky draws. We closely monitor user activity on a daily basis to identify and eliminate fictitious accounts. As such, our reported operating data have excluded up to 20% of registered users in each period, and between 2.5% to 10.0% of active paying users and completed transactions in each period.

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RISK FACTORS

        You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below, before you decide to buy our ADSs. Any of the following risks could have a material and adverse effect on our business, prospects, financial condition and results of operations. In any such case, the trading price of our ADSs could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Industry

We have incurred net losses in the past and may experience net losses or earnings declines in the future.

        We incurred net losses of RMB0.7 million, RMB53.5 million (US$8.3 million) and RMB391.3 million (US$60.5 million) for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2011, respectively. We have incurred net losses in the six months ended June 30, 2011 and expect to incur net losses in the remainder of 2011. We cannot assure you that we will not continue to incur net losses in the future or that there will not be declines in our revenues in future periods. Although we experienced significant revenue growth in recent periods, such growth rates may not be sustainable and may decrease in the future. In addition, our ability to become profitable depends on our ability to control our costs of revenues and operating expenses, which we expect will increase as we expand our business. We incurred in the past and expect to continue to incur in future periods certain share-based compensation expenses, which could result in further losses in the future. If we fail to increase revenues at the rate we anticipate or if our costs and operating expenses increase without a commensurate increase in our revenues, our business, financial condition and results of operations will be adversely affected.

Our short operating history makes evaluating our business and prospects difficult and our past results may not be indicative of our future performance.

        We launched our www.lashou.com website in March 2010. As such, we have a short operating history from which to evaluate our business, financial performance and prospects. You should consider our business and prospects in light of the risks, expenses and challenges that we will face as a relatively young company operating in the competitive and rapidly developing online social commerce industry. Our ability to achieve and maintain profitability primarily depends on, among other factors, our ability to offer attractive services and products, to maintain and expand our user base, to increase our merchant base and negotiate favorable pricing and our ability to increase transaction volume and gross billings per active paying user. We may not be able to effectively assess or address the evolving risks and difficulties present in the market, which could threaten our capacity to continue our operations successfully in the future. If we are unsuccessful in addressing these and other risks, our business may be materially and adversely affected. Accordingly, you should not rely on our results of operations for any prior period as an indication of our future performance.

Our inability to effectively manage our growth or to successfully implement our growth strategies could materially and adversely affect our business and results of operations.

        We have experienced a period of rapid growth and expansion since our establishment. We may not be able to effectively manage our growth in future periods due to a number of different factors, including, among others, economic factors out of our control, competitiveness in the online social commerce industry, in which market share can be quickly acquired or lost, the greater difficulty of growing at sustained rates from a larger revenue base, our inability to prevent our other costs and operating expenses from increasing, and the availability of resources for our growth. Specifically, our anticipated further expansion will place a significant strain on our management, systems and resources. We intend to continue to maintain a large salesforce, improve our operational and financial systems, procedures and controls, and continue to manage our relationships with our users, merchants and third-

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party service providers. All of these endeavors will require substantial management efforts and skills and the incurrence of additional expenditures.

        In addition, we are pursuing a number of growth strategies, including developing new and/or enhanced online services and features to attract more users, expanding our marketing networks, strengthening our technology and operational platforms, enlarging our research and development team, and expanding into markets within and outside China. Pursuing these strategies may require us to expand our operations through internal development efforts and through partnerships, joint ventures, investments and acquisitions. We cannot assure you that we will be able to efficiently or effectively implement our growth strategies and manage the growth of our operations, and any failure to do so may limit our future growth and hamper our business strategy.

We operate in the highly fragmented and competitive online social commerce industry and we may not be able to compete successfully, which could result in a loss of market share and a failure to maintain our revenues or achieve profitability.

        The online social commerce sector in China is highly fragmented and competitive. The markets are characterized by the frequent introduction of new websites and services, short website life cycles, constantly evolving trends, rapid adoption of technological advancements, as well as price-sensitive users. We expect a wider range of online services targeting our user base to be introduced into the China market. There are currently over one thousand online social commerce sites in China, according to iResearch. We compete directly with independent sites that are dedicated to offering online social commerce services such as Meituan.com, 55tuan.com, 24quan.com and Groupon.cn, a company not known to be affiliated with Groupon in the U.S. In addition, we face competition from affiliated group-purchase sites of other Internet companies, such as Taobao.com's Taobao Juhuasuan, Tencent's Tuan.qq.com, Dianping's group-purchase feature, Renren's Nuomi and Groupon and Tencent's joint venture, Gaopeng.com. We also face competition from e-commerce companies that may expand their offerings to include group-purchase offers. We also face competition from traditional offline companies that provide vouchers and discounts on products, such as newspapers, magazines and other traditional media outlets. Our potential competitors also include major Internet portal operators, other domestic and foreign online social commerce and e-commerce companies. Alliances or mergers among our existing competitors or with new entrants into the online social commerce industry may present additional challenges.

        We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including the attractiveness of our discounted offerings, the quality of our merchants, the size and diversity of our user base, our customer service and after-sales support efforts, our sales and marketing efforts, our brand strength in the market relative to our competitors, and acceptance of the online social commerce model, consumer spending power and other macroeconomic factors.

        Some of our competitors or potential competitors, especially major foreign online social commerce providers, have significantly greater financial and marketing resources and higher brand recognition than we have. In addition, certain of our competitors have operated commercially successful online social commerce services for as long as or longer than we have and have a larger portfolio of online services and offerings than we do. As a result, they may be able to take greater risks and endure lower than expected performances from some of their online services than we are able to do.

        Our competitors may introduce new business models and if these new business models are more attractive to users than our current business models, our users may switch to our competitors' online social commerce websites. We believe that competition in the online social commerce market in China will become more intense if and when increasing numbers of online services are introduced in these markets. We cannot assure you that we will be able to compete successfully against any new or existing competitors, or against any new business models implemented by them. In addition, the increased

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competition we anticipate in the online social commerce markets may also reduce the number of our users or merchants or growth rate of our user and merchant base. All of these competitive factors could have a material adverse effect on our revenues and profitability. Furthermore, in an increasingly competitive environment, some of our competitors have engaged in certain improper business practices, and may continue to do so in the future, which may be harmful to us and we may have difficulties in preventing such ongoing practices. See "—Risks Related to Our Business and Industry—Certain business practices of our competitors may result in harm to our business" for further details.

We have not currently registered in China the trademark for our "Lashou" brand, which may materially and adversely affect our business and results of operations. Furthermore, we face uncertainties relating to the regulation of domain names and our ability to enforce our intellectual property rights.

        We regard substantial elements of our website and the underlying technology as proprietary, and attempt to protect them by relying on copyright, service mark, trademark and trade secret laws as well as restrictions on disclosure, transferring title and other methods. Contracts with our employees and consultants generally contain confidentiality provisions, and we generally seek to control access to and the distribution of our technology, documentation and other proprietary information. We also enter into agreements with key employees and officers, pursuant to which our key employees and officers assign to us the intellectual property rights in works generated by them as a result of their employment duties or from our resources while they are employed by us. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization, or to develop similar or superior technology independently. Copyright, service mark, trademark and trade secret protection may not be effective and policing unauthorized use of our proprietary information is difficult. Any such misappropriation or development of similar or superior technology by third parties could adversely impact our results of operations and our future financial results.

        We have not currently registered in China the trademark for our "Lashou" brand. We have applied for the registration of several trademarks in China with the Trademark Office of the State Administration for Industry and Commerce, or the SAIC. However, two of our applications, " GRAPHIC " (translated as "Lashou Website") and " GRAPHIC " (translated as "Lashou Group Purchase"), for which we applied for registration in the website-related category in June 2010 and July 2010, respectively, were denied approval in December 2010 and April 2011, respectively, due to similarities with an existing trademark, registered by a third party. In April 2011, we filed an appeal letter with the Trademark Review and Adjudication Board of the SAIC for its re-examination of our trademark registration application for " GRAPHIC " (translated as "Lashou Group Purchase") in that category. Typically, it takes from several months to more than a year to complete the re-examination procedure. In addition, we have applied for over 80 other trademarks with the SAIC in various categories, which are currently in varying stages of the review process. We cannot assure you that the SAIC will grant us the approval to register " GRAPHIC " (translated as "Lashou Group Purchase") in the website-related category or approve our applications for registration of other trademarks. As a result, we may be unable to prevent third parties from utilizing these brand names, which may have a detrimental impact on our brand image. Moreover, third parties may be able to successfully register one or more of the "Lashou" trademarks for which we are applying for registration. Furthermore, our use of these trademarks and brand names could be challenged and we may be subject to trademark infringement claims.

        We currently hold various domain names relating to our brand and may acquire new domain names in the future. The regulation of domain names in China and in foreign countries is subject to change. Governing bodies may establish additional top level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names. Furthermore, the relationship between regulations

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governing domain names and laws protecting trademarks and similar proprietary rights are unclear. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our existing trademarks and other proprietary rights or those we may seek to acquire. Acquisition of similar domain names may be costly and result in harm to our results of operations. Any such inability to protect ourselves could cause us to lose a significant portion of our users to our competitors.

        In addition, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. We cannot assure you that the outcome of such potential litigation will be in our favor. Such litigation may be costly and may divert management attention and other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we do not have insurance that covers litigation costs. As a result, we would have to pay for the cost of litigation initially and may only be able to recover those costs if we prevail. Even if we prevail, it may be difficult to recover the costs from a third party. We cannot assure you that we would be able to recover all such costs. Consequently, the infringement or misappropriation of our proprietary intellectual property rights could have a material adverse effect on our business, financial condition or operating results.

We face uncertainties regarding the growth of the online social commerce industry and user acceptance of our online services and features, which could adversely affect our revenue growth and business prospects.

        The growth of the online social commerce industry from which we derive most of our revenues, as well as the level of demand and market acceptance of our services, are subject to uncertainties and numerous other factors, some of which are beyond our control. These uncertainties and factors include but are not limited to:

    general economic conditions, particularly economic conditions adversely affecting consumer spending;

    the growth of Internet usage and penetration in China, and the rate of any such growth;

    the development and change of government regulations of the Internet industry in general and the online social commerce industry in particular;

    whether the online social commerce industry, particularly in China, continues to grow and the rate of any such growth;

    the popularity and price of online services and products that we and our competitors offer; and

    changes in user demographics and their tastes and preferences.

        A decline in the popularity of online social commerce in general, or our website in particular, and a decline of our user base, could adversely affect our revenue growth and business prospects.

Negative press or public opinion about us, our management and our competitors or the online social commerce industry as a whole may result in harm to our reputation and our business.

        Recent media reports and allegations in Internet forums have raised allegations of unsavory business practices by companies in the online social commerce industry, such as companies selling counterfeit products, providing poor services, and inflating original retail prices to show larger discounts. Allegations have also been raised against us in the past that we believe to be unsubstantiated or without merit. In particular, over the past year, some reports and online chat-room allegations have accused us of overcharging for goods, engaging in a public welfare activity solely for publicity purposes, making false advertisements and misleading users, accepting bribes from merchants and other spurious allegations. Some of these allegations were patently untrue. Some of these allegations were internally

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investigated and confirmed to be inaccurate. For example, a May 2011 report inaccurately alleged that the actual price of a hospitality product was lower than our offer price. We had confirmed the offer price from the merchant at the time of the contract and the merchant reduced its price on its own only after our offering was launched. Our business and our reputation may be also materially and adversely affected through the dissemination of unsubstantiated rumors about our business and operations on online news sites, blogs, social networking sites or other Internet forums.

        In March 2011, national television channel CCTV Channel 2 aired a report alleging that we and certain other online social commerce companies had engaged in suspect merchant selection and screening processes and sold counterfeit products, and that we inflated our reported offerings' participation rates. We discovered that counterfeit products were sold once only by a distributor in the month we began to offer products. We changed our policy to transact directly with manufacturers or distributors with the best track records, and require inspection of sample products except in limited instances where the risk of not adopting these measures is low. We also discovered that we had acquiesced in instances where merchants had requested that we lower the minimum participation requirements out of concern that the relevant services and products would otherwise be perceived as unattractive. After confirming that such incidents did occur, we now generally prohibit retroactive downward adjustment of participation requirements unless our users who have purchased the offerings are willing to accept the products or services provided by the merchants even if the set minimum number of purchases is not met.

        Negative press or any public allegations of unsavory business practices against us or any online social commerce company, whether or not substantiated, may materially and adversely affect user perception of the online social commerce industry as a whole and may harm our brand and our business. Such negative publicity or allegations, especially direct allegations against us, may require us to engage in a defensive media campaign, which may result in an increase in our marketing expenses, divert our management's attention and adversely impact our results of operations.

        Our chief financial officer, James Jian Zhang, is also a named defendant in a securities class action lawsuit relating to his having previously served as an independent director of Duoyuan Printing, Inc. See "Business—Legal Proceedings." Negative press reports relating to this lawsuit could also have a negative impact on Mr. James Jian Zhang's reputation and therefore our company's reputation, which could adversely impact the price of our ADSs.

Certain business practices of our competitors may result in harm to our business.

        Competition in the online social commerce industry in China is intense. Several of our competitors are part of larger companies with other Internet-related businesses. Our competitors may prohibit their affiliates or business partners, such as merchants, search or referral sites, or third-party service providers, from doing business with us or control the flow of business to us, which may result in, among other things, loss of sales, negative margins and additional expenses. Our competitors could also directly or indirectly generate negative publicity against us. For example, in some of the cities in which we operate, our competitors who had closed down their operations ceased to make payments due to merchants. As a result of the actions of our competitors, in some cases, we were compelled to increase our payment frequency to merchants in these cities to ensure that our merchants would continue their business relationships with us. In addition, our competitors may solicit our employees with employment opportunities based on predatory and unsustainable salary and benefits levels, resulting in harm to our operations. We have experienced such improper business practices directed against us in the past and may continue to suffer from them in the future. For instance, in May 2011, more than 150 of our employees, including certain mid-level management, tendered their resignations to accept employment with a competitor, as a result of aggressive solicitations by such competitor. Such business practices on the part of our competitors may result in harm to our business and results of operations.

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If we fail in our efforts to attract a large number of active paying users or increase their purchases, our operating results would suffer.

        Our future growth depends on our ability to attract and maintain a large number of active paying users. This depends in part on our ability to deliver high-quality online social commerce services to our users and our development and introduction of enhanced features to retain our existing active paying users while attracting new active paying users. As a result, we must invest significant resources in order to enhance our existing features and continue to introduce new features that people will use. In addition, we must continually offer our users a broader range of deals and offerings at attractive prices. If we are unable to predict user preferences or industry changes, or if we are unable to modify and enhance our services and offer more attractive deals than other online social commerce companies on a timely basis, we may lose our user interest and fail to attract new registered users or increase purchases from our users and our operating results could suffer.

Our sales and marketing expenses may increase and, if efforts to increase traffic to our website are not successful or cost-effective, our revenues and profitability may be materially and adversely affected.

        We rely on a variety of marketing efforts to attract traffic to our website and attract registered users. Our marketing activities involve considerable expenditures for online and traditional offline advertising and marketing. Our offline advertising includes advertising on traditional media outlets such as television and outdoor advertisements. Our online advertising is designed to direct traffic to our website and includes purchased listings on various major Internet search engines and purchasing rankings on direct navigation sites in China, as well as advertising on third-party websites. Purchased listings generally are displayed if searches for a particular word are performed on a search engine. Purchasing rankings on direct navigation sites provides high ranking for websites in a certain area. Advertising on third-party websites includes purchasing advertising space and links to our website. Depending on the arrangement, we may be required to pay a fixed fee, a fee based on the volume of clicks to our website, and such fee arrangements may be subject to minimum fee amounts payable by us. These arrangements are generally not exclusive.

        Our sales and marketing expenses vary over time, depending upon a number of factors, many of which are beyond our control. For example, the cost of our offline advertising has recently increased substantially, due to increased efforts to establish our brand image via traditional media outlets, such as television advertisements. If we continue to seek to increase our brand recognition through television advertisements, it could be increasingly costly and may result in an increase in our marketing expenses. If we are not able to reduce our other operating costs, increase our registered user base or increase average gross billings per active paying user to offset such anticipated increases, our profitability may be materially and adversely affected. In addition, our marketing activities may not be successful or cost-effective.

        There has been a gradual increase in directed traffic from direct navigation sites and, consequently, the cost of such purchased listings and rankings could also increase as a percentage of our total marketing costs if this trend continues. Furthermore, while we currently enjoy good relationships with third-party search engines and direct navigation sites, our arrangements with these third parties may be terminated or expire and we may not be able to replace this traffic and thus lose revenues. Given our reliance on certain direct navigation sites in China, such as hao123.com, hao360.com, the termination of arrangements with key direct navigation sites may result in a significant decline in our website traffic and related revenues if we are unable to find suitable replacement arrangements. We also may not be able to enter into new arrangements with third parties on acceptable terms or at all. Any of these factors or other general factors outside of our control could result in an increase in our marketing costs, which would adversely affect our business, financial condition and results of operations.

        Marketing strategies in China are evolving. This further requires us to enhance our marketing strategies and experiment with new marketing methods to keep pace with industry developments.

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Failure to refine our existing marketing activities or to introduce new effective marketing activities in a cost-effective manner could reduce our market share, cause our revenues to decline and negatively impact our profitability.

        Our current marketing expenses are the result of concerted efforts to build our brand image and expand our user base and market share. We may continue to incur a large amount of marketing expenses as part of our growth strategy. We cannot guarantee that our marketing efforts will meet our expectations in enhancing our brand or increasing our user base or market share. If we fail to recover in time our marketing expenses with new paying user acquisitions or increases in our revenues, our results of operations and cash flows could be materially and adversely affected.

We may be unable to maintain our merchant base or attract new merchants in the future on terms acceptable to us or at all, which may materially and adversely impact our business and results of operations.

        Our continued success is largely dependent upon our ability to attract and maintain a broad merchant base and offer a wide range of products and services on our website to our registered users. Our revenues represent the amount of billings, net of business tax, we retain after paying an agreed amount to the merchants. Merchants may choose other online social commerce companies or conclude that online social commerce is not effective for their business purposes. Merchants may also demand prices that are not attractive to us or our users or other terms that may not be acceptable to us. If we are unable to maintain and attract a broad merchant base in the future on terms acceptable to us or at all, our business and results of operations would be materially and adversely affected.

Our merchants may have difficulty fulfilling their obligations due to limited availability of working capital to them, which may materially and adversely impact our business and results of operations.

        Our user and merchant contracts generally allow us to collect payment upfront when our users purchase the offerings featured on our website and make payments to our merchants by installments on subsequent dates. For services offerings, currently we typically pay 40% of the total contracted price to a merchant three business days after an offer expires on our website. The merchant receives an additional 30% of the total contracted price upon redemption of 40% of the vouchers purchased by our users. Within seven days after the expiration date of the voucher, we pay the remainder of the contracted price to the merchant. However, we do not pay merchants, or we claw back from merchants, as applicable, the amounts refunded to users that have not redeemed their vouchers by the voucher expiration date. For product offerings, we pay the contracted price to the merchant in installments, typically with 50% paid to the merchant three business days after an offer expires, and the remainder in one or two subsequent installments typically after goods have been delivered. These payment arrangements with merchants may not provide them with enough operating cash flow to fund their working capital needs, particularly when a large amount of group-purchase offers of the merchants' services or products are sold on our website. As a result, merchants may not be able to fulfill their obligations to our users. To date, we are not aware of any such instance where a merchant was unable to fulfill its obligations to our users to its lack of working capital. However, we cannot assure you that such an incident will not occur in the future. Merchants are generally liable pursuant to the terms of our agreements with them to indemnify us against any losses and liabilities resulting from any claim raised by our users due to the non-performance by the merchants. However, since merchants may dispute our interpretation of the indemnification clause and the extent of such indemnification, and since court or arbitration proceedings determining the outcome of such interpretation can be lengthy and costly, and the results of such proceedings may be uncertain, we cannot assure you that we will be successful in enforcing such clauses or obtaining indemnification in full in practice every time such an incident occurs. If a significant number of merchants cannot fulfill their respective obligations to our users and are unable to fully indemnify us for our users' losses as a result of their inability to fulfill their respective obligations, our business and results of operations could suffer.

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Our reputation could be harmed and our user experience may be negatively affected if third-party logistics companies and third-party payment service providers do not adhere to our standards of quality.

        We rely, to a large extent, on third-party logistics companies such as Huitong Express, Shentong Express and Zhongtong Express, and third-party payment service providers such as 99Bill, Alipay, Tenpay and Yeepay, to enable our users to purchase vouchers and receive products ordered on our website. We contract with third-party logistics companies to fulfill timely and safe delivery service standards in those cities where we do not have a logistics presence. These arrangements allow us to respond quickly to product demand in multiple markets while increasing efficiency and minimizing costs. Interruptions to or failures in these third-party logistics services could prevent the timely or successful delivery of products. These interruptions may be due to unforeseen events that are beyond our control or the control of these third-party logistics companies, such as inclement weather or natural disasters. If the products are not delivered on time or are delivered in a damaged state, users may refuse to accept the products and have less confidence in our services. Thus, we may lose paying users, and our financial condition and market reputation could suffer. To date, we have not experienced delays or unsatisfactory deliveries that we could not remedy or that have had a material impact on our business. However, we cannot guarantee that these third-party companies will adhere to the standards of service and quality control that we impose on our operations. If any of these third-party logistics companies or third-party payment service providers fail to provide our users with the quality of service they expect from our brand, our reputation may be harmed, which could negatively impact our business and results of operations.

        Additionally, we have the right to replace any third-party logistics company or payment service provider that fails to comply with our service standards in accordance with the terms of our contracts with these third-party companies. To date, we have not replaced any third-party logistics company or payment service provider. However, we cannot assure you that these third-party companies will be able to provide services we request in the future. If we are not able to find replacements for them in a timely manner, or at all, our business and results of operations may be materially and adversely affected.

An increase in our refund rate could adversely affect our business and results of operations.

        We offer our "Three Guarantees" as posted on our website to our users, which generally promise (i) an unconditional cash refund or credit towards future purchases at the choice of the user for user requests made within seven days of the closing of the offer, (ii) a cash refund or credit towards future purchases at the choice of the user upon our investigation with the merchant, if the service or product is materially different from what we feature on the website or has a material defect, or the merchant refuses to honor the voucher during the validity period of the voucher, and (iii) an automatic credit or a cash refund (if requested by the user) for expired and unredeemed vouchers, which credit can be applied towards the purchase of another group-purchase offering. See "Business—Our Services and Products—Our User Experience—Service Purchases—Three Guarantees." The first prong of our "Three Guarantees" is generally not available for (a) certain film, concert or show ticket vouchers because these vouchers generally need to be redeemed within a very short period of time and, as such, have expiration dates of less than seven days, (b) hotel offers and (c) products because typically products are delivered to users within seven days of the closing of the offer. The third prong of our "Three Guarantees" is generally not available for certain film, concert or show ticket vouchers where we have purchased a fixed number of tickets from the merchants in advance, or where products have been already delivered to our users. Although our refund rate has historically been low, we have a short operating history and our refund rates may exceed our historical levels as our user base further expands and as we offer more diversified products and services to our users. As we do not have control over our merchants or the quality of products or services they deliver, aside from our own merchant selection and approval process and our product acceptance process in our warehouses, we rely on the

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historical number of claims received and refunds made to estimate our refund claims for each period. Our actual level of refund claims could prove to be higher than the level of refund claims we estimate. A significant increase in our refund rate could significantly reduce our liquidity and cash flow, which could adversely affect our business and results of operations. However, we are contractually entitled to deduct from amounts due to the merchant (or request payment from the merchant) qualifying refunds that we have made to our users (including but not limited to refunds for expired and unredeemed vouchers). While we have these contractual entitlements against our merchants and have been able in the past to fully enforce or fully recover the cost of our remedies from our merchants, there is no assurance that we will be able to do so in the future.

Actions by our merchants may damage our reputation and our brand, which in turn could adversely affect the number of active users and our results of operations.

        Our users may suffer harm as a result of the actions or poor quality of services of a merchant whose services or products are featured on our website. Affected users could initiate legal or other actions against us for the indemnification of any loss that they have suffered from the actions of our merchants, which could cause us to incur significant expenses and damage our reputation. We do not carry insurance to cover such claims and potential damages.

        In addition, if one or more of our users suffer or allege to have suffered harm as a result of using the products or services featured on our website, any resulting negative publicity could materially and adversely affect us or China's online social commerce industry in general, including, but not limited to, increased government scrutiny and regulation. Any such incident involving our online social commerce services could damage our reputation and our brand and may result in a decline of the number of users. This, in turn, could adversely affect our results of operations.

        Furthermore, if our merchants are unable to fulfill their obligations to our users and provide the services or products as featured on our website due to insolvency, bankruptcy or other operational or financial difficulties, our brand image and reputation may be harmed. We may also be unable to recover prepayments made to our merchants. We pay our merchants in installments according to the progress of the group-purchases and, for services offerings, currently we typically pay 40% of the total contracted price to a merchant three business days after an offer expires on our website. In the event that our merchants are unable to fulfill their obligations to our users or otherwise do not comply with their agreements with us, we may suffer losses as a result of unreturned prepayments. In addition, our users may seek refunds from us under our "Three Guarantees" promises and we may be required to expend significant time, money and resources to obtain such indemnification from the merchants. Although under our current arrangements with merchants, merchants are obligated to indemnify us against certain claims by our users associated with services or products provided by them, we may not ultimately be able to obtain full indemnification against our losses or at all if merchants are insolvent or bankrupt or if merchants successfully dispute our claims in legal proceedings. As a result, our business and results of operations could also be adversely affected.

Misconduct of our employees may result in harm to our reputation or our business.

        We have established internal controls and policies regulating the actions of our employees. However, we cannot guarantee that our employees will not engage in actions such as fraud, theft or the making of public statements that are harmful to our reputation. For instance, in March 2011, national television channel CCTV Channel 2 broadcasted a report alleging that we had engaged in suspect merchant selection and screening processes and sold counterfeit products, and that we inflated our offerings' participation rates. We discovered that the incident that was the subject of this report occurred when a sales person engaged a distributor of products without properly implementing our merchant selection process. Despite the fact that the statements made by the employee to the CCTV reporter did not reflect our policies regarding merchant selection and the reporting of offering participation rates, our brand image and reputation were harmed by the report. Since that incident, we

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have undertaken training for our sales force and strengthened our merchant approval process in order to avoid similar incidents. See "Business—Our Sales Network and Team—Sales Force and Training." However, we cannot assure you that similar incidents or other misconduct by our employees will not occur in the future. Such actions may harm our brand image and could materially and adversely affect our business and prospects.

If we are unable to maintain and enhance our brand, we may be unable to maintain or expand our user base.

        We believe that our reputation and level of market awareness for our Lashou brand has contributed significantly to the success of our business. Maintaining and enhancing our brand recognition and reputation depends primarily on the quality and consistency of our services, as well as the success of our marketing and promotional efforts. We believe that maintaining and enhancing our brand is critical to our efforts to attract and expand our user base. We believe that the importance of brand recognition will continue to increase given the growing number of websites and the low barriers to entry for companies to set up online social commerce services. If visitors and users to our website do not perceive our existing services to be of high quality, or if we introduce new services that are not favorably received, our brand image may be harmed, thereby decreasing the attractiveness of our website. While we have devoted significant resources to brand promotion efforts in recent years, we cannot assure you that our ongoing marketing efforts will be successful in further promoting our brand. In addition, our brand image may be harmed by negative publicity relating to our company or websites regardless of its veracity. If we are unable to further maintain and enhance our brand recognition and increase market awareness for our company and services, our ability to attract users may be harmed and our business prospects may be materially and adversely affected.

We may be unable to successfully incorporate new types of group-purchase offerings into our existing business model.

        We operate in a rapidly evolving industry and, as such, intend to continually expand the types of product and service offerings available to our users. As part of the expansion of our product and service offerings, we may make substantial investments in anticipation of future revenues. The introduction of new product and service offerings may require us to work with different groups of merchants and address the needs of different kinds of users. In addition, we may face new competitive pressures as we expand into group-purchase offerings for new product and service markets. We cannot guarantee you that our expansion in new product or service offerings will prove successful or profitable. If we are unable to successfully incorporate new product and service offerings into our existing business model, our results of operations and our business could be adversely and materially affected.

Our failure to anticipate or successfully implement new technologies could render our online services uncompetitive or obsolete, and reduce the number of users, our revenues and our market share.

        We operate in a market characterized by rapidly changing technologies, evolving industry standards, frequent new service announcements, enhancements and changing user demands. Accordingly, our performance will depend on our ability to adapt to rapidly changing technologies and industry standards, and our ability to continually improve the speed, performance, features, ease of use and reliability of our services in response to both evolving demands of the marketplace and competitive services. We need to anticipate the emergence of new technologies and assess their market acceptance. We also need to invest significant resources in research and development to keep pace with technological advances in order to make our development capabilities and our online services competitive in the market.

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        There may be occasions when we may not be as responsive as many of our competitors in adapting our services to changing industry standards and the needs of our users. Our industry has been subject to constant innovation and competition. Historically, new features may be introduced by one competitor, and if they are perceived as attractive to users, they are often copied later by others. Over the last few years, such new feature introductions in the industry have included mobile applications and location-based technology.

        We currently offer a mobile application and intend to continue to devote our efforts and funds toward the development of additional mobile technologies and features. Introducing new technologies into our systems involves numerous technical challenges, substantial amounts of capital and personnel resources and often takes many months to complete. For example, the smaller interfaces and lower resolution, limited functionality and memory currently associated with certain mobile devices may make the use of our services through such mobile devices more difficult and impair the user experience relative to access via desktop and laptop computers. We may not be able to effectively integrate new technologies on a timely basis or at all, which may decrease user satisfaction with our online services. Such technologies, even if integrated, may not function as expected or may be unable to attract and retain a substantial number of mobile device users to our online services. We also may not be able to protect such technologies from being used by our competitors. Our failure to keep pace with rapid technological changes could have a material and adverse effect on our business.

Some of our reported operating data are based on our estimates and may not be accurate.

        We believe it is important for us to report selected operating data, such as number of registered users, active paying users and completed transactions, that will allow our investors to track our performance. However, as a result of malicious online activities by some opportunistic users, we need to eliminate fictitious accounts from our system and exclude fictitious accounts from the reported operating data. For example, some visitors to our website have used software programs to generate large numbers of fictitious accounts in order to increase their chances of winning prizes in lucky draws. We monitor user activities on a daily basis for any suspicious activity, such as unusual activity in our lucky draws, in order to identify fictitious accounts. In identifying suspected fictitious user accounts, we examine a variety of parameters for suspicious activities, such as the creation of accounts with the same IP address, similar e-mail addresses or similar passwords. We also implement preventive measures such as requiring users to enter letters and numbers that are shown graphically to prevent mass registration of accounts from programs. We observe and identify suspicious activities when the potentially fictitious user accounts exceed a certain threshold, as defined by a certain percentage of the accounts whose owners are buying the same deal or a certain percentage of accounts invited by the same account, as identifying suspected fictitious user accounts under this threshold has a much higher risk of erroneously deeming accounts as fictitious that are actually legitimate.

        We have a data analysis team which is responsible for identifying fictitious user accounts. When the data analysis team identifies suspected fictitious accounts, they will notify the vice president of Technical Department, vice president of Operations and our chief executive officer, Mr. Bo Wu, of the incident, who will then jointly decide whether the accounts are fictitious and should be closed. Once accounts are determined to be fictitious, they are closed immediately. Mr. Bo Wu and the chief financial officer will continue to monitor and improve the process and report to the Board of Directors periodically on the operating data and the adjustments, including manner of such adjustments. The official policy covering the opening of accounts and prohibition on opening multiple accounts and the user's agreement are displayed on our website, which can be found in the following link:
http://www.lashou.com/xieyi.php.

        If we identify any fictitious account, we exclude it from our operating data. However, we cannot guarantee that all fictitious accounts will be fully identified or identified in a timely manner. Because some fictitious accounts can only be identified in later reporting periods, we need to provision for the exclusion of fictitious accounts in current reporting periods. Our estimates are based on historical

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experience and may not be the same as the actual number of fictitious accounts. In addition to adjusting for fictitious accounts, the number of active paying users and completed transactions are adjusted for actual returns to date, as well as estimated returns given that vouchers or goods purchased in any period can be returned in later periods. As a result, historically, our reported registered users were adjusted downward by up to 20% in each period and active paying users and completed transactions were each adjusted downward by between 2.5% to 6.0% in each period to reflect data net of returns and fictitious accounts and related activities. These estimates may also fluctuate in later periods based on returns and fictitious user accounts detected in future periods. Given the challenges inherent in identifying fictitious monthly average unique visitors, we do not have a reliable system to accurately identify the number of actual monthly average unique visitors, and thus relies on its recorded number of total monthly average unique visitors without any adjustment or provisioning. Although the estimates and eliminations do not impact our financial results, our investors will need to rely on these estimated operating data, instead of actual operating data, to track our performance.

Our inability to effectively address fraudulent transactions may result in harm to our business and reputation.

        We employ anti-fraud technologies in respect of our deal vouchers, including a verification system. However, it is possible that consumers or other third parties may attempt to bypass our security measures and create counterfeit vouchers in order to fraudulently purchase goods and services from our merchants. In addition, users have in the past used computer programs to generate large numbers of registered accounts in order to complete more transactions and increase their chance of winning prizes in lucky draws. Our merchants could also request reimbursement, or stop using our services, if they are affected by counterfeit vouchers or other types of fraud. While we have taken measures to detect and reduce the risk of fraud, such measures may not be effective against increasingly sophisticated fraudulent tactics. If our anti-fraud measures are unsuccessful, we may suffer harm to our reputation and our business.

Fraudulent or frivolous claims for refunds by our users may negatively impact our revenues and results of operations.

        Under our "Three Guarantees" promises, we provide refunds and exchanges to our users as needed. From time to time we may encounter fraudulent or frivolous claims for refunds by users. Such claims could result in unnecessary dedication of time and resources by our after-sales support team that could otherwise be employed to assist users with legitimate issues and concerns. Additionally, our merchants may also dispute or refuse to reimburse us for refunds paid to our users based on such fraudulent or frivolous claims. If sufficient numbers of fraudulent or frivolous claims occur within any period, our results of operations may be negatively impacted.

Our business depends substantially on the continuing efforts of our management and other personnel. If we are unable to attract and retain key personnel or hire qualified personnel, or if key personnel breach their agreements with us, our business and results of operations could be negatively impacted.

        Our performance is largely dependent on the talents and efforts of highly skilled individuals. In particular, we rely on the expertise and experience of Mr. Bo Wu, our co-founder, chairman and chief executive officer. If one or more of our senior management or key personnel were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all. Our business may be severely disrupted, our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain personnel.

        Furthermore, our ability to anticipate and effectively respond to changing user needs depends in part on our ability to attract and retain qualified management and other personnel in sales, operations, and other functions. The effective operation of our call centers, logistics, information technology system and other back office functions also depends in part on our professional employees. The competition

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for employees, especially qualified senior and mid-level management and experienced personnel, is intense as the online social commerce market rapidly expands. Although we believe our focus on sustainable growth will attract and retain our employees, we cannot assure you that we will be effective in attracting and retaining qualified employees in the face of market competition. Our competitors may attempt to solicit our management or key employees with employment opportunities. For instance, in May 2011, more than 150 of our employees, including certain mid-level management, tendered their resignations to accept employment with a competitor, as a result of aggressive solicitations by such competitor. Our operations were not materially harmed as a result of this incident due in part to the fact that only a few of the individuals involved were key employees and that our platform is designed to withstand a significant employee turnover rate. Following the incident, we enacted new management procedures to more evenly distribute responsibility among our management team and ensure all employees are timely and effectively trained so our operations would not be materially affected in the event of any material future loss of employees. If, however, a substantial number of our management or key personnel join a competitor or form a competing company, we may lose users, know-how and key professionals and staff members. Also, if we do not succeed in attracting qualified personnel or retaining and motivating existing personnel, we may be unable to grow effectively and our business and results of operations could be negatively impacted. Each of our executive officers, including Mr. Bo Wu, our co-founder, chairman and chief executive officer, and Mr. James Jian Zhang, our chief financial officer, has entered into employment agreements, confidential information and invention assignment agreements with us. The confidential information and invention assignment agreements between us and our executive officers contain non-competition provisions, pursuant to which our executive officers are required to devote their full time and attention to the business of our Company and use their best efforts to develop the business and interests of our Company. Furthermore, the executive officers are prohibited from (i) directly or indirectly participating in the ownership, management, operation or control of any business competing with our business, (ii) soliciting any users or former users of our Company to offer similar or competing goods or services, or (iii) soliciting or enticing away any director, officer, consultant or employee. The confidential information and invention assignment agreements are governed by the state laws of New York. In these agreements the parties have chosen arbitration as the dispute resolution mechanism and China International Economic and Trade Arbitration Commission, or CIETAC, as the arbitration forum. Arbitration awards need to be enforced by competent PRC courts in China. Although a CIETAC arbitration award is generally enforceable in the PRC in accordance with PRC laws, there are uncertainties as to how the arbitration awards of CIETAC will be enforced in the PRC, particularly when the arbitration award involves specific performance of non-competition covenants. If the parties to the agreements seek adjudication before a court in the state of New York or other jurisdictions, the enforcement of any judgment obtained in such court may need to be conducted in the PRC in accordance with the requirements of the PRC Civil Procedures Law and the results of such enforcement may be uncertain. See "Enforceability of Civil Liabilities." We do not have non-competition agreements with many of our non-executive employees. We also do not maintain key-person life insurance policies on our executive officers.

        Competition for qualified individuals could cause us to offer higher compensation and other benefits to attract and retain them, which could materially and adversely affect our financial condition and results of operations. Additionally, the competitive nature of the employment market in the online social commerce industry in China may result in wage inflation. Any such wage inflation could impact our costs and may adversely affect our results of operations and our business.

We rely on third-party advertising service providers and their failure or unwillingness to effectively provide services to us could harm us by increasing our costs and reducing our operating margins.

        We rely on third-party advertising service providers that help market our brand and our business. Any failure of such third parties to provide their services could significantly harm our business. The

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steps we take to improve the marketing of our brand and our business will increase our cost and reduce our operating margin and may not be successful. Furthermore, any financial or other difficulties such providers face, the nature and extent of which we cannot predict, may adversely affect our business. Except for certain rights in our contracts with such third-party advertising service providers, we exercise little or no control over them, which increases our vulnerability to problems relating to the services that they provide or the unavailability of such services.

Inappropriate conduct or statements of our spokesperson may harm our reputation.

        Since April 2011, we have contracted with Mr. You Ge, a well-known Chinese actor, to be our brand spokesperson for a period of two years to promote our services, products and brand image. Since the engagement, Mr. You Ge has been featured in a series of television advertisements and outdoor advertisements for Lashou. We may engage other brand spokespersons in the future. We cannot guarantee that he or any other spokesperson will not engage in any inappropriate conduct or make any statement which may harm the public perception of them. Any such inappropriate action could harm our brand image and reputation, which could have an adverse impact on our sales and results of operations.

We may be unable to obtain additional financing in the future on terms acceptable to us, if at all.

        We currently anticipate that existing cash, cash equivalents and cash flow from operations will be sufficient to meet our anticipated needs for working capital, operating expenses and capital expenditures for at least 12 months after the date of this prospectus. We may need to raise additional capital in the future to fund expansion, whether in new vertical affinity or geographic markets, to develop newer or enhanced services, acquire a larger user base, respond to competitive pressures or acquire complementary businesses, technologies or services. Such additional financing may not be available on terms acceptable to us or at all. To the extent that we raise additional capital by issuing equity securities, our shareholders may experience substantial dilution, and to the extent we engage in debt financing, if available, we may become subject to restrictive covenants that could limit our flexibility in conducting future business activities.

        Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

    investors' perception of, and demand for, securities of online social commerce companies;

    conditions of the United States and other capital markets in which we may seek to raise funds;

    our future results of operations, financial condition and cash flows;

    PRC governmental regulations of foreign investment and e-commerce in China;

    economic, political and other conditions in China; and

    PRC governmental policies relating to foreign currency borrowings.

        Financing may not be available in amounts or on terms acceptable to us, if at all, especially if there is a recession or other events causing volatility in the capital markets worldwide. If additional financing is not available or not available on acceptable terms, we may not be able to fund our expansion, promote our brand, take advantage of acquisition opportunities, develop or enhance services or respond to competitive pressures.

We may be unable to manage risks associated with our potential expansion into new geographic markets.

        As part of our growth strategy, we intend to expand our operations into new geographic markets, particularly in second-tier or third-tier cities in China. We cannot guarantee that an expansion into smaller cities will be profitable or that we will be able to successfully attract new users or merchants in

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smaller cities. In addition, we may expand our business into international markets in the future. In our international expansion, we may face:

    economic, regulatory, legal and political risks inherent in having relationships, operations and sales in other jurisdictions, including challenges caused by distance and linguistic and cultural differences;

    the potential for longer collection periods and for difficulty in collecting accounts receivable and enforcing contractual obligations;

    fluctuations in currency exchange rates;

    unanticipated changes in laws or regulatory requirements, including tariffs or other barriers to trade; and

    the potential for political, legal and economic instability.

        Any of these or other factors could have an adverse effect on our sales or costs, on the market acceptance of our solutions or on our ability to compete in one or more jurisdictions, which could have a material adverse effect on our business, results of operations or financial condition.

        Expansion into new markets may place significant additional burdens on our senior management and our sales and marketing teams. We also may not be able to develop and make available to our users online social commerce services for a new geographic market in a timely or commercially favorable manner, in the native language or without substantial errors. Moreover, our ability to expand successfully depends in part on our establishing sufficient operational resources and infrastructure. Our sales and marketing efforts in a new geographic market may fail to establish a viable base of users, or our services or products may not gain market acceptance or brand recognition sufficient to offset the costs of geographic expansion. If we fail to properly manage these risks, we may incur higher expenses and lower revenues, and any geographic expansion we undertake could have a material adverse effect on our business, results of operations or financial condition.

We may be subject to intellectual property infringement claims, which could be time-consuming and costly to defend and may materially and adversely affect our business.

        We cannot assure you that the contents of our website will not infringe upon patents, valid copyrights or other intellectual property rights held by third parties. In addition, we may incur liability for counterfeit products or other products sold on our website that infringe upon third-party intellectual property rights. We have in the past experienced one incident where a merchant provided us with counterfeit goods and have since adopted a more rigorous merchant selection process to address this issue. We have implemented an eight-step review process for the selection of merchants whereby the qualifications of each merchant are assessed by eight people, each of whom either is more senior than, or works in a different department from, the person who performs the prior review. We also conduct on-site due diligence to acquire a better understanding of the merchant's services as necessary. In addition, we require inspection of sample products before our warehouses accept delivery of products from merchants. See "Business—Our Operations—Quality Control." Although we have adopted measures to verify the authenticity of products sold on our website and to inspect product quality in the course of our services, we may not have effective or sufficient control over the quality and the authenticity of such products and services.

        We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. Irrespective of the validity or the successful assertion of such claims, we could incur costs in either defending or settling any intellectual property disputes alleging infringement and the defense of these claims would be both costly and time-consuming, and could significantly divert the efforts and resources of our management and technical personnel. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, be forced to pay fines and damages, and we may

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incur licensing fees or be forced to develop alternatives. In addition, we may incur substantial expenses and diversion of our financial and management resources in defending against these third party infringement claims, regardless of their merit. Successful infringement or other intellectual property rights claims against us may result in substantial monetary liabilities, which may disrupt our operations and materially adversely affect our business, results of operations and prospects.

        Under our agreements with suppliers and third-party merchants, we require such parties to indemnify us for any losses we suffer or any costs that we incur due to any products we source from such suppliers or any products sold by third-party merchants. However, we may not be able to successfully enforce our contractual rights and may need to initiate costly and lengthy legal proceedings to protect our rights.

A significant majority of our sales are processed through a limited number of third-party payment service providers. If we fail to maintain our relationships with these partners, our business could be harmed.

        We conduct a substantial portion of our sales through four third-party payment service providers. In particular, 89.0% of the total transaction amount of our sales in aggregate as of December 31, 2010 were conducted through a single third-party payment service provider, Alipay, although we have reduced our reliance on Alipay since then. We anticipate that a limited number of third-party payment service providers will continue to hold significant market share, and the number may shrink further due to industry consolidation or other causes. Our relationships with our third-party payment service providers are key to our operations and business. However, we cannot assure you that our relationships with our current third-party payment service providers will continue in the future on similar terms, if at all. If we fail to maintain our relationships with our third-party payment service providers or are unable to find a suitable replacement through whom our users are willing to process their payments, our business may be materially and adversely affected.

Our operating results fluctuate from period to period and, as a result, investors should not rely on quarterly operating results as being indicative of future results.

        Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the value of our ADSs. Our operating results may fluctuate in the future due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in quarterly operating results could cause the value of our securities to decline. Investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future performance. Our operating results from period to period are highly dependent upon, and will fluctuate, based on the following factors:

    the demand for, and acceptance of, our online social commerce services and enhancements to these services;

    the introduction, development, timing and market acceptance of our website and services and those of our competitors;

    the magnitude and timing of marketing initiatives and capital expenditures relating to expansion of our operations;

    the cost and timing of online and offline advertising and other marketing efforts;

    the maintenance and development of relationships with portals, search engines, Internet service providers and other web properties, telecommunication service providers and other entities capable of attracting potential users to our website;

    technical difficulties, system failures, system security breaches, or downtime of the Internet, in general, or of our services, in particular;

    costs related to any acquisitions or dispositions of technologies or businesses; and

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    general economic conditions, as well as those specific to the Internet, online social commerce services and related industries.

        In addition, the online social commerce industry is subject to fluctuations in revenues due to seasonality. The seasonality of our business may cause fluctuations in our quarterly operating results. Generally, we experience lower sales during calendar quarters with more weekends and longer and more frequent holiday periods, such as the New Year and Spring Festival holidays, which generally fall in the first quarter, the May holiday season and the October holiday season.

        Due to these and other factors, our operating results will vary from period to period, will be difficult to predict for any given period, may be adversely affected from period to period and may not be indicative of our future performance. It is possible that in future periods results of operations may be below the expectations of public market analysts and investors. This could cause the market price of our securities to decline.

If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may, therefore, be adversely impacted.

        Prior to this offering, we have been a private company with a short operating history and limited accounting personnel with U.S. GAAP experience and other resources with which to address our internal control and procedures over financial reporting. In the preparation of our consolidated financial statements for the period from September 15, 2009 (date of inception) to December 31, 2009 and the year ended December 31, 2010, we and our independent registered public accounting firm identified one material weakness and certain other deficiencies in our internal control over financial reporting. As defined in AU 325, Communicating Internal Control Related Matters Identified in an Audit, of the PCAOB Standard and Related Rules, a material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the company's financial statements will not be prevented, or detected and corrected on a timely basis. The material weakness identified relates to our lack of sufficient resources with the requisite U.S. GAAP and SEC financial accounting and reporting expertise to support the accurate and timely preparation and presentation of our consolidated financial statements and related disclosures, which resulted in certain undetected errors in our previously issued consolidated financial statements. See "Note 2—RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS" to our Consolidated Financial Statements for additional information.

        To address the material weakness and other certain deficiencies, we have implemented, and are in the process of implementing, a number of measures to improve our internal control over financial reporting, including:

    we hired a chief financial officer and a U.S. GAAP reporting and finance controller who have U.S. GAAP experience through either working at major accounting firms or U.S. listed companies;

    we have set up a review process to ensure proper financial statement closing and reporting procedures;

    we plan to hire more full-time professionals with the requisite U.S. GAAP, tax and SEC reporting expertise;

    we plan to hire an internal control specialist and engage outside consultants to assist in establishing internal control processes and oversight measures to improve our U.S. GAAP reporting and our financial reporting processes to comply with requirements under the Sarbanes-Oxley Act of 2002; and

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    we plan to formalize our information technology policies and procedures specifically relating to our program change management, application management, logical user access and data backup and recovery processes.

        In addition, upon the completion of this offering, we will establish an audit committee under our board of directors in accordance with the applicable SEC and NASDAQ requirements to provide adequate independent oversight with respect to our accounting and financial reporting. We also plan to establish and maintain an internal audit function to further ensure accuracy of U.S. GAAP reporting.

        Our failure to remediate the material weakness and deficiencies, and achieve and maintain the adequacy of our internal control, may result in inaccuracies in our financial statements or delay in the preparation of our financial statements. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and adversely affected. Ineffective internal control over financial reporting could also expose us to increased risk of fraud or misappropriations of corporate assets and subject us to potential delisting from the stock exchange on which our ADSs are listed, regulatory investigations or civil or criminal sanctions.

        Upon the completion of this offering, we will become a public company in the United States and be subject to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The SEC, as required under Section 404 of the Sarbanes-Oxley Act, or Section 404, has adopted rules requiring public companies to include a management report on the effectiveness of their internal control over financial reporting in their annual reports. In addition, an independent registered public accounting firm must report on the effectiveness of the companies' internal control over financial reporting. These requirements will first apply to us beginning with our annual report on Form 20-F for the fiscal year ending December 31, 2012. During the course of the assessment process that we will undertake for compliance with Section 404, we may identify material weaknesses and other deficiencies that we may not be able to remediate in time to meet the deadline imposed by Section 404 and our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may not conclude that our internal control over financial reporting is effective or may issue an adverse opinion on the effectiveness of our internal control over financial reporting. Our failure to establish and maintain an effective internal control over financial reporting could increase the risk of material misstatements in our financial statements and result in a failure to meet our financial and other reporting obligations, which would likely cause investors to lose confidence in our reported financial information and lead to a significant decline in the trading price of our ADSs.

Our rights to lease certain properties could be challenged, which could prevent us from continuing to operate the affected service facilities or increase the costs associated with operating these service facilities.

        We lease all of the properties we use for our operations. We currently have approximately 290 leased facilities. For approximately 35% of these leased properties, the lessors were unable to provide us with copies of title certificates or documents evidencing the authorization or consent of the ultimate owners of such properties. Although we are in the process of standardizing the internal procedures for signing lease agreements, such as requiring lessors to provide title certificates for our review prior to signing, or written owners' consents, if the lessors are not the registered property owners, we currently cannot assure you that all of the lessors have the proper legal rights to lease the properties to us and, as a result, the corresponding lease agreements could be deemed invalid. Some properties may not be designated for commercial usage and, consequently, the relevant authorities or the ultimate owners of the properties may challenge our lease of the properties for commercial usage. Some of the properties we lease from third parties may have been mortgaged by the owners and we may not be able to continue using such properties if the mortgages are foreclosed. In addition, we have not urged our lessors to register our lease agreements with the local housing bureaus. Under PRC law, the failure may result in the risk that we may not be able to continue to occupy the relevant properties

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if any such lease is challenged by third parties. We believe we can make alternative leasing arrangements without incurring material costs or causing any material disruption to our business. However, if we need to relocate a large number of offices within a short period of time due to failures by a significant number of our lessors to fulfill these obligations, our operations could be disrupted.

Our business depends on the reliable operation of our servers and our ability to obtain network capacity. If our current systems safeguards are unable to prevent an interruption in the availability of our services, our reputation and brand may be adversely affected and our revenues may be reduced.

        The performance of our servers is critical to our business and reputation, to our ability to attract visitors and users to our website and to retain registered users. An unexpected or substantial increase in the use of our website could strain the capacity of our systems, which could lead to a slower response time or system failures. We have in the past experienced delays due to hacking activities, including incidents on June 2, 2011 and October 27, 2011, both of which caused our website to be temporarily unavailable for several hours but resulted in no material loss to us. Any future slowdowns or system failures could adversely affect the speed and responsiveness of our website and would diminish the experience for our visitors and users. We face risks related to our ability to scale up to our expected user levels while maintaining superior performance. If the usage of our website substantially increases, we may need to purchase additional servers and networking equipment and services to maintain adequate data transmission speeds, the availability of which may be limited or the cost of which may be significant. Any system failure that causes an interruption in service or a decrease in the responsiveness of our website could reduce traffic on our website and, if sustained or repeated, could impair our reputation and the attractiveness of our brand as well as reduce our revenues or otherwise negatively impact our operating results.

        We undertake frequent backup of our system data and have in place disaster recovery systems that we believe are adequate for our business. However, in the event of a catastrophic failure involving our website, our data back up and disaster recovery systems may be ineffective and we may be unable to serve our web traffic for a significant period of time. Our business is therefore susceptible to earthquakes and other catastrophic events, including acts of terrorism. Our servers are hosted and maintained in Beijing and the absence of a redundant network in a different location could exacerbate this disruption. Any system failure, including network, software or hardware failure, that causes an interruption in the delivery of our website and services or a decrease in responsiveness of our website would result in reduced visitor traffic, reduced revenues and would adversely affect our reputation and brand. In addition, any system failure, including network, software or hardware failure, of our third-party payment service providers, that causes an interruption of prompt payment and settlement of our sales could materially and adversely affect our results of operations.

Our network is vulnerable to security breaches and undetected programming errors or defects in our website and hacking or other unauthorized activities could result in potential liability, loss of users and damage to our business and reputation and materially and adversely affect our results of operations.

        To date, we have not experienced any material breach of our security systems. However, we cannot assure you that our financial systems and other technology resources are completely secure from security breaches or sabotage. Anyone who is able to circumvent our security measures could misappropriate proprietary information, including the personal data of our users, and cause interruptions in our operations or damage our brand and reputation. Such breach of our security measures could involve the disclosure of personal information and could expose us to a material risk of litigation, liability or governmental enforcement proceeding. We may be required to incur significant additional costs to protect against security breaches or to alleviate problems caused by such breaches. Any well-publicized compromise of our security or the security of any other website could deter people from using our services or the Internet to conduct transactions that involve transmitting confidential

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information or uploading personal information, which could have a detrimental impact on our potential user base.

        Computer viruses may cause delays or other service interruptions and could damage our reputation, affect our ability to provide our services. The inadvertent transmission of computer viruses could also expose us to a material risk of loss or litigation and possible liability. Moreover, if a computer virus affecting our system were highly publicized, our reputation could be significantly damaged, resulting in the loss of current and future users.

        In addition, our user database holds confidential information concerning our users. As such, we have developed technologies to protect our proprietary information database from Internet hacking and other unauthorized access of our users' confidential information. However, we cannot guarantee that such anti-hacking technology will effectively protect against increasingly sophisticated counter-measures and it is possible that third parties, such as hackers or criminal organizations, may unlawfully gain access to information provided by our users to us through our website. Confidential information of our users may also be misappropriated or inadvertently disclosed through employee misconduct or mistakes. We may also in the future be required to disclose to government authorities certain confidential information concerning our users.

        Furthermore, many of our users pay for our services through third-party online payment services. In such transactions, secure transmission of confidential information, such as users' debit and credit card numbers and expiration dates, personal information and billing addresses, over public networks, including our website, is essential for maintaining consumer confidence. We have limited influence over the security measures of third-party online payment service providers. In addition, our third-party merchants may violate their confidentiality obligations and disclose information about our users. Any compromise of our security or third-party service providers' security would have a material adverse effect on our reputation, business, prospects, financial condition and results of operations.

        Any significant breach of security of our website could significantly harm our business, reputation and results of operations and could expose us to lawsuits brought by our users and sanctions by governmental authorities in the jurisdictions in which we operate. Additionally, if we are accused of failing to protect the confidential information of our users, we may be forced to expend significant financial and managerial resources in defending against these accusations and we may face potential liability. Any negative publicity may adversely affect our public image and reputation. Any perception by the public that online commerce is becoming increasingly unsafe or that the privacy of user information is vulnerable to attack could inhibit the growth of online services generally, which in turn may reduce the number of our users and harm our business and results of operations.

Unexpected disruptions to the communications network in China could have a material adverse effect on our business, financial condition and results of operations.

        Our services are dependent upon the use of the Internet and telephone and broadband communications to provide high-capacity data transmission without system downtime. Any failure to maintain the satisfactory performance, reliability, security and availability of our network infrastructure may cause significant harm to our reputation and our ability to attract and maintain users. All of the servers operating our website, and all of the servers handling log-in, billing and data back-up matters for us are hosted and maintained by third-party service providers. Major risks involved in such network infrastructure include any break-downs or system failures resulting in a sustained shutdown of all or a material portion of our servers, including failures which may be attributable to sustained power shutdowns, or efforts to gain unauthorized access to our systems causing loss or corruption of data or malfunctions of software or hardware. There have been instances where regional and national telecommunications outages in China have caused us, and other Internet businesses, to experience systems interruptions. Any network interruption or other inadequacy that causes interruptions in the availability of our online services or deterioration in the quality of access to our online services could

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reduce our users' satisfaction and ultimately harm our business, financial condition and results of operations.

We have limited insurance coverage, which could expose us to significant costs and business disruptions.

        As the insurance industry in China is still in an early stage of development, insurance companies in China currently offer limited business insurance products. We do not have any business liability, loss of data or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster might result in our incurring substantial costs and the diversion of our resources.

        In addition, in March 2011 we launched our own logistic services and currently employ over 300 delivery personnel to facilitate the delivery of our products in our key cities. We do not take title to, nor carry any insurance covering, the products delivered by us or stored in warehouses or distribution centers or stations. While we carry accident insurance for our delivery personnel, such insurance may not be adequate for damage or losses we may incur. If we were to incur substantial liabilities that were not covered by our insurance, we could incur costs and losses that could materially and adversely affect our results of operations.

We face risks of health epidemics and other disasters, which could severely disrupt our business operations.

        Our business could be materially and adversely affected by the outbreak of H1N1, or swine influenza, avian influenza, severe acute respiratory syndrome, or SARS, or another epidemic. In 2009 and early 2010, there were outbreaks of swine influenza in certain regions of the world, including China. In 2006 and 2007, there were reports on the occurrences of avian influenza in various parts of China, including a few confirmed human cases and deaths. Any prolonged recurrence of swine influenza, avian influenza, SARS or other adverse public health developments in China could require the temporary closure of our offices. Such closures could severely disrupt our business operations and adversely affect our results of operations.

        Our operations are vulnerable to interruption and damage from man-made or natural disasters, including wars, acts of terrorism, snowstorms, earthquakes, fire, floods, environmental accidents, power loss, communications failures and similar events. If any similar man-made or natural disaster were to occur in the future, our ability to operate our business could be seriously impaired.

Risks Related to Doing Business in the People's Republic of China

Our business, financial condition and results of operations may be adversely affected by the downturn in the global or Chinese economy.

        The global financial markets have experienced significant disruptions since 2008. China's economy has also faced challenges. To the extent that there has been recovery in some areas, it is uncertain whether such recovery is sustainable. Since we derive substantially all of our revenues from users in China, our business and prospects may be affected by economic conditions in China. A slowdown in China's economy may lead to a reduced amount of personal spending on online social commerce services, which could materially adversely affect our financial condition and results of operations.

        Moreover, a slowdown in the global or Chinese economy or the recurrence of any financial disruptions may have a material and adverse impact on financings available to us. The weakness in the economy could erode investors' confidence, which constitutes the basis of the equity markets. The recent turmoil in the financial markets may significantly restrict our ability to obtain financing in the capital markets or from financial institutions on commercially reasonable terms, or at all. Although we are uncertain about the extent to which the recent global financial and economic crisis and slowdown of the Chinese economy may impact our business in the long term, there is a risk that our business,

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results of operations and prospects would be materially adversely affected by the global economic downturn and any slowdown of the Chinese economy.

If the PRC government determines that the contractual arrangements that establish the structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.

        We are a Cayman Islands company and, as such, we are classified as a foreign enterprise under Chinese laws, and our major PRC operating subsidiary, Shanghai Lashou, is a foreign-invested enterprise. Various regulations in China currently restrict or prevent foreign-invested entities from holding certain licenses required to operate value-added telecommunications businesses. In light of these restrictions, we rely on our VIE, Beijing Lashou, to hold and maintain the licenses necessary to operate our online services in China. Two PRC citizens, Mr. Ming Guan and Mr. Xiaobo Jia, are the shareholders of Beijing Lashou. We do not have any equity interest in Beijing Lashou but receive its economic benefits and losses through various contractual arrangements. In addition, we have entered into agreements with Beijing Lashou and each of its shareholders which provide us with a substantial ability to control Beijing Lashou. For a description of these contractual arrangements with Beijing Lashou and its shareholders, see "Corporate History and Structure—Corporate Structure—Contractual Arrangements with Beijing Lashou and its Shareholders."

        Current PRC laws and regulations place certain restrictions on foreign ownership of companies that engage in telecommunications business. Specifically, foreign ownership in an Internet information service provider or other value-added telecommunications service provider may not exceed 50%. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MIIT Circular, issued by the Ministry of Industry and Information Technology, or the MIIT, in July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested enterprises and obtain a business operating license for value-added telecommunications services, or ICP license, to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an Internet content provision license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local Internet content provision license holder. The MIIT Circular further requires each Internet content provision license holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to maintain network and information security in accordance with the standards set forth under relevant PRC regulations. Beijing Lashou, as our VIE, holds a valid ICP license, owns the domain name lashou.com, and has been applying to register relevant trademarks, which is in compliance with the MIIT Circular. However, due to a lack of interpretative materials from the regulator, it is unclear what impact the MIIT Circular will have on us or the other Chinese Internet companies that have adopted the same or similar corporate and contractual structures as ours.

        In the opinion of Fangda Partners, our PRC counsel, (i) the ownership structure of Shanghai Lashou and Beijing Lashou is not in violation of any express provisions of applicable PRC laws and regulations; and (ii) the VIE contracts that establish the contractual arrangements among Shanghai Lashou, Beijing Lashou and its shareholders are valid and legally binding. However, Fangda Partners has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules; accordingly, the PRC regulatory authorities may take a view that is contrary to the above opinion of our PRC legal counsel.

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        For example, the Ministry of Commerce, or the MOFCOM, promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors in August 2011, or the MOFCOM Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular No. 6. The MOFCOM Security Review Rules came into effect on September 1, 2011 and replaced the Interim Provisions of the Ministry of Commerce on Matters Relating to the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by MOFCOM in March 2011. According to these circulars and rules, a security review is required for mergers and acquisitions by foreign investors having "national defense and security" concerns and mergers and acquisitions by which foreign investors may acquire the "de facto control" of domestic enterprises having "national security" concerns. In addition, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review, the MOFCOM will look into the substance and actual impact of the transaction. The MOFCOM Security Review Rules further prohibit foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that our online social commerce business falls into the scope subject to the security review, and there is no requirement for foreign investors in those mergers and acquisitions transactions already completed prior to the promulgation of Circular No. 6 to submit such transactions to MOFCOM for security review. As we have already obtained the "de facto control" over our VIE prior to the effectiveness of these circulars and rules, we do not believe we are required to submit our existing contractual arrangement to the MOFCOM for security review. However, we are advised by our PRC legal counsel that, as these circulars and rules are relatively new and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance that the MOFCOM will have the same view as we do when applying these national security review-related circulars and rules.

        In addition, various media sources have recently reported that the CSRC has prepared a report for the State Council suggesting regulating the use of the VIE structure, such as ours, in the context of foreign investment in China and overseas listings. However, it is unclear whether the CSRC officially submitted such a report, what specific content such report contains and whether and when any further action will be taken by the State Council, CSRC, MOFCOM or any other PRC government authority regarding the use of the VIE structure.

        We cannot assure you that we will not be found in violation of any current or future PRC laws and regulations. If we are found to be in violation of any existing or future PRC laws or regulations, including the MIIT Circular, the MOFCOM Security Review Rules and any future regulations regarding the use of the VIE structure promulgated by any PRC government authority, or fail to obtain or maintain any of the required permits or approvals, the relevant regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income, revoking Beijing Lashou's business or operating licenses, requiring us to restructure or unwind the relevant ownership structure or operations, requiring us to discontinue or divest all or any portion of our business and assets, restricting our right to collect revenues, blocking our website, imposing additional conditions or requirements with which we may not be able to comply. Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations.

Our contractual arrangements with Beijing Lashou and its respective shareholders may not be as effective in providing operational control over Beijing Lashou as direct ownership of these companies.

        We conduct our business in China through Beijing Lashou. Our contractual arrangements with Beijing Lashou and its respective shareholders provide us with effective control over this company. See

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"Corporate History and Structure—Corporate Structure—Contractual Arrangements with Beijing Lashou and its Shareholders." As a result of these contractual arrangements, we are considered to be the primary beneficiary of Beijing Lashou and accordingly, we consolidate the results of operations, assets and liabilities of Beijing Lashou in our consolidated financial statements.

        Although we have been advised by Fangda Partners, our PRC legal counsel, that the VIE contracts that establish these contractual arrangements are valid and legally binding, these contractual arrangements may not be as effective in providing us with control over Beijing Lashou as direct ownership of this company. For example, if we had direct ownership of Beijing Lashou, we would be able to exercise our rights as a shareholder to effect changes in the executive director of Beijing Lashou, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, we rely on the performance by Beijing Lashou and its shareholders of their obligations under the contracts to exercise control over Beijing Lashou. Furthermore, if the shareholders of our VIE are involved in proceedings that negatively impact their respective equity interests in our VIE and/or our ability to enforce our VIE contracts, our business would be materially and adversely affected.

Any failure by Beijing Lashou or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business and financial condition.

        If Beijing Lashou or its shareholders fail to perform their respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if the transferee is a foreign company, the transfer of equity interest in Beijing Lashou will be subject to approval from relevant governmental authorities, such as MIIT and MOFCOM, and the transferee will be required to comply with various requirements including qualification and maximum foreign shareholding percentage requirements. As these governmental authorities have wide discretion in granting their approvals, we may fail to obtain such approvals when we exercise our option under the Call Option Agreement. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over Beijing Lashou, and our ability to conduct our business may be negatively affected.

        These contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, which may make it difficult to exert effective control over our VIE, and our ability to conduct our business may be negatively affected. See "—Risks Related to Doing Business in the People's Republic of China—Uncertainties with respect to the PRC legal system could have a material adverse effect on us."

The shareholders of our VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

        Our VIE, Beijing Lashou, is jointly owned by Mr. Ming Guan and Mr. Xiaobo Jia. Conflicts of interests between these individuals' roles as shareholders of our VIE and their duties to our company may arise. In addition, Mr. Ming Guan is also the executive director and general manager of our VIE, and Mr. Xiaobo Jia is the supervisor of our VIE. The PRC Company Law provides that a director, member of management or supervisor owes a fiduciary duty to the company he serves as a director, manager or supervisor. The abovementioned individuals must therefore act in good faith and in the best interests of our VIE and must not use their respective positions for personal gain. These laws do not require them to consider our best interests when making decisions as a director, supervisor or

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member of management of our VIE. Mr. Xiaobo Jia, as our director, also owes a fiduciary duty to us under Cayman laws.

        We cannot assure you that when conflicts of interest arise, these individuals will act in the best interests of our company or that conflicts of interest will be resolved in our favor. In addition, these individuals may breach or cause our VIE to breach or refuse to renew the existing contractual arrangements that allow us to effectively control our VIE and receive economic benefits from it. There is currently no specific and clear guidance under PRC laws that addresses the resolution of any conflict between PRC laws and Cayman Islands laws in respect of any conflict relating to corporate governance regime, according to Fangda Partners, our PRC counsel. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our VIE, we would have to rely on legal proceedings to resolve these disputes and/or enforce our VIE contracts, which could result in disruption of our business, and there would be substantial uncertainty as to the outcome of any such legal proceedings.

We may lose the ability to use and enjoy assets held by our VIE that are important to the operation of our business if our VIE declares bankruptcy or becomes subject to a dissolution or liquidation proceeding.

        Our VIE, Beijing Lashou, holds certain assets that are important to our business operations, such as our domain name www.lashou.com. Although the call option agreement between Shanghai Lashou, Beijing Lashou and its shareholders contains terms that specifically obligate the shareholders of our VIE to ensure the valid existence of our VIE and that the VIE may not be voluntarily liquidated, in the event the shareholders breach this obligation and voluntarily liquidate Beijing Lashou, or Beijing Lashou declares bankruptcy, and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Furthermore, if Beijing Lashou undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

Contractual arrangements we have entered into may be subject to scrutiny by the PRC tax authorities, and a finding that we or our affiliated entity owes additional taxes could reduce our net income and the value of your investment.

        As required by applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between our subsidiary in China on the one hand, and our VIE on the other, do not represent an arm's-length price and adjust our VIE's income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by our VIE, which could in turn increase its tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties on our VIE for underpaid taxes. Our results of operations may be adversely affected if our VIE' tax liabilities increase or if it is found to be subject to late payment fees or other penalties.

Regulation and censorship of information disseminated over the Internet in China may adversely affect our business, and we may be liable for information displayed on, retrieved from, or linked to our Internet websites.

        The PRC government has adopted certain regulations governing Internet access and the distribution of news and other information over the Internet. Under these regulations, Internet content providers are prohibited from posting or displaying over the Internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is obscene, superstitious,

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fraudulent or defamatory. Failure to comply with these requirements could result in the revocation of ICP and other required licenses and the closure of the concerned websites. The website operator may also be held liable for such prohibited information displayed on, retrieved from or linked to such website.

        The MIIT has published regulations that subject website operators to potential liability for content included on their websites and the actions of users and others using their websites, including liability for violations of PRC laws prohibiting the dissemination of content deemed to be socially destabilizing. The Ministry of Public Security has the authority to order any local Internet service provider, or ISP, to block any Internet website maintained outside China at its sole discretion. Periodically, the Ministry of Public Security has stopped the dissemination over the Internet of information which it believes to be socially destabilizing. The State Secrecy Bureau, which is directly responsible for the protection of State secrets of the PRC government, is authorized to block any website it deems to be leaking state secrets or failing to meet the relevant regulations relating to the protection of state secrets in the dissemination of online information.

        As these regulations are subject to interpretation by the relevant authorities, it may not be possible for us to determine in all cases the type of content that could result in liability for us as a website operator. In addition, we may not be able to control or restrict the content of other Internet information service providers linked to or accessible through our website, or content generated or placed on our website by our users, despite our attempt to monitor such content. To the extent that regulatory authorities find any portion of our content objectionable, they may require us to limit or eliminate the dissemination of such information or otherwise curtail the nature of such content on our website, which may reduce our user traffic and have a material adverse effect on our financial condition and results of operations. In addition, we may be subject to significant penalties for violations of those regulations arising from information displayed on, retrieved from or linked to our website, including a suspension or shutdown of our operations.

We may be classified as a "resident enterprise" for PRC enterprise income tax purposes, which could result in our global income becoming subject to 25% PRC enterprise income tax.

        The PRC Enterprise Income Tax Law, or the PRC EIT Law, provides that an enterprise established outside China whose "de facto management body" is located in China is considered a "resident enterprise" and will generally be subject to the uniform 25% enterprise income tax rate, or EIT rate, as to its global income. Under the implementation rules, "de facto management body" is defined as substantial and overall management and control over such aspects as the production and business, personnel, accounts and properties of an enterprise.

        In April 2009, the State Administration of Taxation released a circular that sets out the standards and procedures for recognizing the location of the "de facto management body" of an enterprise registered outside of the PRC and funded by Chinese enterprises or Chinese enterprise groups as controlling investors, or a Chinese Funded Enterprise. Under the circular, a Chinese Funded Enterprise is considered a resident enterprise if all of the following apply: (i) a Chinese Funded Enterprise's major management department and personnel who are responsible for carrying out daily operations are located in the PRC; (ii) the department or the personnel who have the right to decide or approve the Chinese Funded Enterprise's financial and human resource matters are located in the PRC; (iii) the major assets, account book, company seal and meeting minutes of the Chinese Funded Enterprise are located or stored in the PRC; and (iv) the directors or management personnel holding no less than 50% voting rights of the Chinese Funded Enterprise habitually reside in the PRC. The circular explicitly provides that the above standards apply to enterprises which are registered outside the PRC and funded by Chinese enterprises or Chinese enterprise groups as controlling investors. We are currently not funded or controlled by any Chinese enterprise or Chinese enterprise group, therefore the circular does not apply to us directly. However, such standards may be cited for reference only when considering whether our "de facto management body" is in the PRC or not. Accordingly, it is still

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uncertain whether we may be considered a resident enterprise under the PRC EIT Law. If we are considered a resident enterprise, we will be subject to a 25% PRC income tax on our global income and such 25% tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.

We principally rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us, or the tax implications of making payments to us, could have a material adverse effect on our ability to conduct our business or our financial condition.

        We are a holding company, and we rely principally on dividends and other distributions on equity from our wholly owned subsidiaries in China for our cash requirements, including the funds necessary to service any debt we may incur. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their respective accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its respective after-tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its registered capital and to allocate a discretionary portion of its respective after-tax profits to staff welfare and bonus funds. Since we have not achieved profitability, we are not yet required to allocate funds for such reserve funds. These reserves are not distributable as cash dividends. Furthermore, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Most of our assets are held by, and substantially all of our earnings and cash flows are attributable to, our PRC subsidiaries. Our cash flows are principally derived from dividends paid to us by our PRC subsidiaries. As a result, our ability to distribute dividends largely depends on earnings from our PRC subsidiaries and their ability to pay dividends out of their earnings. If operating losses from our PRC subsidiaries were to continue to grow, our operating results and cash flows would be further materially and adversely affected. Our PRC subsidiaries so far have not paid us any dividends. We cannot assure you that our PRC subsidiaries will generate sufficient earnings and cash flows in the near future to pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends.

        In addition, the PRC EIT Law and its implementation rules provide that an income tax rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated. While the tax arrangement between the PRC and Hong Kong provides that dividends paid by a foreign-invested enterprise in the PRC to its offshore corporate shareholder, which is considered a Hong Kong tax resident, will be subject to PRC income tax at the rate of 5% of total dividends, this is limited to instances where the corporate shareholder directly holds at least 25% of the equity interests in the PRC foreign-invested company that is to pay dividends for at least twelve (12) consecutive months immediately prior to receiving the dividends and meets certain other criteria prescribed by the relevant regulations. Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is further subject to approval of the relevant tax authority.

        Furthermore, the State Administration of Taxation promulgated the Notice on How to Understand and Determine the Beneficial Owners in Tax Treaty in October 2009, or Circular 601, which provides guidance for determining whether a resident of a contracting state is the "beneficial owner" of an item of income under China's tax treaties and tax arrangements. According to Circular 601, a beneficial owner generally must be engaged in substantive business activities. An agent or conduit company will not be regarded as a beneficial owner and, therefore, will not qualify for treaty benefits. A conduit company normally refers to a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. We cannot assure you that any dividends to be distributed by our

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subsidiaries to us will be entitled to the benefits under the relevant tax treaties and arrangements, if any. In particular, we cannot assure you that Lashou HK Limited, our wholly owned subsidiary incorporated in Hong Kong, and also the direct equity owner of our PRC subsidiaries, will be entitled to the 5% reduced tax rate. If Lashou HK Limited is subject to the 10% tax rate instead of the 5% tax rate for dividends paid to it, our financial condition will be negatively affected.

You may be subject to PRC income tax on dividends from us or on gain realized on the transfer of our ADSs or ordinary shares.

        Under the PRC EIT Law and related implementation rules, subject to a tax treaty or similar arrangement between the PRC and the foreign investors' jurisdiction of incorporation that provides for a different income tax arrangement, PRC income tax at the rate of 10% is normally applicable to dividends payable to investors that are "non-resident enterprises," which do not have an establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC unless a treaty or similar arrangement otherwise provides. Substantially all of our business operations are in China and it is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain realized from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax. If PRC income tax is imposed on dividends payable to our non-PRC investors or on gains realized through the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected. Furthermore, for our ADS holders whose jurisdictions of incorporation have tax treaties or arrangements with China, we cannot guarantee that the ADS holders will be qualified for benefits under such tax treaties or arrangements.

The strengthened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on our business operations, our acquisition or restructuring strategy or the value of your investment in us.

        In connection with the PRC EIT Law, the Ministry of Finance and State Administration of Taxation jointly issued, on April 30, 2009, the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. On December 10, 2009, the State Administration of Taxation issued the Notice on Strengthening the Management on Enterprise Income Tax for Non-resident Enterprises Equity Transfer, or Circular 698. Both Circular 59 and Circular 698 became effective retroactively on January 1, 2008. The State Administration of Taxation also issued a few rules to provide clarification of a number of areas related to these two circulars. By promulgating and implementing such circulars, the PRC tax authorities have strengthened their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. For example, Circular 698 specifies that the PRC State Administration of Taxation is entitled to redefine the nature of an indirect equity transfer where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, and disregard the existence of such overseas holding company, if such indirect transfer is deemed as being arranged for tax-avoidance purposes and without reasonable commercial purpose. We are not required to pay taxes under Circular 698 due to any of the prior equity transactions described under "Corporate History and Structure" as we have not conducted any transfer of an equity interest which is subject to Circular 698. However, the transfer of our shares by certain then shareholders to us and other relevant parties in 2010 and 2011 respectively may be subject to income tax on capital gains generated from such transfers of the shares. Although Circular 698 contains an exemption for transfers of publicly traded stock in a PRC resident enterprise, it remains unclear

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whether we will be deemed a PRC resident enterprise and whether such exemption will be applicable to the transfer of our shares or ADSs. If we are regarded as a non-PRC resident enterprise, PRC tax authorities may deem any future transfer of our ordinary shares or ADSs by our shareholders or holders of our ADSs to be subject to these regulations, which may subject such shareholders or holders of our ADSs to additional reporting obligation or tax burdens. In case of failure to comply with these circulars by these sellers, the PRC tax authorities may take actions, including requesting us to provide assistance for their investigation, which may have a negative impact on our business operation.

        In addition, since we may pursue acquisitions as one of our growth strategies, and may conduct acquisitions involving complex corporate structures, the PRC tax authorities may, at their discretion, adjust the capital gains or request that we submit additional documentation for their review in connection with any potential acquisitions, which may cause us to incur additional acquisition costs or delay our acquisition timetable.

The continued growth of China's Internet market depends on the establishment of an adequate telecommunications infrastructure.

        Although private sector Internet service providers currently exist in China, almost all access to the Internet is maintained through state-owned telecommunications operators under the administrative control and regulatory supervision of the MIIT, as well as other governmental authorities. We rely on this infrastructure to provide data communications capacity primarily through local telecommunications lines. Although the government has announced plans to develop aggressively the national information infrastructure, we cannot assure you that this infrastructure will be developed as planned or at all. In addition, we will have no access to alternative networks and services, on a timely basis if at all, in the event of any infrastructure disruption or failure.

PRC regulations relating to consumer protection and restrictions on unfair competition may limit our ability to offer our users certain prizes through our "Lucky Draw" contest or operate the contest at all, or subject us to potential liability for improper marketing activities.

        As a promotional feature of our site, we offer our users the chance to enter our "Lucky Draw" contests to win certain prizes. The Anti-Unfair Competition Law of the PRC and relevant regulations limit the amount of prizes we can offer to less than RMB5,000. Failure to comply with this requirement will subject us to a fine ranging from RMB10,000 to RMB100,000. We cannot guarantee that in the future the Chinese government will not further limit our ability to offer certain prizes or to offer the "Lucky Draw" contest at all. This would limit one of the means for us to attract new users and could adversely affect our results of operations, especially if our competitors do not observe these regulations to the same extent as we do. In addition, PRC laws and regulations impose various requirements relating to consumer protection, including control of product quality and prohibition of fraudulent marketing activities. If we fail to comply with these laws and regulations relating to consumer protection, we may be subject to fines and other penalties, which in turn could adversely affect our reputation, revenues and operating results.

Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

        We conduct our business primarily through our subsidiaries and affiliated entities in China. Our operations in China are governed by PRC laws and regulations. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.

        Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation

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and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

        In utilizing the proceeds of this offering in the manner described in "Use of Proceeds," as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC operating subsidiaries, or we may make additional capital contributions to our PRC operating subsidiaries. Loans by us to any of our operating subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with the SAFE or its competent local counterparts. Capital contributions must be approved by, among others, the PRC Ministry of Commerce or its competent local counterparts. We made capital contributions to our PRC operating subsidiaries as registered capital, which has been registered with the relevant local counterparts of the SAFE. We may not be able to obtain these government approvals and registrations on a timely basis, if at all, with respect to future capital contributions by us to our PRC operating subsidiaries. If we fail to receive such approvals or registrations, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

        On August 29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or SAFE Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 requires that Renminbi converted from the foreign currency-denominated registered capital of a foreign-invested company may only be used for purposes within the company's business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specifically provided for otherwise in its business scope. Shanghai Lashou, our major PRC operating subsidiary, was approved by the People's Government of Jiading District, Shanghai and the People's Government of Shanghai in April 2011, and its business scope mainly includes design, development and manufacture of computer application software, sale of self-produced products and provision of related technical consulting services, provision of marketing and commercial consulting services, importing and exporting, and wholeselling of various products. In addition, SAFE strengthened its oversight of the flow and use of Renminbi funds converted from the foreign currency-denominated registered capital of a foreign-invested company. The use of such Renminbi may not be changed without approval from SAFE, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not yet been used. Violations of SAFE Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. As a result, SAFE Circular 142 may significantly limit our ability to transfer the net proceeds from our initial public offering and subsequent offerings or financing to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC, and we may not be able to convert the net proceeds from our initial public offering and subsequent offerings or financing into Renminbi to invest in or acquire any other PRC companies.

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Governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment.

        The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB and substantially all of our cash inflows and outflows are denominated in Renminbi. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC operating subsidiaries. We may convert a portion of our revenues into other currencies to meet our foreign currency obligations, such as payments of dividends declared in respect of our ordinary shares, if any. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies generally without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

We may be subject to penalties, including restriction on our ability to inject capital into our PRC subsidiaries and our PRC subsidiaries' ability to distribute profits to us, if our PRC resident shareholders or beneficial owners fail to comply with relevant PRC foreign exchange rules.

        SAFE issued a public notice in October 2005 requiring PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies owned by such PRC residents, referred to in the notice as an "offshore special purpose vehicle." SAFE has further issued a series of implementation guidance, including the most recent Notice of SAFE on Printing and Distributing the Implementing Rules for the Administration of Foreign Exchange in Fund-Raising and Round-trip Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Circular No. 19, which will come into effect as of July 1, 2011. These regulations require PRC residents and PRC corporate entities to register with competent local branches of SAFE in connection with their direct or indirect offshore investment in offshore special purpose vehicles. These regulations may apply to our shareholders who are PRC residents or have PRC residents as their ultimate owners and may apply to any offshore acquisitions that we make in the future.

        Under these foreign exchange regulations, PRC residents who make, or have previously made prior to October 2005, direct or indirect investments in offshore special purpose vehicles are required to register those investments. In addition, any PRC resident that is a shareholder of an offshore special purpose vehicle is required to amend its SAFE registration with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China or other material changes in share capital. Since May 2007, SAFE issued a series of guidance to its local branches with respect to the operational process for SAFE registration, which standardized more specific and stringent supervision on the registration relating to the SAFE notice. For example, this guidance requires the onshore subsidiaries of an offshore entity to make true statement to the local SAFE authorities if there is any shareholder or beneficial owner of the offshore entity who is a PRC citizen or resident. Untrue statement by the onshore subsidiaries will lead to potential liability for the subsidiaries, and in some instances, for their legal representatives and other liable individuals.

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        We have repurchased certain shares from some of our former corporate shareholders, which, to our knowledge, are owned by PRC residents who had not duly made the registration with SAFE under these regulations. Beijing Lashou Technology, one of our subsidiaries which is currently dormant and in the process of liquidation, also failed to report to the local branch of SAFE in respect of such indirect shareholding by such PRC residents, when applying for a foreign exchange certificate with such local branch of SAFE. As a result, Beijing Lashou Technology may be subject to fines and other legal sanctions, including restrictions on our ability to contribute additional capital into Beijing Lashou Technology and the ability of Beijing Lashou Technology to distribute dividends to our offshore holding companies. In addition, although such PRC residents currently do not own any shares in us, we cannot assure you that SAFE will not penalize us due to such historical non-compliance.

        We have requested all of our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of the SAFE notice and its guidance and will urge relevant shareholders, upon learning they are PRC residents, to register with the local SAFE branch as required under the SAFE notice and its guidance. However, we may not be fully informed of the identities of all our shareholders or beneficial owners who are PRC residents, and we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC residents will comply with our request to make, obtain or update any applicable registrations or comply with other requirements required by the SAFE notice or other related rules in a timely manner. In addition, Circular No.19 provides for certain new requirements on registration procedures. For example, to apply for registration of a PRC resident's investment in an offshore special purpose vehicle, the PRC resident must submit supporting documents evidencing such resident's equity interest in the assets or equities of the PRC company. It is still uncertain how the new guidance will be interpreted and implemented and it may be difficult for our ultimate shareholders or beneficial owners who are PRC residents to provide sufficient supporting documents required by SAFE or to complete the required registration with SAFE in a timely manner, or at all. In case of any non-compliance on any of our PRC resident shareholders or beneficial owners, our PRC subsidiaries and such shareholders and beneficial owners may be subject to fines and other legal sanctions, including restriction on our ability to contribute additional capital into our PRC subsidiaries and our PRC subsidiaries' ability to distribute dividends to our offshore holding companies, which will adversely affect our business.

Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

        In December 2006, the People's Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, which set forth the respective requirements for foreign exchange transactions by individuals (both PRC or non-PRC citizens) under either the current account or the capital account. In January 2007, SAFE issued implementing rules for the Administrative Measures of Foreign Exchange Matters for Individuals, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen's participation in the employee share ownership plans or share option plans of an overseas publicly listed company. In March 2007, SAFE promulgated the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rules. Under these rules, PRC citizens who participate in an employee share ownership plan or a share option plan in an overseas publicly listed company are required to register with SAFE and complete certain other procedures. For participants of an employee share ownership plan, an overseas custodian bank should be retained by the PRC agent, which could be the PRC subsidiary of such overseas publicly listed company, to hold on trusteeship all overseas assets held by such participants under the employee share ownership plan. In the case of a share option plan, the PRC agent is required to retain a financial institution with stock brokerage qualification at the place where the overseas publicly listed company is listed or a qualified institution designated by the overseas

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publicly listed company to handle matters in connection with the exercise or sale of share options for the share option plan participants. For participants who had already participated in an employee share ownership plan or share option plan before the date of the Stock Option Rules, the Stock Option Rules require their PRC employers or PRC agents to complete the relevant formalities within three months of the date of this rule. We and our PRC citizen employees who participate in an employee share ownership plan or a share option plan will be subject to these regulations when our company becomes a publicly listed company in the United States. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and other legal or administrative sanctions. See "Regulation—Regulations on Employee Stock Options Plans."

Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

        The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in an over 20% appreciation of the RMB against the U.S. dollar over the following three years. For almost two years after reaching a high against the U.S. dollar in July 2008, however, the Renminbi traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the Renminbi fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would allow more RMB exchange rate fluctuation. However, it remains unclear how this announcement might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. Substantially all of our revenues and costs are denominated in RMB, and a significant portion of our financial assets are also denominated in RMB. We principally rely on dividends and other distributions paid to us by our subsidiary in China. Any significant revaluation of the RMB may potentially materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. Any fluctuations of the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

The approval of the China Securities Regulatory Commission, may be required in connection with this offering under PRC law, and, if required, we cannot assure you that we will be able to obtain such approval

        On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, or SASAC, the State Administration of Taxation, the SAIC, the China Securities Regulatory Commission, or the CSRC, and the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006, and were amended on June 22, 2009. These regulations, among other things, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to public listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and this offering may ultimately require approval from the CSRC, and if it does, it is uncertain how long it will take us to obtain the approval. If CSRC approval is required for this offering, our failure to obtain or delay in obtaining the CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies, which could include fines and penalties on our operations in China, restrictions or limitations on our

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ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, results of operations and financial condition.

        Our PRC counsel, Fangda Partners, has advised us that, based on its understanding of the current PRC laws and regulations, we will not be required to submit an application to the CSRC for the approval of the listing and trading of our ADSs on the NASDAQ Global Market, because we are not controlled by PRC enterprises or PRC citizens, as such we do not constitute a special purpose vehicle as defined by the M&A Rules which is required to obtain approval from the CSRC for overseas listing, and it is not aware of any public record indicating that any of the issuers having similar offshore and onshore corporate structures and already listed on an offshore stock exchange has been required by the CSRC to procure the approval of the CSRC prior to its listing.

PRC laws and regulations establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

        PRC laws and regulations, such as the M&A Rules, the Anti-Monopoly Law and the MOFCOM Security Review Rules, established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review or security review. The MOFCOM Security Review Rules, effective from September 1, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review by the MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. If the business of any target company that we plan to acquire falls into the ambit of security review, we may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any contractual arrangement. We may grow our business in part by acquiring other companies operating in our industry. Complying with the requirements of the relevant regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Our PRC subsidiaries and VIE may have engaged in business activities without the necessary approvals from or registration with local authorities. This could subject us to fines or other penalties, which could negatively impact our results of operations or interfere with our ability to operate our business.

        According to relevant PRC laws, a company is required to conduct business within its business scope and supplementally register with the relevant company registration authority if the company expands or changes the scope of its business operation. For certain business operations, additional governmental approvals, licenses, registrations or filings may also be required for any expansion of business scope. As our VIE and PRC operating subsidiaries quickly expand their operations, they may need to obtain additional governmental approvals, licenses or supplement their registrations or filings, which they may fail to do in a timely manner. For example, to operate our logistics services, Shanghai Lashou, our major operating subsidiary, and Beijing Lashou, our VIE, are required to obtain Road Transport Permits in Shanghai and Beijing, respectively. Beijing Lashou is also required to satisfy

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various requirements of local authorities for provision of logistics services outside of Beijing and such requirements of local authorities may vary from city to city. In some cities, a logistics services operator is required to obtain a separate permit, while in other cities, filings are required. Beijing Lashou obtained its Road Transport Permit from the local authority of Beijing in June 2011 and we are still in the process of applying with the relevant local authorities in other cities for necessary permits or making additional filings for operating our logistics services in these cities. Failure to obtain these permits or register or file in a timely manner, or at all, may substantially inhibit our ability to operate our business.

        Furthermore, a company that sets up a branch to conduct business in a location outside its domicile must register with the local AIC, while a liaison office, which is typically for liaison purpose without direct business operation, is generally not required to register, although local AICs may have different practices. We currently have approximately 50 branches, all of which have registered with the local AIC, and various liason offices, which have not registered. As we have started providing logistics services, we are applying for branch registration in cities where we have distribution stations. If we fail to complete such registration in a timely manner, or at all, or if the relevant local AIC deems that any of our liaison offices is actually a branch and thus subject to such registration requirements, we may be subject to penalties for failing to register such entity. These penalties may include fines, and for our distribution stations, disgorgement of gains or revocation of business licenses of our subsidiaries or our VIE, although we believe that, as a matter of practice, the authorities typically impose an extreme penalty only after repeated warnings are ignored or where a violation is blatant and continuous. Because of the discretionary nature of regulatory enforcements in the PRC, we cannot assure you that we will not be subject to these penalties as a result of violations of the requirements, or that these penalties would not substantially inhibit our ability to operate our business.

        In addition, the online social commerce industry in China is still in an early stage of development and the PRC laws applicable to the industry are still evolving. Due to the lack of clarity under the existing PRC regulatory regime, we may be required to comply with additional legal requirements. For example, it is uncertain if our VIE will be required to seek approval to expand its value-added telecommunications license to cover services through mobile networks for its operation of our mobile platform. Also, it is not yet clear if an online social commerce website operator, such as our VIE, will be regarded as a retailer and, as a result, be required to expand its approved business scope to include a retail component. Furthermore, if our VIE is regarded as a retailer, the featuring of certain products such as food, wine, books, newspapers, magazines, audio-video products and electronic publications on our website may be subject to special approvals or permits. We intend to apply for the mobile network value-added telecommunications license, expand the business scope of our VIE to include a retail component and apply for the special approvals or permits and comply with other applicable regulatory requirements, if so required by the relevant PRC regulations. However, our VIE may not succeed in completing such additional registration or obtaining such additional licenses, approvals or permits in a timely manner, or at all. Failure to do so when required by the relevant PRC regulations may substantially inhibit our ability to operate our business. Relevant PRC regulators may further impose various penalties on our VIE for its historical non-compliance with the relevant PRC laws, which may negatively impact our revenues or interfere with ability to operate our business.

Risks Relating to the ADSs and this Offering

There has been no public market for our ordinary shares or ADSs prior to this offering, and an active trading for our ADSs may not develop after this offering so you may not be able to resell your ADSs at or above the price you paid, or at all.

        Prior to this offering, there has been no public market for our ordinary shares or ADSs. We have applied to have the ADSs listed on the NASDAQ Global Market. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active

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trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs would be materially and adversely affected.

        The initial public offering price for our ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after the offering. An active trading market for our ADSs may not develop and the market price of our ADSs may decline below the initial public offering price. You may lose parts or all of your investment in our ADSs.

The market price for our ADSs may be volatile, which could result in substantial losses to you.

        The market price for our ADSs may be volatile and subject to wide fluctuations in response to factors such as actual or anticipated fluctuations in our quarterly results of operations, changes in financial estimates by securities research analysts, changes in the economic performance or market valuations of other companies operate in our industry, announcements by us or our competitors of material acquisitions, strategic partnerships, joint ventures or capital commitments, fluctuations of exchange rates between RMB and the U.S. dollar, intellectual property litigation, release of lock-up or other transfer restrictions on our outstanding shares or ADSs, and economic or political conditions in China. In addition, the performance, and fluctuation in market prices, of other companies with business operations located mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes of our ADSs. Volatility in global capital markets, as was experienced during the global financial crisis, could also have an adverse effect on the market price of our ADSs. Furthermore, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

Our quarterly results may fluctuate due to a number of factors and, as a result, could fall below investor expectations or estimates by securities research analysts, which may cause the trading price of our ADSs to decline.

        Our revenue and operating results are difficult to predict, and have in the past varied and are likely in the future to vary significantly from period to period. As a result of a number of factors, many of which are beyond our control, it is possible that results of operations for future periods may be below the expectations of public market analysts and investors, causing the market price of our securities to decline. Factors that may affect our quarterly results include, but are not limited to (i) seasonal variations in operating results; (ii) variations in the sales of our services to our significant users; (iii) the discretionary nature of our users' demands and spending patterns; (iv) competition from our competitors; (v) vulnerability of our business to a general economic downturn in the global economy; and (vi) changes in the laws that affect our operations. Additionally, our quarterly revenues are subject to fluctuation because they substantially depend upon the timing of orders, which may be impacted significantly if sales and order cycles are prolonged. Investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future performance.

Substantial future sales or the perception of sales of our ADSs or ordinary shares in the public market could cause the price of our ADSs to decline.

        Sales of our ADSs or ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale, upon the expiration of the applicable lock-up period beginning from the date of this prospectus, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. See "Shares Eligible for Future Sale" and "Underwriting" for a detailed description of the lock-up restrictions. Any or all of these shares may be released prior to

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expiration of the lock-up period at the discretion of the lead underwriters for this offering. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could decline.

        In addition, as disclosed under "Description of Share Capital—Registration Rights," certain holders of our ordinary and preferred shares have the right to cause us to register the sale of an aggregate of shares under the Securities Act, subject to a 180-day lock-up period in connection with this offering. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the related registration statement. Sales of these registered shares in the public market could cause the price of our ADSs to decline.

Since the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        As of June 30, 2011, our existing investors had paid an average of approximately RMB          per share for our ordinary shares on an as converted basis, assuming the conversion of our Series A, Series B and Series C preferred shares into Class B ordinary shares immediately upon the completion of this offering. If you purchase our ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately RMB          per ADS (assuming no exercise by the underwriters of their option to purchase additional ADSs), representing the difference between our net tangible book value per ADS as of December 31, 2010, after giving effect to the conversion of our Series A, Series B and Series C preferred shares and this offering at an assumed initial public offering price of RMB          (US$          ) per ADS, the midpoint of the estimated public offering price range shown on the cover of this prospectus. In addition, you may experience further dilution to the extent that our ordinary shares are issued upon the exercise of share options or other share-based awards. See "Dilution" for a more complete description of how the value of your investment in our ADSs will be diluted upon completion of this offering.

Following the initial public offering, we will continue to have a dual-class voting structure for our Shares, which may limit your ability as a shareholder to influence corporate matters.

        We currently have a dual-class voting structure such that our ordinary shares consist of Class A and Class B ordinary shares. Subject to certain exceptions, in respect of matters requiring the votes of shareholders, holders of Class A ordinary shares, who are Mr. Bo Wu and his affiliates, are entitled to ten votes per share, while holders of Class B ordinary shares are entitled to one vote per share. We will issue Class B ordinary shares represented by ADSs in this offering. Following the initial public offering, holders of our Class A ordinary shares will be entitled to five votes per share and holders of Class B ordinary shares will only be entitled to one vote per ordinary share. Due to the disparate voting powers attached to these two classes, as of the date of this prospectus, Mr. Bo Wu beneficially owns approximately           % of the aggregate voting power of our company and has considerable influence over matters requiring shareholder approval, subject to certain exceptions. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class B ordinary shares and ADSs may view as beneficial.

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You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are organized under Cayman Islands law, conduct substantially all of our operations in China and the majority of our directors and officers reside outside the United States.

        We are incorporated in the Cayman Islands and substantially all of our assets are located outside of the United States. We conduct substantially all of our current operations in China through our subsidiary and affiliated entities in China. The majority of our officers and directors reside outside the United States and a substantial portion of the assets of those persons are located outside of the United States. As a result, it may be difficult for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial of the merits. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforceability of Civil Liabilities."

        Our corporate affairs are governed by our memorandum and articles of association, as amended from time to time, and by the Companies Law (as amended) and the common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the Untied States, and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

        The corporate affairs of our PRC subsidiaries and our VIE are governed by the PRC Company Law. Under Articles 148, 149 and 150 of the PRC Company Law, the directors and management of our PRC subsidiary and VIE owe fiduciary duties and duties of diligence to our PRC subsidiary or VIE. However, these duties are not clearly established and there are limited precedents of actual enforcement under these provisions. Additionally, according to Fangda Partners, our PRC counsel, it is not aware of any specific and clear guidance under PRC law that addresses the resolution of any conflict between PRC laws and Cayman Islands laws in respect of corporate goverance regime.

        As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation organized in a jurisdiction in the United States.

Our articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders' opportunity to sell their shares, including ordinary shares represented by our ADSs, at a premium.

        We have adopted amended and restated articles of association effective upon the completion of this offering that contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market

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prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

You may not have the same voting rights as the holders of our ordinary shares and must act through the depositary to exercise your rights.

        As an ADS holder, you may only exercise voting rights with respect to the underlying Class B ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying Class B ordinary shares in accordance with these instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the Class B ordinary shares underlying your ADSs. Furthermore, if the vote is by show of hands, the depositary will not vote the deposited securities. If the vote is by poll, the depositary will try to vote the deposited securities in accordance with the voting instructions it timely receives from ADS holders. In the event of poll voting, deposited securities for which no instructions are received will not be voted.

        Pursuant to our third amended and restated memorandum and articles of association, we may convene a shareholders' meeting upon ten days' notice. When a shareholder's meeting is convened, you may not receive sufficient advance notice to withdraw the Class B ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. If we give timely notice, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you. You may not receive the voting materials in time to instruct the depositary to vote the Class B ordinary shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the Class B ordinary shares underlying your ADSs are not voted as you requested.

You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.

        We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to rely on an exemption from registration under the Securities Act to distribute such rights and securities. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings as a result.

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You may not receive distributions on our ordinary shares or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distribution available to you.

        The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under relevant securities laws but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the Depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions.

        We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

You may be subject to limitations on transfer of your ADSs.

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement.

Our management will have considerable discretion as to the use of the net proceeds to be received by us from this offering and you may not agree with our management on these uses.

        Our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for general corporate purposes that do not improve our efforts to achieve and maintain profitability or increase our share price. The net proceeds from this offering may be placed in investments that do not produce income or lose value.

We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or ordinary shares.

        Based on the current and anticipated valuation of our assets, including goodwill, and composition of our income and assets, we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year ending December 31, 2011 or the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that we will not be a PFIC for any taxable year. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the

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quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will be determined, in part, by reference to the market price of our ADSs and ordinary shares, fluctuations in the market price of the ADSs and ordinary shares may cause us to become a PFIC. In addition, changes in the composition of our income or assets may cause us to become a PFIC. While there is no clear guidance under the PFIC rules for assessing contractual arrangements, the contractual arrangements between us and our affiliated entity, Beijing Lashou, should be treated as ownership of stock for purposes of the PFIC rules. However, if there is any adverse determination that such arrangements should not be treated as ownership of stock for such purposes, our PFIC status is likely to depend on whether the assets we hold, including the call option agreement described in "Corporate History and Structure—Corporate Structure—Contractual Arrangements with Beijing Lashou and its Shareholders," are viewed as property that is used or held for use in our trade or business, or otherwise treated as assets that are not passive for purposes of the PFIC rules. If our assets are not so viewed, there is substantial risk we would be classified as a PFIC. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in "Taxation—United States Federal Income Taxation") holds an ADS or ordinary share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See "Taxation—United States Federal Income Taxation—Passive Foreign Investment Company."

We will incur increased costs as a public company.

        As a public company, we will incur a significantly higher level of legal, accounting and other expenses than we do as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the NASDAQ Global Market, has required changes in the corporate governance practices of public companies.

        When we become a public company, we will establish additional board committees and will adopt and implement additional policies regarding internal controls over financial reporting and disclosure controls and procedures. In particular, compliance with Section 404 of the Sarbanes-Oxley Act, which requires public companies to include a report of management on the effectiveness of their internal control over financial reporting, will increase our costs. In addition, we will incur costs associated with public company reporting requirements, such as the requirements to file an annual report and other reports with the SEC.

        We are currently evaluating and monitoring developments with respect to these rules. We expect these rules and regulations will increase our legal and financial compliance costs, but we cannot predict or estimate the additional costs or the timing of initially additional costs we may incur.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to us. These statements involve known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors," which may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

        In some cases, you can identify these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:

    our business strategies and initiatives as well as our business plans;

    our future business development, results of operations and financial condition;

    expected changes in our revenues and certain cost or expense items;

    our offerings under development; and

    trends and competition in the online social commerce market and industry.

        You should thoroughly read this prospectus and the documents that we refer to in this prospectus with the understanding that our actual results in the future may be materially different from or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this prospectus include additional factors which could adversely affect our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Industry," "Business" and elsewhere in this prospectus.

        This prospectus also contains third-party data related to macro-economic data, the retail and services market, the number of small and medium enterprises operating in China, as well as online social commerce market and industry that includes projections and analyses based on a number of assumptions. The projected growth may not materialize at the rates suggested by the market data, or at all. The failure of these markets to grow at the projected rates may have a material adverse effect on our business and the market price of our ADSs. In addition, the rapidly changing nature of the online social commerce industry subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data turns out to be incorrect, our actual results may differ from the projections based on these assumptions.

        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the states are made in this prospectus. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately US$             million, or approximately US$             million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and the estimated offering expenses payable by us. These estimates are based upon an initial offering price of US$            per ADS, the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus. Assuming the number of ADSs offered by us as set forth on the cover page of this prospectus remains the same, and after deduction of underwriting discounts and estimated offering expenses payable by us, a US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS would increase (decrease) the net proceeds of this offering by approximately US$             million.

        We plan to use the net proceeds of this offering as follows:

    approximately US$         million to increase our marketing efforts and expand our sales network and our delivery and fulfillment infrastructure;

    approximately US$         million to build and establish a call center and an operations center;

    approximately US$         million for research and development;

    approximately US$         million to improve our enterprise resource planning, or ERP, system;

    approximately US$         million to further enhance our technology infrastructure; and

    the balance of the proceeds for general corporate purposes, including our working capital needs and potential mergers and acquisitions, although we have not currently identified any such potential transaction targets.

        The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

        As of the date of this prospectus, we believe that the estimated net proceeds of this offering, along with our existing cash balances and ongoing operating cash flows, will be sufficient to fund our operations and provide necessary capital for our contemplated expansion plans. Pending use of the net proceeds, we intend to invest our net proceeds in short-term, interest bearing, investment-grade obligations.

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DIVIDEND POLICY

        We have not paid any dividends in the past and do not anticipate paying dividends on our ordinary shares in the foreseeable future. We currently intend to retain future earnings, if any, to operate our business and finance future growth strategies. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

        Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

        We are a holding company, and we rely on dividends paid by our operating subsidiaries in China for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. The payment of dividends in China is subject to limitations. Regulations in the PRC currently permit payment of dividends by our PRC subsidiaries only out of accumulated profits as determined in accordance with accounting standards and regulations in China. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year to contribute to its reserve fund until the accumulated balance of the reserve funds reach 50% of its registered capital. It is also required to reserve a portion of its after-tax profits to each PRC subsidiary's employee welfare and bonus fund, the amount of which is determined by its respective board of directors in accordance with its articles of association. These funds are not distributable in cash dividends. Our PRC subsidiaries did not distribute any dividends from their undistributed earnings for the years or periods prior to June 30, 2011. We have determined that it is probable that dividends will not be distributed in the foreseeable future from the undistributed profits of our PRC subsidiaries accumulated up to June 30, 2011.

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CAPITALIZATION

        The following table sets forth our capitalization, as of June 30, 2011:

    on an actual basis;

    on a pro forma basis to reflect the automatic conversion of all of our outstanding preferred shares into 404,003,9861 Class B ordinary shares immediately prior to the closing of this offering; and

    on a pro forma as adjusted basis to reflect the automatic conversion of all of our outstanding preferred shares into 404,003,9861 Class B ordinary shares immediately prior to the closing of this offering, and the issuance and sale of the                Class B ordinary shares in the form of ADSs by us in this offering, assuming an initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs.

        The pro forma adjustments reflected below are subject to change and are based upon available information and certain assumptions that we believe are reasonable. You should read this capitalization table together with "Use of Proceeds," "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

 
  As of June 30, 2011  
 
  Actual   Pro forma   Pro forma as
adjusted
 
 
  RMB   US$   RMB   US$   RMB   US$  
 
  (in thousands, except share and per share data)
 

Convertible redeemable preferred shares, US$0.0000005 par value, 198,877,780 Series A-1, 12,785,000 Series A-2, 12,500,000 Series A-3, 9,943,000 Series A-4, 95,962,633 Series B and 73,935,573 Series C shares authorized, issued and outstanding

                                     

Series A-1 convertible redeemable preferred shares

    29,216     4,520                  

Series A-2 convertible redeemable preferred shares

    1,362     211                  

Series A-3 convertible redeemable preferred shares

    1,240     192                  

Series A-4 convertible redeemable preferred shares

    882     136                  

Series B convertible redeemable preferred shares

    200,918     31,085                  

Series C convertible redeemable preferred shares

    725,846     112,299                  
                           

Total convertible redeemable preferred shares

    959,464     148,443                  

Equity (Deficit):

                                     

Class A ordinary shares, US$0.0000005 par value, 212,786,100 shares authorized, 100,000,000 shares issued and outstanding

                             

Class B ordinary shares, US$0.0000005 par value, 800,000,000 shares authorized, 37,021,639 shares issued and outstanding, 441,025,625 shares for pro forma (unaudited)

                             

Additional paid-in capital

    99,594     15,410     1,059,058     163,853              

Accumulated other comprehensive loss

    (11,170 )   (1,728 )   (11,170 )   (1,728 )            

Accumulated deficit

    (474,165 )   (73,361 )   (474,165 )   (73,361 )            
                           

Total shareholders' equity (deficit)

    (385,741 )   (59,679 )   573,723     88,764              
                           

Total capitalization

    573,723     88,764     573,723     88,764              
                           

1
If in the event the initial public offering price is lower than US$1.502809 per Class B ordinary share, the issue price for the Series C preferred shares, the conversion ratio of Series C preferred shares to ordinary shares will be greater than 1:1 and the number of ordinary shares outstanding immediately prior to this offering and after this offering will increase. Any US$            decrease in the initial offering price will result in the issuance of                        additional Class B ordinary shares to Series C preferred shareholders upon conversion.

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        This table is based on 100,000,000 of our Class A and 37,021,639 of our Class B ordinary shares outstanding as of June 30, 2011 and excludes:

    28,411,100 Class A and 110,583,948 Class B ordinary shares issuable upon the exercise of share options outstanding with exercise prices ranging from US$0.0000005 to US$0.02347 per share and a weighted average exercise price of US$0.0003867 per share; and

    66,728,612 additional Class B ordinary shares reserved for future grants under the 2010 Plan.

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS would increase (decrease) each of cash and cash equivalents, total current assets, total assets, total shareholders' equity (deficit) and total liabilities, convertible redeemable preferred shares and shareholders' equity (deficit) by US$             million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

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DILUTION

        If you invest in our ADSs, your interest will be diluted for each ADS you purchase to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Our net tangible book value as of June 30, 2011 was approximately US$88.3 million, or US$0.64 per ordinary share and US$            per ADS. Net tangible book value represents the amount of our total consolidated assets, net of software, less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share from the assumed initial public offering price per ordinary share, which is based on the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        Without taking into account any other changes in net tangible book value after June 30, 2011 other than to give effect to our sale of ADSs offered in this offering at the assumed initial public offering price of US$            per ADS after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2011 would have been US$             million, or US$            per outstanding ordinary share and US$            per ADS. This represents an immediate increase in net tangible book value of US$            per ordinary share and US$            per ADS to the existing shareholders, and an immediate dilution in net tangible book value of US$             per ordinary share and US$            per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

Assumed initial public offering price per ADS

  US$    

Historical tangible book value per ordinary share as of June 30, 2011

  US$ 0.64  

Historical tangible book value per ADS as of June 30, 2011

  US$    

Pro forma net tangible book value per ordinary share after giving effect to the conversion of our preferred shares

  US$    

Pro forma net tangible book value per ADS after giving effect to the conversion of our preferred shares

  US$    

Pro forma net tangible book value per ordinary share after giving effect to the conversion of our preferred shares and this offering

  US$    

Pro forma net tangible book value per ADS after giving effect to the conversion of our preferred shares and this offering

  US$    

Amount of dilution in net tangible book value per ordinary share to new investors in the offering

  US$    

Amount of dilution in net tangible book value per ADS to new investors in the offering

  US$    

        After giving effect to the exercise of options to purchase 81,242,443 Class B ordinary shares held by Lashou Employee, a company wholly-owned by Mr. Xiabo Jia, a founding shareholder and director of the Company, there would be an additional immediate dilution of US$             per ordinary share and US$             per ADS to new investors in this offering.

        If in the event the initial public offering price is lower than US$1.502809 per Class B ordinary share, the issue price for the Series C preferred shares, the conversion ratio of Series C preferred shares to ordinary shares will be greater than 1:1. Any US$            decrease in the initial offering price will result in the issuance of                         additional Class B ordinary shares to Series C preferred

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shareholders upon conversion and an immediate dilution of US$            per ordinary share and US$            per ADS to new investors in this offering.

        The following table summarizes, on a pro forma basis as of June 30, 2011, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the underwriters' option to purchase additional ADSs.

 
  Ordinary Shares Purchased    
   
   
   
 
 
  Total Consideration    
   
 
 
  Average Price
Per Ordinary
Share
  Average Price
Per ADS
 
 
  Number   %   Amount   %  

Existing shareholders

              US$           US$     US$    

New investors

              US$                      
                           

Total

          100   US$       100   US$     US$    
                               

        The discussion and tables above assume no exercise of any outstanding share options. As of the date of this prospectus, there are 139,370,165 ordinary shares issuable upon exercise of outstanding share options (including options to purchase 28,411,100 Class A ordinary shares issued to Mr. Bo Wu, our co-founder, chairman and chief executive officer, and options to purchase 110,959,065 Class B ordinary shares), at a weighted average exercise price of US$0.0004946 per share, and there are 66,353,495 ordinary shares available for future issuance upon the exercise of future grants under the 2010 Plan. To the extent that any of these options are exercised, there will be further dilution to new investors.

        A US$1.00 increase (decrease) in the assumed initial public offering price per ADS would increase (decrease) our pro forma net tangible book value after giving effect to the offering by US$             million, the pro forma net tangible book value per ordinary share and per ADS after giving effect to this offering by US$            per ordinary share and US$            per ADS and the dilution in pro forma net tangible book value per ordinary share and per ADS to new investors in this offering by US$            per ordinary share and US$            per ADS, assuming no exercise of the underwriters' option to purchase additional ADSs and no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

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EXCHANGE RATE INFORMATION

        The major portion of our revenues is denominated in U.S. dollars while a major portion of our expenses is denominated in RMB. We use the U.S. dollar as our reporting currency. Our assets and liabilities and our PRC subsidiary's and consolidated VIE's assets and liabilities are translated from RMB into U.S. dollars at the exchange rate on the balance sheet date, shareholders' equity is translated at the historical rates and the revenues and expenses are translated at the weighted average exchange rate for the period. The exchange rates used are based on the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

        This prospectus contains translations of certain Renminbi amounts into U.S. dollars at specified rates. All translations from Renminbi to U.S. dollars were made at the noon buying rate in New York City for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been made at the noon buying rate in effect on June 30, 2011, which was RMB6.4635 to US$1.00. We make no representation that the Renminbi or dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On October 21, 2011, the noon buying rate was RMB6.3823 to US$1.00.

        We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.

 
  Noon Buying Rate  
Period
  Period End   Average1   Low   High  
 
  (RMB per US$1.00)
 

2006

    7.8041     7.9579     8.0702     7.8041  

2007

    7.2946     7.5806     7.8127     7.2946  

2008

    6.8225     6.9193     7.2946     6.7800  

2009

    6.8259     6.8295     6.8470     6.8176  

2010

    6.6000     6.7603     6.8330     6.6000  

2011

                         
 

Six months ended June 30, 2011

    6.4635     6.5390     6.6364     6.4628  
 

April

    6.4900     6.5267     6.5477     6.4900  
 

May

    6.4786     6.4957     6.5073     6.4786  
 

June

    6.4635     6.4746     6.4830     6.4628  
 

July

    6.4360     6.4575     6.4720     6.4360  
 

August

    6.3778     6.4036     6.4401     6.3778  
 

September

    6.3780     6.3885     6.3975     6.3780  
 

October (through October 21, 2011)

    6.3823     6.3757     6.3825     6.3580  

Source: Federal Reserve Bank of New York and Federal Reserve Statistical Release

1
Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are calculated by using the average of the daily rates during the relevant month.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

    political and economic stability;

    an effective judicial system;

    a favorable tax system;

    the absence of exchange control or currency restrictions; and

    the availability of professional and support services.

        However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:

    the Cayman Islands has a less developed body of securities laws as compared to that of the United States and these securities provide significantly less protection to investors; and

    Cayman Islands companies do not have standing to sue before the federal courts of the United States.

        Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be subject to arbitration.

        Almost all of our assets are located in China. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States.

        We have appointed Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

        Maples and Calder, our counsel as to Cayman Islands law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands would:

    recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

    entertain original actions brought in the Cayman Islands against us or our directors or officers predicated upon the civil liability provision of the securities laws of the United States or any state in the United States.

        Maples and Calder has further advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will be recognised and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine or a penalty; and (e) is not obtained in a manner and is not

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of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a punitive judgment of a United States court predicated upon the liabilities provision of the federal securities laws in the United States without retrial on the merits if such judgment gives rise to obligations to make payments that may be regarded as fines, penalties or similar charges. Our shareholders can, under certain circumstances, originate actions against us: see "Description of Share Capital—Shareholders' Suits."

        We have been advised by Fangda Partners, our PRC counsel, that there is uncertainty as to whether the courts of the PRC would enforce judgments of United States courts or Cayman courts obtained against us or these persons predicated upon the civil liability provisions of the United States federal and state securities laws. Fangda Partners has further advised us that PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between the PRC and the jurisdiction where the judgment is made or on reciprocity arrangements between jurisdictions. If there are no treaties or reciprocity arrangements between the PRC and a foreign jurisdiction where a judgment is rendered, according to the PRC Civil Procedures Law, matters relating to the recognition and enforcement of the foreign judgment in the PRC may be resolved through diplomatic channels. The PRC does not have any treaties or other arrangements with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is generally difficult to enforce in the PRC a judgment rendered by a U.S. or Cayman Islands court.

        As Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States, there is doubt as to the enforceability in Hong Kong, in original actions or in actions for the enforcement of judgments of United States courts, of civil liabilities predicated solely upon the laws of the United States (including its federal securities laws or the securities laws of any state or territory within the United States).

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CORPORATE HISTORY AND STRUCTURE

History and Development

        We commenced operations of our online social commerce business in September 2009 through Beijing Lashou, which is owned by Mr. Ming Guan, the cousin of Mr. Bo Wu, our co-founder, chairman and chief executive officer, and Mr. Xiaobo Jia, our co-founder and director. Beijing Lashou holds the Internet information services license, which is required for our business under PRC laws, and operates our website for our online social commerce business in China.

        Our holding company, LaShou Group Inc., was incorporated under the laws of the Cayman Islands on May 19, 2010. On June 22, 2010, we incorporated Lashou HK Limited, or Lashou HK, our wholly owned subsidiary in Hong Kong, which serves as an operating company for our online social commerce business in Hong Kong and the holding company of our subsidiaries in China. On August 25, 2010, Lashou HK established its wholly owned subsidiary, Beijing Lashou Technology in China, which is currently dormant and in the process of liquidation. On October 5, 2010, Lashou HK established its second wholly owned subsidiary, Lashou Macau Sociedade Unipessoal Limitada in Macau, which will serve as an operating company for our online social commerce business in Macau. On January 7, 2011, we incorporated Lashou Group Hong Kong Limited, our second wholly owned subsidiary in Hong Kong, which will serve our future business needs. On April 21, 2011, Lashou HK established its third wholly owned subsidiary, Shanghai Lashou, in China, through which we control the operations of Beijing Lashou.

        PRC laws currently restrict foreign-invested entities from engaging in value-added telecommunications services. To comply with PRC laws, we operate our online social commerce business through our VIE, Beijing Lashou. We exercise effective control over the operations of Beijing Lashou through a series of contractual arrangements among Shanghai Lashou, Beijing Lashou and its shareholders. See "—Corporate Structure—Contractual Arrangements with Beijing Lashou and its Shareholders" for additional information.

        For private placement of Series A preferred shares, Series B preferred shares and Series C preferred shares, see "Related Party Transactions—Private Placement."

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Corporate Structure

        The following diagram illustrates our current corporate structure and the place of incorporation of each of our significant subsidiaries and VIE as of the date of this prospectus:

GRAPHIC


1
LaShou Group Inc., a company incorporated in the Cayman Islands that serves as our holding company.

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2
Lashou HK Limited, a company incorporated in Hong Kong that serves as an operating company for our online social commerce business in Hong Kong; it also serves as the holding company of Beijing Lashou Technology, Shanghai Lashou and Lashou Macau Sociedade Unipessoal Limitada.
3
Lashou Group Hong Kong Limited, a company incorporated in Hong Kong that will serve as a holding company in the future.
4
Lashou Macau Sociedade Unipessoal Limitada, a company incorporated in Macau that is currently inactive and will serve as an operating company for our online social commerce business in Macau.
5
Shanghai Lashou Information Technology Co. Ltd, a company incorporated in China that serves as a technical and consulting service provider to, and exercises effective control over, Beijing Lashou.
6
Beijing Lashou Technology Co. Ltd., a company incorporated in China that is currently dormant and in the process of liquidation.
7
Beijing Lashou Network Technology Co. Ltd, our VIE and a company incorporated in China that serves as an operating company for our online social commerce business in China.
8
Mr. Ming Guan is the cousin of Mr. Bo Wu, co-founder, chairman and chief executive officer of LaShou Group Inc.

        We have entered into contractual arrangements with Beijing Lashou and its shareholders, through which we exercise effective control over operations of Beijing Lashou and receive economic benefits and losses generated from Beijing Lashou. As a result of these contractual arrangements, under U.S. GAAP, we are considered the primary beneficiary of Beijing Lashou and thus consolidate its results in our consolidated financial statements. See "Risk Factors—Risks Related to Doing Business in China—If the PRC government determines that the contractual arrangements that establish the structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties."

Contractual Arrangements with Beijing Lashou and its Shareholders

        Our relationships with Beijing Lashou and its shareholders are governed by a series of contractual arrangements. Under PRC laws, each of Beijing Lashou and Shanghai Lashou is an independent legal person and neither of them is exposed to liabilities incurred by the other party. Other than pursuant to the contractual arrangements between Beijing Lashou and Shanghai Lashou, Beijing Lashou is not required to transfer any funds generated from its operations to Shanghai Lashou.

    Call Option Agreement.

        Pursuant to the call option agreement between Shanghai Lashou, Beijing Lashou and its shareholders:

    Shanghai Lashou has the exclusive option to require the shareholders of Beijing Lashou to transfer their equity interests in Beijing Lashou to Shanghai Lashou or its designees, at any time at the sole discretion of Shanghai Lashou and to the extent permitted by PRC law;

    the consideration for any such transfer of equity will be RMB1 or such other minimum payment as required by PRC law, whichever is higher;

    the shareholders of Beijing Lashou must not cause Beijing Lashou to declare or pay dividends to them without the written consent of Shanghai Lashou; and

    each of the shareholders of Beijing Lashou has agreed to give up any dividend from Beijing Lashou and any proceeds received from the disposal of the equity interest he holds in Beijing Lashou, which is in excess of RMB1, and Shanghai Lashou will be entitled to such dividends or premium.

        The call option agreement will expire on the date on which all the equity interests in Beijing Lashou are transferred to Shanghai Lashou and/or its designees. Beijing Lashou has no right to terminate the agreement unless otherwise provided by applicable law.

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    Proxy Agreement.

        Pursuant to the voting rights proxy agreement between Shanghai Lashou, Beijing Lashou and its shareholders, the shareholders of Beijing Lashou have granted the individuals designated by Shanghai Lashou the right to appoint all of the directors and senior management of Beijing Lashou and all of their other voting rights as shareholders of Beijing Lashou, as provided under the articles of association of Beijing Lashou.

        As of the date of this prospectus, the proxy agreement has a remaining term of approximately 20 years and is automatically renewable for further periods of one year except as otherwise decided by Shanghai Lashou. The proxy agreement may be terminated if Shanghai Lashou or Beijing Lashou fails to renew its business license or where the shareholders of Beijing Lashou, with the prior written consent of Shanghai Lashou, transfers all of their equity interests in Beijing Lashou to Shanghai Lashou or its designees. Beijing Lashou has no right to terminate the agreement unless otherwise provided by applicable law.

    Exclusive Service Agreement.

        Pursuant to the exclusive service agreement between Beijing Lashou and Shanghai Lashou, Shanghai Lashou has the exclusive right to provide technical and consulting services needed for Beijing Lashou's business operation. Without the prior written consent by Shanghai Lashou, Beijing Lashou must not engage any third party to provide any service under this agreement.

        Shanghai Lashou is entitled to collect from Beijing Lashou service fees, which include (i) monthly fixed fees of RMB50,000, (ii) performance-based service fees calculated at a certain percentage of Beijing Lashou's annual revenues, and (iii) other fees payable in consideration for other services to be provided by Shanghai Lashou to Beijing Lashou. As of the date of this prospectus, Shanghai Lashou has not changed service fees from Beijing Lashou and we have not received any dividends from our PRC operating subsidiaries. Nonetheless, we expect to substantially rely on service fees from Beijing Lashou and dividends from our PRC operating subsidiaries. Future collection of the service fees depends on, among others, the profitability and financial condition of our VIE and PRC operating subsidiaries, and it is uncertain when we may reasonably expect to collect any such fees or dividends in the future.

        As of the date of this prospectus, the exclusive service agreement has a remaining term of approximately 20 years. Beijing Lashou has no right to terminate the agreement unless otherwise provided by applicable law.

    Equity Interest Pledge Agreement.

        Pursuant to equity interest pledge agreements between Shanghai Lashou, Beijing Lashou and each of its shareholders:

    the shareholders of Beijing Lashou grant Shanghai Lashou a continuing first priority security interest over their respective equity interests in Beijing Lashou;

    Shanghai Lashou is entitled to exercise its right to dispose of the shareholders' pledged equity interest in Beijing Lashou upon any event of default by Beijing Lashou or its shareholders of any of their respective obligations under any of the proxy agreement, the call option agreement and the exclusive service agreement; and

    each shareholder of Beijing Lashou has agreed not to transfer, assign, pledge or otherwise dispose of his equity interest in Beijing Lashou, without the prior written consent of Shanghai Lashou.

        The equity interest pledge agreements will expire on the date on which all the contractual and secured obligations under the agreements have been discharged.

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SELECTED CONSOLIDATED FINANCIAL DATA

        We present below our selected consolidated financial and other operating data for the periods indicated. We have restated our consolidated financial statements for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2010 (unaudited) and June 30, 2011 as a result of the reasons disclosed in Note 2 to our consolidated financial statements, included elsewhere in this prospectus. The following selected consolidated statement of operations data for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2010 (unaudited) and June 30, 2011 and the consolidated balance sheets data as of December 31, 2009 and 2010 and June 30, 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following selected consolidated statement of operations data for the six months ended June 30, 2010 has been prepared on the same basis as our audited consolidated financial statements. The unaudited financial information for the six months ended June 30, 2010 includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the period presented. The selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of our results for any future periods.

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  For the Six Months Ended
June 30,
 
 
  For the Period from
September 15, 2009
(date of inception) to
December 31, 2009
   
   
 
 
  For the Year Ended
December 31, 2010
  2010
(Unaudited)
  2011
(Unaudited)
 
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (Restated)
  (Restated)
  (Restated)
  (Restated)
  (Restated)
 
 
  (in thousands, except for share, per share and per ADS data)
 

Consolidated Statement of Operations Data:

                                     

Revenues, net (Gross billings of nil, RMB123.2 million US$19.1 million, RMB1.0 million (unaudited) and RMB626.7 million US$97.0 million)

        10,468     1,620     24     57,817     8,945  

Cost of revenues

        (2,322 )   (359 )   (552 )   (6,114 )   (946 )
                           

Gross profit (loss)

        8,146     1,261     (528 )   51,703     7,999  

Operating expenses:

                                     
 

Sales and marketing1

    (308 )   (40,043 )   (6,195 )   (2,216 )   (326,452 )   (50,507 )
 

Product development1

    (98 )   (1,144 )   (177 )   (50 )   (4,086 )   (632 )
 

General and administrative1

    (278 )   (18,808 )   (2,910 )   (1,037 )   (112,296 )   (17,374 )
                           

Total operating expenses

    (684 )   (59,995 )   (9,282 )   (3,303 )   (442,834 )   (68,513 )
                           

Loss from operations

    (684 )   (51,849 )   (8,021 )   (3,831 )   (391,131 )   (60,514 )

Debt extinguishment loss

        (1,818 )   (281 )   (1,818 )        

Interest and other income

        1,283     198     1,283     514     80  

Interest and other expenses

        (1,111 )   (172 )       (652 )   (101 )
                           

Loss before income taxes

    (684 )   (53,495 )   (8,276 )   (4,366 )   (391,269 )   (60,535 )

Income taxes

                         
                           

Net loss

    (684 )   (53,495 )   (8,276 )   (4,366 )   (391,269 )   (60,535 )
                           

Accretion of Series A Preferred Shares to redemption value

        (67 )   (10 )       (76 )   (12 )

Accretion of Series B Preferred Shares to redemption value

                    (79 )   (12 )

Accretion of Series C Preferred Shares to redemption value

                    (96 )   (15 )

Repurchase of Series A-4 Preferred Shares

        (11,497 )   (1,880 )            
                           

Net loss attributable to ordinary shareholders

    (684 )   (65,059 )   (10,066 )   (4,366 )   (391,520 )   (60,574 )
                           

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  For the Six Months Ended
June 30,
 
 
  For the Period from
September 15, 2009
(date of inception) to
December 31, 2009
   
   
 
 
  For the Year Ended
December 31, 2010
  2010
(Unaudited)
  2011
(Unaudited)
 
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (Restated)
  (Restated)
  (Restated)
  (Restated)
  (Restated)
 
 
  (in thousands, except for share, per share and per ADS data)
 

Loss per share:

                                     
 

Basic

    (0.00 )   (0.23 )   (0.02 )   (0.02 )   (1.75 )   (0.27 )
 

Diluted

    (0.00 )   (0.23 )   (0.02 )   (0.02 )   (1.75 )   (0.27 )

Loss per ADS:

                                     
 

Basic

                                                                                  
 

Diluted

                                                                                  

Shares used in loss per share computation for the ordinary shares:

                                     
 

Basic

    284,375,000     283,428,000     283,428,000     284,375,000     223,289,819        
 

Diluted

    284,375,000     283,428,000     283,428,000     284,375,000     223,289,819        

1
Includes share-based compensation expenses as follows:

   
   
   
   
  For the Six Months Ended June 30,  
   
  For the Period From
September 15, 2009
(date of inception) to
December 31, 2009
   
   
 
   
  For the Year Ended December 31, 2010   2010
(Unaudited)
  2011  
   
  RMB   RMB   US$   RMB   RMB   US$  
   
  (in thousands)
 
 

Share-based compensation expenses:

                                     
 

Sales and marketing

                    2,930     453  
 

Product development

                    1,639     254  
 

General and administrative

        7,377     1,141         91,835     14,208  
                             
 

Total

        7,377     1,141         96,404     14,915  
                             

 

 
  As of December 31,   As of June 30, 2011  
 
  2009   2010    
   
 
 
  RMB   RMB   US$   RMB   US$  
 
   
  (Restated)
  (Restated)
  (Restated)
  (Restated)
 
 
   
   
   
   
  Actual
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

    382     102,970     15,931     748,874     115,862  

Funds receivable

        3,958     612     7,286     1,127  

Deposits with merchants

        25,080     3,880     45,488     7,038  

Total current assets

    397     182,345     28,211     828,131     128,124  

Total assets

    406     186,560     28,864     850,338     131,560  

Payables to merchants

        11,552     1,787     110,126     17,038  

Advances from registered users

        57,777     8,939     128,315     19,852  

Total current liabilities

    9     81,114     12,550     276,615     42,796  

Total convertible redeemable preferred shares

        185,673     28,726     959,464     148,443  

Total shareholders' equity (deficit)

    397     (80,227 )   (12,412 )   (385,741 )   (59,679 )

Total liabilities, convertible redeemable preferred shares and shareholders' equity (deficit)

    406     186,560     28,864     850,338     131,560  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements included elsewhere in this prospectus. This discussion contains forward-looking statements about events that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are a leading online social commerce company in China. As published by iResearch, we are consistently ranked No. 1 among independent online social commerce companies in China, based on the number of daily unique visitors to online social commerce websites in China during the months of January 2011 through July 2011, with over 22% of total unique visitors viewing our website in each of these months.

        We feature on our website, www.lashou.com, group-purchase vouchers for discounted offerings of services and products to be provided by our merchants. Consumers in each of the 500 plus cities and towns we cover can choose from up to 1,000 daily features of discounted offerings primarily in the categories of food and entertainment, health and beauty, and travel and hospitality. Since we launched our website in March 2010, approximately 6.8 million paying users had purchased over 43.3 million vouchers for services and products from us as of September 30, 2011.

        We generate revenues from selling vouchers for redemptions of services from mainly local merchants in cities and towns we cover. We also generate revenues from selling discounted offerings for products sourced nationwide. As of October 23, 2011, our cumulative merchant base had grown to approximately 46,000 merchants supported by over 3,100 sales personnel in 184 cities and towns across 31 provinces in China, Hong Kong and Macau.

        Since the launch of our website in March 2010, we have successfully grown to capture the tremendous e-commerce opportunities in China, as evidenced by the following:

    Our average monthly unique visitors, based on data from Google Analytics, grew from approximately 295,000 during the second quarter of 2010 to approximately 29.7 million during the third quarter of 2011;

    Our registered users grew from approximately 53,000 as of March 31, 2010 to approximately 16.8 million as of September 30, 2011;

    Our active paying users grew from approximately 25,000 during the second quarter of 2010 to approximately 3.3 million during the third quarter of 2011;

    Our merchant base grew from less than 400 during the second quarter of 2010 to approximately 24,000 during the third quarter of 2011; and

    The number of vouchers for services and products sold on our website grew from approximately 56,000 during the second quarter of 2010 to approximately 19.6 million during the third quarter of 2011.

        Our revenues, net grew from nil for the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB10.5 million (US$1.6 million) for the year ended December 31, 2010 and to RMB57.8 million (US$8.9 million) for the six months ended June 30, 2011. Our gross billings grew from nil for the period from September 15, 2009 (date of inception) to December 31, 2009 to

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RMB123.2 million (US$19.1 million) for the year ended December 31, 2010 and to RMB626.7 million (US$97.0 million) for the six months ended June 30, 2011.

        We are a growth stage company and incurred sales and marketing expenses for the year ended December 31, 2010 and the six months ended June 30, 2011 of RMB40.0 million (US$6.2 million) and RMB326.5 million (US$50.5 million), respectively. Our net losses were RMB0.7 million for the period from September 15, 2009 (date of inception) to December 31, 2009, RMB53.5 million (US$8.3 million) for the year ended December 31, 2010 and RMB391.3 million (US$60.5 million) for the six months ended June 30, 2011. As of June 30, 2011, our accumulated deficit was RMB474.2 million (US$73.4 million).

        Due to legal restrictions in China, we conduct our business mainly through Beijing Lashou, our consolidated VIE in China, that we effectively control through contractual arrangements.

Factors Affecting Our Results of Operations

        Our results of operations are affected by the factors described in more detail in the "—Descriptions of Certain Statement of Operations Items—Revenues, net" as well as general factors affecting China's online social commerce market and company-specific factors, including:

    our ability to attract and retain merchants to offer products or services on attractive terms;

    our ability to attract and retain paying users and increase their repeat purchases;

    our ability to manage growth and control costs and expenses;

    our ability to recruit and retain quality employees;

    our ability to anticipate technological advances and offer additional product and service offerings that cater to user needs;

    seasonality, which is characterized by less user traffic during holiday periods in China; and

    the level of competition in the online social commerce industry, which is characterized by relatively low barriers to entry, fragmentation with a large number of participants, and intense competition.

Descriptions of Certain Statement of Operations Items

        Revenues, net.    Our revenues for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended 2010 and the six months ended June 30, 2011 represent commissions we earn from the sale of group-purchase offerings to our paying users, and net of business tax and surcharges. Our revenues for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2011 were nil, RMB10.5 million (US$1.6 million) and RMB57.8 million (US$8.9 million), respectively. Business tax and surcharges for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2011 of nil, RMB0.5 million (US$0.1 million) and RMB3.2 million (US$0.5 million), respectively, were based on the revenues generated from services rendered in the PRC.

        Our revenues are derived from the sale of group-purchase offers of services and products featured on our website from our merchants for food and entertainment, health and beauty, travel and hospitality, other lifestyle service sectors, apparel, accessories and other fast moving consumer products. Our merchants are mainly local merchants from the cities and towns we cover and the remaining are merchants who offer services regionally or nationwide in China, Hong Kong and Macau. A user is required to pay at the time he or she purchases the group-purchase voucher for the service offered which is presented for redemption.

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        We pay our merchants in installments according to the progress of the group-purchases. For service offerings, currently we typically pay 40% of the total contracted price to a merchant three business days after an offer expires on our website. The merchant receives an additional 30% of the total contracted price upon redemption of 40% of the vouchers purchased by our users. Within seven days after the expiration date of the voucher, we pay the remainder of the contracted price to the merchant. However, we do not pay merchants or we claw back from merchants, as applicable, the amounts refunded to users that have not redeemed their vouchers by the voucher expiration date. Generally the term of the voucher is less than three months. For product offerings, we pay the contracted price to the merchant in installments, typically with 50% paid to the merchant three business days after an offer expires, and the remainder in one or two subsequent installments typically after goods have been delivered. See "Business—Our Merchants" for further discussions of contract terms with merchants.

        The following table sets forth the following operating data for each period indicated.

 
   
  Three Months Ended  
 
  Year Ended
December 31,
2010
  March 31,
2010
  June 30,
2010
  September 30,
2010
  December 31,
2010
  March 31,
2011
  June 30,
2011
  September 30,
2011
 
 
  (in millions, except for number of featured merchants and gross billings per active paying user)
 

Selected Operating Data*

                                                 
 

Monthly average unique visitors1

    3.9     0.02     0.3     3.0     9.6     17.5     25.8     29.7  
 

Registered users2**

    4.5     0.05     0.3     1.0     4.5     8.1     12.4     16.8  
 

Active paying users3**

    1.5         0.03     0.3     1.3     1.8     2.9     3.3  
 

Total number of completed transactions4**

    5.1         0.1     0.8     4.3     5.0     13.7     19.6  
   

Products

    1.6         0.01     0.1     1.5     0.8     7.3     13.1  
   

Services

    3.6         0.1     0.7     2.8     4.2     6.4     6.5  
 

Number of featured merchants5

    6,743     13     370     1,738     4,989     7,789     16,732     23,530  
 

Gross billings per active paying user6 (RMB)

    82.1         38.4     42.5     84.3     114.1     143.4        

*
We believe these data are important for the evaluation of our performance by our investors as they measure our overall growth, as well as potential revenue opportunities from deals we can offer from our merchant base.
1
Represents the monthly average number of unique visitors that visited our website in the applicable measuring period. The data is based on application of Google Analytics, a third-party tool to analyze website traffic. The data does not include users of our mobile application or visitors to our mobile Wireless Application Protocol, or WAP, site.
2
Represents the total number of registered users as of the end of the applicable measuring period.
3
Represents the total number of registered users who purchased our offerings at least once in the applicable measuring period. If any registered user makes more than one purchase during the applicable measuring period, such user will be counted as one active paying user during such period. We use calendar quarters and the calendar year of 2010 as the measuring periods for active paying users in this table.
4
Represents the total number of vouchers for services and products sold in the applicable measuring period.
5
Represents the total number of merchants whose services or products were featured on our website in the applicable measuring period.
6
Gross billings per active paying user is calcualated as gross billings for the applicable measuring period divided by the number of active paying users during the applicable measuring period. We believe gross billings per active paying user provides useful information to investors as it allows investors to measure our ability to convert registered users into paying users and compare us to other industry participants.
**
In order to more accurately report the number of our registered users, active paying users and completed transactions, we have excluded from these data actual and estimated returns of vouchers and suspected

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    fictitious user accounts. For example, some registered users use software to open multiple accounts in order to increase their chance of winning prizes in lucky draws. We closely monitor user activity on a daily basis to identify and eliminate fictitious accounts. As such, our reported operating data have excluded up to 20% of registered users in each period, and between 2.5% to 10.0% of active paying users and completed transactions in each period.

        We believe our revenues are primarily affected by the following factors:

    Our ability to offer attractive group-purchase vouchers, which depends on the relevance and attractiveness of the group-purchase offerings to our registered users and the magnitude of the discounts offered. This in turn depends on our ability to monitor and predict user and market trends through leveraging our data analysis technology as well as our local market knowledge, and the training and quality of our sales force to identify and negotiate attractive deals.

    Our ability to maintain and expand our user base, which depends on the strength of our brand, user experience, from user-friendly and personalized interfaces to quality services and products provided by our merchants, and overall attractiveness of our offerings.

    Our ability to negotiate favorable pricing arrangements with our merchants, which depends mainly on the geographic coverage of our sales force, user base, transaction completion rate, our brand and reputation as well as the inventory management and brand promotion needs of our merchants.

    Our ability to increase transaction volume and gross billings per active paying user, which depends on our ability to expand our user base, and retain user interest with attractive offerings, quality services and improved referral and social networking programs. We expect our mobile platform to also help encourage repeat and impulse purchases.

        Cost of revenues.    Cost of revenues primarily consists of salaries and benefits of our operating personnel, depreciation and amortization of property and equipment and processing fees paid to third-party payment service providers. Our cost of revenues for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2011 were nil, RMB2.3 million (US$0.4 million) and RMB6.1 million (US$0.9 million), respectively.

        Operating expenses.    Our operating expenses consist of product development expenses, sales and marketing expenses, and general and administrative expenses. For the year ended December 31, 2010 and the six months ended June 30, 2011, our general and administrative expenses included share-based compensation expenses of RMB7.4 million (US$1.1 million) and RMB91.8 million (US$14.2 million) relating to our grant of share-based awards to our management under the 2010 Plan, and the accrual of compensation expenses for past services provided by Mr. Xiaobo Jia, our director, in connection with the repurchase of ordinary shares ultimately held by Mr. Jia on December 1, 2010. As we grant awards to our employees and other eligible persons under the 2010 Plan, each of these components of our operating expenses will include a portion of our total share-based compensation expenses, which will be generally allocated according to the functions of those individuals who receive share-based awards.

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        The following table sets forth a breakdown of our operating expenses in terms of amount and as a percentage of our revenues for the periods indicated.

 
  The Period from
September 15, 2009
(date of inception) to
December 31, 2009
  For the Year Ended December 31, 2010   For the Six Months Ended June 30, 2011  
 
  RMB   % of revenues   RMB   US$   % of revenues   RMB   US$   % of revenues  
 
   
   
  (Restated)
  (Restated)
  (Restated)
  (Restated)
  (Restated)
  (Restated)
 
 
  (in thousands, except percentages)
 

Revenues, net

            10,468     1,620     100.0%     57,817     8,945     100.0%  

Operating expenses

                                                 
 

Sales and marketing

    308         40,043     6,195     382.5%     326,452     50,507     564.6%  
 

Product development

    98         1,144     177     10.9%     4,086     632     7.1%  
 

General and administrative

    278         18,808     2,910     179.7%     112,296     17,374     194.2%  
                                   

Total operating expenses

    684         59,995     9,282     573.1%     442,834     68,513     765.9%  
                                   

        Sales and marketing expenses.    Our sales and marketing expenses consist primarily of advertising expenses, salaries and benefits for our sales and marketing personnel including sales commissions, travel and entertainment expenses, rental charges for our local sales offices and registered user referral credits that were issued to registered users who referred new registered users to us. Our sales and marketing expenses were equal to 382.5% and 564.6% of our revenues for the year ended December 31, 2010 and the six months ended June 30, 2011, respectively, of which RMB11.2 million (US$1.7 million) and RMB188.7 million (US$29.2 million), respectively, were advertising expenses.

        We expect our sales-related expenses to increase as we grow our business and adjust our sales force headcount from time to time to improve operation efficiency in new and existing markets. As an early stage company in active promotion of our brand and business, our advertising expenses are high. Our advertising expenses primarily consist of expenses associated with advertisements through media and publications and promotional credits issued to registered users. We expect our advertising expenses to increase in the near term as we continue to conduct brand promotion and other marketing activities.

        User refunds for unsatisfactory products delivered or services rendered under "Three Guarantees" are estimated based on historical experience. Given the merchants are contractually responsible and liable for the quality of the products or services provided and we hold the right to claim reimbursements from the merchants, we record the estimated recoveries as a reduction to "Payable to merchants" or as a "Receivable from merchants," as applicable. Any shortfall between such refunds, credits issued and the estimated recoveries, including our revenues (commissions), is charged to "Sales and marketing" expense as under the agency model, the merchants are our customers, not the registered users.

        In the past, we awarded credits to registered users who referred new users to our website, as well as to registered users who participated in lucky draws. We discontinued the award of credit to users for referrals in July 2011. The Group records an obligation within "Accrual for credits," with an offset to "Sales and marketing" expenses when these credits are issued.

        Product development expenses.    Product development expenses consist primarily of salaries and benefits for engineers and development staff engaged in website structure and content development, and mobile platform application. For the year ended December 31, 2010 and the six months ended June 30, 2011, our product development expenses were equal to 10.9% and 7.1% of our revenues, respectively. We expect product development expenses to increase primarily as a result of an increase in compensation, as we adjust headcount and as compensation increases with market inflation, competition and our award of share-based compensation.

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        General and administrative expenses.    General and administrative expenses consist primarily of salaries, benefits and share-based compensation for our finance, human resources and information technology personnel for internal maintenance of our technology platforms, and certain executive officers, professional services costs related to accounting, tax, banking, legal and information technology services, office rentals of our headquarters in Beijing, depreciation and amortization expenses relating to property and equipment used in general and administrative functions and other expenses incurred for general administrative purposes. For the year ended December 31, 2010 and the six months ended June 30, 2011, general and administrative expenses were equal to 179.7% and 194.2% of our revenues, respectively. We expect to incur higher general and administrative expenses (excluding share-based compensation) as we expand our operations, incur expenses relating to this offering and become a U.S.-listed public company.

Share-based Compensation

        On July 22, 2010, we adopted the 2010 Plan. As of the date of this offering, options to purchase 139,370,165 ordinary shares were outstanding (including options to purchase 28,411,100 Class A ordinary shares issued to Mr. Bo Wu, our co-founder, chairman and chief executive officer, and options to purchase 110,959,065 Class B ordinary shares). As of the date of this offering, 66,353,495 Class B ordinary shares were available for future grants under the 2010 Plan.

        We characterized the award grants as compensation for the relevant employees' services to us and recorded share-based compensation expenses. Our share-based compensation expenses amounted to RMB7,377 (US$1,141) and RMB96.4 million (US$14.9 million) for the year ended December 31, 2010 and the six months ended June 30, 2011, respectively. We measure share-based compensation expenses based on the grant date fair value of the awards. The fair value of the awards, net of forfeitures, is recognized as compensation expense over the period during which the recipient is required to provide services in exchange for the awards, which is generally the vesting period. For a more detailed description of share-based awards, including exercise and purchase price and vesting information, see "Description of Share Capital—History of Securities Issuances—Options and Restricted Shares."

        As of June 30, 2011, we had RMB284.0 million (US$43.9 million) in unrecognized compensation expenses related to non-vested share-based compensation awards, which we expect to recognize over a weighted average period of 9.26 years.

        We are required to estimate the grant-date fair value of the share options and other share-based awards that we grant to our employees. Each grant date fair value of the share-based awards granted was estimated using the binomial option pricing model. We estimated the expected term based on option terms related to the vesting schedule and expected option expiration date. The volatility rate estimation is developed based on the volatility of the comparable companies within the expected term commensurate with the expected time period modified to reflect ways in which currently available information indicates that the future of the subject company is reasonably expected. The risk-free interest rate is selected based on the yield of the Chinese International Government Bond, which is denominated in U.S. dollars, with duration closest to the expected term.

        As a private company, we determine the fair value of our ordinary shares as of the grant date of the share-based awards by making complex and highly subjective judgments and assumptions about our projected financial and operating results. We are also required to make other assumptions such as our weighted average cost of capital, general market and macroeconomic conditions, nature and prospects of the online social commerce industry, nature and stage of development of our company, comparable companies, and our business risks. Such general assumptions include the following: (i) there will be no material changes in the existing political, legal, fiscal and economic conditions in China; (ii) there will be no material changes in tax law in China and the tax rates applicable to our subsidiaries and VIE; (iii) exchange rates and interest rates will not differ materially from currently prevailing rates, (iv) the

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availability of finance will not be a constraint on the future growth of our company, (v) we will retain and have competent management, key personnel and technical staff to support our ongoing operations, and (vi) there will be no material deviation in industry trends and market conditions from economic forecasts. These assumptions are inherently uncertain. Changes in these assumptions could significantly affect the valuation results and the amount of share-based compensation expenses we recognize in our consolidated financial statements.

        The fair value of our company's ordinary shares underlying the share-based awards was estimated by determining the equity value of our company and then allocating the equity value into the various classes of shares and options using the option-pricing method, which is one of the generally accepted valuation methodologies. Firstly, the total equity value was developed by using the discounted cash flow, which incorporates certain assumptions, including our forecasted financial results and growth trends. Then, equity value is allocated using the option pricing method under three scenarios, namely the liquidation scenario, redemption scenario and initial public offering, or IPO, scenario (based on the terms of the preferred shares, share options and management's expectation on an IPO event) to determine the fair value of our ordinary shares. Under the option-pricing method, each class of equity is modeled as a call option with a distinct claim on the enterprise value of our company. The main inputs to this model include equity value of our company, exercise price, expected volatility, expected term, expected dividend yield and risk-free interest rate.

        In the discounted cash flow analysis, we used a weighted average cost of capital, or WACC, as the discount rates to derive the business enterprise value of our company. The WACC was calculated using the capital asset pricing model based on the required return on equity investors expect to earn and the post-tax cost of debt of our company. The WACCs were determined based on a consideration of the factors, including risk-free rate, comparative industry risk, equity risk premium, company size and non-systematic risk factors. The gradual decrease in WACCs from 25% to 18% was due to the factors discussed below in the explanations for the increase in the fair value of our ordinary shares between grant dates. The decrease was also due to a longer track record for forecasting. According to the guideline prescribed by the AICPA Audit and Accounting Practice Aid, "Valuation of Privately Held Company Equity Securities Issued as Compensation," or the Practice Aid, when an enterprise has established a solid financial history, the reliability of forecasted results is generally higher than those made at an earlier stage, and therefore the perceived risks of investing in the enterprise are generally lower than in an earlier stage. Therefore, the estimated WACC, which reflects the perceived risks of, and a market participant's expected rate of return for, investing in our securities, also declined as our company progressed through the earlier stages of development and towards this offering.

        In arriving at the equity value for our company, we applied a discount for lack of marketability, or DLOM, to reflect the fact that, at the time of the grants, we were a closely held company and there was no public market for our ordinary shares. We used the put option method to estimate the DLOM, taking into consideration factors like the timing of liquidity event such as an IPO and estimated volatility of our ordinary shares. The decrease in the DLOM is primarily because we are approaching the expected IPO date, as the closer the valuation date is from the expected IPO, the lower the put option value is, and thus the lower the implied DLOM.

        For the determination of the fair value of the awards granted and the fair value of the underlying ordinary shares of our company, we prepared retrospective valuations with the assistance of an independent third-party valuation firm.

        On July 22, 2010, we granted options to purchase 28,411,100 ordinary shares (Class A ordinary shares after taking into account of re-designation) at the price of US$0.0005 per share to an executive officer under the 2010 Plan. These options are subject to vesting over four years, starting from July 22, 2010, and were subsequently accelerated and became fully-vested in February 2011. We characterized the option grant as compensation for the employee's services and recorded share-based compensation

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of RMB0.3 million (US$40,000) for the year ended December 31, 2010. We applied a DLOM of 31% and WACC of 25% in the determination.

        On November 29, 2010, we granted options to purchase 284,100 ordinary shares (Class B ordinary shares after taking into account of re-designation) at the price of US$0.0075 per share to an executive officer under the 2010 Plan. These options are subject to vesting over four years, starting from November 29, 2010, and were subsequently accelerated and became fully-vested in February 2011. We characterized the option grant as compensation for the employee's services and recorded share-based compensation of US$1,270 for the year ended December 31, 2010. We applied a DLOM of 22% and WACC of 25% in the determination.

        On December 1, 2010, we repurchased 11,364,000 ordinary shares from Lashou Employee Inc., for total cash proceeds of US$3.6 million. We cancelled the repurchased shares immediately after such transfer. This repurchase resulted in a compensation charge of RMB7.1 million (US$1.1 million), which was the difference between the cash consideration paid and the US$4.4410 per share (US$0.2221 per share, after taking into account the share split on December 31, 2010) fair value of the ordinary shares on the repurchase date. This repurchase was to allow Mr. Xiaobo Jia, the shareholder of Lashou Employee Inc., to monetize a portion of his investment.

        From February 2 through February 10, 2011, we granted options to purchase a total of 1,617,793 Class B ordinary shares at the price of US$0.02347 per share, and 11,040,440 restricted Class B ordinary shares at the price of US$0.02347 per share under the 2010 Plan to one of our independent director appointees, an executive officer and certain employees. These options and restricted shares are subject to vesting over four years, starting from the grant date. We characterized the grant of options and restricted shares as compensation for the employee's services and recorded share-based compensation of RMB2.6 million (US$0.4 million) for the six month period ended June 30, 2011. We applied a DLOM of 21% and WACC of 20% in the determination.

        On March 23, 2011, we granted options to purchase 647,117 Class B ordinary shares at the price of US$0.02347 per share to one of our independent director appointees under the 2010 Plan. These options are subject to vesting over four years, starting from the grant date. We characterized the option grant as compensation for the employee's services and recorded share-based compensation of RMB0.4 million (US$0.1 million) for the six month period ended June 30, 2011. We applied a DLOM of 19% and WACC of 19.5% in the determination.

        On April 4, 2011, we granted options to purchase 323,559 Class B ordinary shares at the price of US$0.02347 per share to a certain employee under the 2010 Plan. These options are subject to vesting over four years, starting from the grant date. We characterized the option grant as compensation for the employee's services and recorded share-based compensation of RMB0.1 million (US$0.02 million) for the six month period ended June 30, 2011. We applied a DLOM of 12% and WACC of 18% in the determination.

        On April 26, 2011, we repurchased 84,375,000 Class A ordinary shares and 81,242,443 Class B ordinary shares from our shareholders, Lashou Group Employee Holding Inc. and Lashou Employee Inc., respectively, at par value. We cancelled the repurchased shares immediately after such transfer. Also on April 26, 2011, we concurrently granted options to purchase 81,242,443 Class B ordinary shares at the price of US$0.0000005 per share to one of our directors under the 2010 Plan. These options are subject to vesting upon earlier of April 26, 2012 and the occurrence of an IPO. We applied a DLOM of 11% and WACC of 18% in the determination.

        On April 27, 2011, we granted options to purchase 323,559 Class B ordinary shares at the price of US$0.02347 per share to an employee under the 2010 Plan. These options are subject to vesting over four years, starting from April 27, 2011 respectively, and were valued at the estimated fair market value on the date of the award. We characterized the option grant as compensation for the employee's

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services and recorded share-based compensation of RMB0.1 million (US$0.02 million) for the six month period ended June 30, 2011. We applied a DLOM of 11% and WACC of 18% in the determination.

        On June 3, 2011, we granted options to purchase 27,659,000 Class B ordinary shares at the price of US$0.0000005 per share to our employees under the 2010 Plan. These options are subject to vesting over four years, starting from June 3, 2011 respectively, and were valued at the estimated fair market value on the date of the awards. We characterized the option grant as compensation for the employees' services and recorded share-based compensation of RMB5.2 million (US$0.8 million) for the six month period ended June 30, 2011. We applied a DLOM of 8% and WACC of 18% in the determination.

        On August 3, 2011, we granted options to purchase 647,117 Class B ordinary shares at the price of US$0.02347 per share to one of our independent director appointees under the 2010 Plan. These options are subject to vesting over four years, starting from August 3, 2011 respectively, and were valued at the estimated fair market value on the date of the awards. We characterized the option grant as compensation for the employees' services and recorded share-based compensation of nil for the six month period ended June 30, 2011. We applied a DLOM of 7% and WACC of 18% in the determination.

        The table below sets forth certain information concerning the options and restricted shares granted on the dates indicated:

Grant Date
  Options1   Restricted
Shares2
  Purchase
Price/Exercise
Price (US$)
  Fair
Value of
Ordinary
Shares
(US$)
  Initial Public
Offering Price3
  Intrinsic
Value4
  Type of
Valuation
 
   
   
   
   
   
  (US$ in millions)
   

July 22, 2010

    28,411,100           0.0005   0.0145               Retrospective

November 29, 2010

    284,100           0.0075   0.2221               Retrospective

February 2 - 10, 2011

    1,617,793           0.02347   0.4038               Retrospective

February 2 - 10, 2011

          11,040,440     0.02347   0.4038               Retrospective

March 23, 2011

    647,117           0.02347   0.7031               Retrospective

April 4, 2011

    323,559           0.02347   0.8857               Retrospective

April 26, 2011

    81,242,443           0.0000005   1.1291               Retrospective

April 27, 2011

    323,559           0.02347   1.1291               Retrospective

June 3, 2011

    27,659,000           0.0000005   1.3966               Retrospective

August 3, 2011

    647,117           0.02347   1.5662               Retrospective

1
The numbers in the column reflect retroactively the 20-for-1 share split in December 2010. Except for the options granted on July 22, 2010, the shares underlying the options are Class B ordinary shares. The shares underlying the options granted on July 22, 2010 are Class A ordinary shares.
2
All restricted shares are Class B ordinary shares.
3
Based on the mid-point of the estimated public offering price set forth on the front cover of this prospectus.
4
Intrinsic value equals the difference between the estimated public offering price and the exercise price, multiplied by the number of options granted.

        The increase in the fair value of our ordinary shares from US$0.0145 per share on July 22, 2010 to US$0.2221 per share on November 29, 2010 was primarily attributable to the following developments of our company during the period:

    the commercial launch of our website in March 2010;

    the launch of multiple offerings of services per day on our website in September 2010 from one offering per day; and

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    the increase of our active paying users from approximately 25,000 for the second quarter of 2010 to approximately 1.3 million for the fourth quarter of 2010.

        The increase in the fair value of our ordinary shares from US$0.2221 on November 29, 2010 to US$0.4038 for the period of February 2-10, 2011 was primarily attributable to the following developments of our company during the period:

    we issued the Series B preferred shares at the price of US$0.31679 per share on December 31, 2010 and had received the proceeds prior to February 2, 2011, which allowed us to further expand our business to additional cities; and

    we launched the hotel and travel channel in December 2010, a new type of offering that we expected to help us attract new users and create new opportunities for growth.

        The increase in the fair value of our ordinary shares from US$0.4038 for the period of February 2-10, 2011 to US$0.7031 on March 23, 2011 was primarily attributable to the following developments of our company during the period:

    we entered into a share purchase agreement for the sale and purchase of Series C preferred shares at a price of US$1.502809 per share;

    Dr. Yuhong Xiong, our Chief Scientist, formed a team to systematically design systems for data mining, which helped increase the retention rate of our users and enhance our users' experience; and

    we launched our first large-scale marketing campaign to increase our brand recognition.

        The increase in the fair value of our ordinary shares from US$0.7031 on March 23, 2011 to US$0.8857 on April 4, 2011 was primarily attributable to the following developments of our company during the period:

    the number of unique visitors based on data from Google Analytics increased by over 80% in March 2011 compared to the number of unique visitors in February 2011; and

    we received the proceeds from our issuance of Series C preferred shares during the period, which increased our liquidity and provided us with more financial resources.

        The increase in the fair value of our ordinary shares from US$0.8857 on April 4, 2011 to US$1.1291 on April 27, 2011 was primarily attributable to the following developments of our company during the period:

    we continued to expand our call centers and began to build distribution stations in anticipation of increasing product sales; and

    we were able to shift a greater proportion of sales to product sales, which we expected to improve our profit margins and create future growth opportunities.

        The increase in the fair value of our ordinary shares from US$1.1291 on April 27, 2011 to US$1.3966 on June 3, 2011 was primarily attributable to the following developments of our company during the period:

    we ramped up a nationwide marketing campaign to enhance our brand recognition, including commercials aired on CCTV 1, one of China's most watched television channels, featuring Mr. You Ge, a well-known film actor;

    we continued to expand our geographic coverage, expand our sales teams and logistics network; and

    we commenced our IPO process, which increased the marketability of our ordinary shares.

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        The increase in the fair value of our ordinary shares from US$1.3966 on June 3, 2011 to US$1.5662 on August 3, 2011 was primarily attributable to the fact that we made our first confidential filing of our Form F-1 registration statement to the SEC, which continued to increase the marketability of our ordinary shares.

Taxation

    Cayman Islands

        We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gain tax. In addition, payment of dividends by us to our shareholders is not subject to withholding tax in the Cayman Islands.

    Hong Kong

        Our wholly owned subsidiaries in Hong Kong, Lashou HK Limited and Lashou Group Hong Kong Limited, were subject to Hong Kong profits tax at the rate of 16.5% for 2009 and 2010 on their assessable profits determined under relevant Hong Kong tax regulations. Dividends from these subsidiaries to us are exempt from any Hong Kong withholding tax.

    PRC

        For 2009 and 2010, our subsidiaries and consolidated VIE in the PRC, Shanghai Lashou, Beijing Lashou Technology and Beijing Lashou, were subject to enterprise income tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant regulations of the PRC.

        Effective as of January 1, 2008, the PRC EIT Law applies a uniform enterprise income tax rate of 25% to all domestic enterprises and foreign-invested enterprises and defines new tax incentives for qualifying entities. Pursuant to the PRC EIT Law, each of our operating subsidiaries and consolidated VIE in the PRC is subject to a unified enterprise income tax rate of 25% in 2009 and 2010, respectively.

        In addition, the PRC EIT Law treats an enterprise established outside of China that has its "de facto management body" located in China as a PRC resident enterprise for tax purposes. The term "de facto management body" is generally defined as exercising substantial and overall management and control over such aspects as the production, personnel, accounts and properties etc. of an enterprise. We do not believe that we should be treated as a "resident enterprise" for PRC tax purposes. However, if considered a "PRC resident enterprise" for tax purposes, we would be subject to the PRC enterprise income tax at a rate of 25% on our worldwide income. We will continue to monitor our tax status. See "Risk Factors—Risks Related to Doing Business in China—We may be classified as a "resident enterprise" for PRC enterprise income tax purposes, which would result in our global income becoming subject to 25% PRC enterprise income tax."

        Pursuant to the PRC EIT Law and its implementation rules, dividends payable by a PRC resident enterprise to a non-resident enterprise such as its corporate foreign investors are subject to a 10% PRC income tax, unless any tax treaty or similar arrangement between the PRC and foreign investors' jurisdiction of incorporation provides otherwise. Under the taxation arrangement between the PRC and Hong Kong, a qualified Hong Kong tax resident which is the "beneficial owner" and directly holds 25% or more of the equity interest in a PRC-resident enterprise is entitled to a reduced PRC income tax rate of 5%.

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Results of Operations

        The following table sets forth a summary of our consolidated results of operations for the periods indicated both in absolute amounts and as percentages of our revenues.

 
   
   
   
  For the Six Months Ended
June 30,
 
 
  For the Period from
September 15, 2009
(date of inception) to
December 31, 2009
  For the
Year Ended
December 31,
2010
 
 
  2010
(Unaudited)
  2011
(Unaudited)
 
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (Restated)
  (Restated)
  (Restated)
  (Restated)
 
 
  (in thousands, except for share, per share and per ADS data)
 

Consolidated Statement of Operations Data:

                                     

Revenues, net (Gross billings of nil, RMB123.2 million US$19.1 million, RMB1.0 million (unaudited) and RMB626.7 million US$97.0 million)

        10,468     1,620     24     57,817     8,945  

Cost of revenues

        (2,322 )   (359 )   (552 )   (6,114 )   (946 )
                           

Gross profit (loss)

        8,146     1,261     (528 )   51,703     7,999  

Operating expenses:

                                     
 

Sales and marketing1

    (308 )   (40,043 )   (6,195 )   (2,216 )   (326,452 )   (50,507 )
 

Product development1

    (98 )   (1,144 )   (177 )   (50 )   (4,086 )   (632 )
 

General and administrative1

    (278 )   (18,808 )   (2,910 )   (1,037 )   (112,296 )   (17,374 )
                           

Total operating expenses

    (684 )   (59,995 )   (9,282 )   (3,303 )   (442,834 )   (68,513 )
                           

Loss from operations

    (684 )   (51,849 )   (8,021 )   (3,831 )   (391,131 )   (60,514 )

Debt extinguishment loss

        (1,818 )   (281 )   (1,818 )        

Interest and other income

        1,283     198     1,283     514     80  

Interest and other expenses

        (1,111 )   (172 )       (652 )   (101 )
                           

Loss before income taxes

    (684 )   (53,495 )   (8,276 )   (4,366 )   (391,269 )   (60,535 )

Income taxes

                         
                           

Net loss

    (684 )   (53,495 )   (8,276 )   (4,366 )   (391,269 )   (60,535 )
                           

Accretion of Series A Preferred Shares to redemption value

        (67 )   (10 )       (76 )   (12 )

Accretion of Series B Preferred Shares to redemption value

                    (79 )   (12 )

Accretion of Series C Preferred Shares to redemption value

                    (96 )   (15 )

Repurchase of Series A-4 Preferred Shares

        (11,497 )   (1,880 )            
                           

Net loss attributable to ordinary shareholders

    (684 )   (65,059 )   (10,066 )   (4,366 )   (391,520 )   (60,574 )
                           

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1
Includes share-based compensation expenses as follows:

   
  For the Period from
September 15, 2009
(date of inception) to
December 31, 2009
   
   
  For the Six Months Ended
June 30,
 
   
  For the Year ended
December 31, 2010
 
   
  2010   2011  
   
  RMB   RMB   US$   RMB   RMB   US$  
   
  (in thousands)
 
 

Share-based compensation expenses:

                                     
 

Sales and marketing

                    2,930     453  
 

Product development

                    1,639     254  
 

General and administrative

        7,377     1,141         91,835     14,208  
                             
 

Total

        7,377     1,141         96,404     14,915  
                             

Comparison of the Six Months Ended June 30, 2010 and the Six Months Ended June 30, 2011

        Revenues, net.    Our revenues increased from RMB24,000 (US$3,713) in the six months ended June 30, 2010 to RMB57.8 million (US$8.9 million) in the six months ended June 30, 2011, primarily due to the increase in completed transactions to 4.9 million in the three months ended March 31, 2011 and 13.7 million in the three months ended June 30, 2011 from an insignificant amount in the comparable periods in 2010, the increase in active paying users to 1.8 million in the three months ended March 31, 2011 and 2.9 million in the three months ended June 30, 2011 from an insignificant amount in the comparable periods in 2010 and as a result of the competitive pricing arrangements negotiated with our merchants.

        Cost of revenues.    Our cost of revenues increased from RMB0.6 million (US$85,403) in the six months ended June 30, 2010 to RMB6.1 million (US$0.9 million) in the six months ended June 30, 2011. The significant increase in absolute cost of revenues was consistent with the growth of our revenues.

        Operating expenses.    Our operating expenses increased significantly from RMB3.3 million (US$0.5 million) in the six months ended June 30, 2010 to RMB442.8 million (US$68.5 million) in the six months ended June 30, 2011.

    Sales and marketing expenses.  Our sales and marketing expenses increased significantly from RMB2.2 million (US$0.3 million) in the six months ended June 30, 2010 to RMB326.5 million (US$50.5 million) in the six months ended June 30, 2011, of which RMB188.7 million (US$29.2 million) were attributable to an increase in advertising expenses. The increase was primarily due to the significant increase in our total marketing spending as we promoted our brand and business, an increase in credits issued to registered users and the substantial increase in our local sales force as we expanded our merchant base and geographic coverage.

    Product development expenses.  Our product development expenses increased significantly from RMB50,000 (US$7,736) in the six months ended June 30, 2010 to RMB4.1 million (US$0.6 million) in the six months ended June 30, 2011, primarily due to the increase of our product development personnel to support our website development and mobile platform applications.

    General and administrative expenses.  Our general and administrative expenses increased significantly from RMB1.0 million (US$0.2 million) in the six months ended June 30, 2010 to RMB112.3 million (US$17.4 million) in the six months ended June 30, 2011, primarily due to the acceleration of vesting of share-based awards granted to management under the 2010 Plan.

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        Loss from operations.    As a result of the foregoing, our loss from operations increased from RMB3.8 million (US$0.6 million) in the six months ended June 30, 2010 to RMB391.1 million (US$60.5 million) in the six months ended June 30, 2011.

        Debt extinguishment loss.    As the result of the modification of the non-convertible loans issued to certain of our Series A preferred shareholders in June 2010 before the Series A preferred share financing, which effectively added embedded conversion options to these loans, we recognized a total debt extinguishment loss of RMB1.8 million (US$0.3 million) on the date of the modification for the difference between the then carrying value of the existing loans and the fair value of the new convertible loans.

        Interest and other income.    For the six-months ended June 30, 2010, Interest and other income includes the receipt of an initial non-refundable amount of RMB1.3 million (US$0.2 million) relating to a non-recurring development project that was terminated. We recorded this amount as a component of "Interest and other income" given it was derived from activities not related to our core operating activities.

        Income taxes.    We did not accrue any income taxes as we incurred losses in these periods.

        Net loss.    As a result of the foregoing, our net loss increased from RMB4.4 million (US$0.7 million) in the six months ended June 30, 2010 to RMB391.3 million (US$60.5 million) in the six months ended June 30, 2011.

Comparison of the Period from September 15, 2009 (date of inception) to December 31, 2009 and the Year Ended December 31, 2010

        Revenues, net.    Our revenues increased from nil for the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB10.5 million (US$1.6 million) in 2010. We launched our group-purchase offerings on our website in March 2010. We began to provide multiple offerings of services on our website in September 2010, which we believe attracted more active paying users. As of December 31, 2010, we had completed a total of 5.1 million transactions on our website and grew our base of active paying users who purchased at least one of our services or products within the previous year to 1.5 million.

        Cost of revenues.    Our cost of revenues increased from nil in the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB2.3 million (US$0.4 million) in 2010. The significant increase in absolute cost of revenues was consistent with the growth of our revenues.

        Operating expenses.    Our operating expenses increased significantly from RMB0.7 million in the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB60.0 million (US$9.3 million) in 2010.

    Sales and marketing expenses. Our sales and marketing expenses increased significantly from RMB0.3 million in the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB40.0 million (US$6.2 million) in 2010, of which RMB11.2 million (US$1.7 million) were attributable to an increase in advertising expenses, primarily due to the significant increase in our total advertising spending as we promoted our brand and business, and the substantial increase of our local sales force as we expanded in China. Additionally, our sales and marketing expenses for the year ended December 31, 2010 included approximately RMB7.2 million (US$1.1 million) of credits for promotional purposes.

    Product development expenses. Our product development expenses increased significantly from RMB98,000 in the period from September 15, 2009 (date of inception) to December 31, 2009 to

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      RMB1.1 million (US$0.2 million) in 2010, primarily due to the increase of our product development personnel to support the website development and mobile platform application.

    General and administrative expenses. Our general and administrative expenses increased significantly from RMB0.3 million in the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB18.8 million (US$2.9 million) in 2010, primarily due to the substantial increase of our mid-level management personnel and the investment in our corporate infrastructure necessary to support our growth, and the accrual of compensation expenses for past services provided by Mr. Xiaobo Jia, our director, in connection with the repurchase of ordinary shares beneficially held by Mr. Jia on December 1, 2010.

        Loss from operations.    As a result of the foregoing, our loss from operations increased from RMB0.7 million in the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB51.8 million (US$8.0 million) in 2010.

        Debt extinguishment loss.    As the result of the modification of the non-convertible loans issued to certain of our Series A preferred shareholders in June 2010 before the Series A preferred share financing, which effectively added embedded conversion options to these loans, we recognized a total debt extinguishment loss of RMB1.8 million (US$0.3 million) on the date of the modification for the difference between the then carrying value of the existing loans and the fair value of the new convertible loans.

        Interest and other income.    For the year ended December 31, 2010, Interest and other income includes the receipt of an initial non-refundable amount of RMB1.3 million (US$0.2 million) relating to a non-recurring development project that was terminated. We recorded this amount as a component of "Interest and other income" given it was derived from activities not related to our core operating activities.

        Income taxes.    We did not accrue any income taxes as we incurred losses in these periods.

        Net loss.    As a result of the foregoing, our net loss increased significantly from RMB0.7 million in the period from September 15, 2009 (date of inception) to December 31, 2009 to RMB53.5 million (US$8.3 million) in 2010.

Selected Unaudited Quarterly Results of Operations

        The following table presents our selected unaudited quarterly results of operations for the six quarters in the period from January 1, 2010 to June 30, 2011. This information should be read in conjunction with our annual consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited condensed consolidated financial information for the quarters presented below on the same basis as our audited consolidated financial statements. The unaudited condensed consolidated financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Our limited operating history makes it difficult to predict future operating results. The historical quarterly results presented below are not necessarily indicative of the results that may be expected for any future quarters or periods. Please refer to "Risk Factors—Risks Related to Our Business—Our operating results fluctuate from period to period, and, as a result, investors should not rely on quarterly operating results as being indicative of future results," "—Descriptions of Certain Statement of Operations Items" and other information included elsewhere in this prospectus for information regarding trends and other factors that may affect our results of operations.

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  For the Three Months Ended  
 
  March 31,
2010
  June 30,
2010
  September 30,
2010
  December 31,
2010
  March 31,
2011
  June 30,
2011
 
 
  (RMB in thousands)
 

Revenues, net (Gross billings of nil RMB1.0 million, RMB14.0 million, RMB 108.2 million, RMB207.8 million and RMB418.9 million)

        24     478     9,966     22,612     35,205  

Cost of revenues

    (227 )   (325 )   (454 )   (1,316 )   (2,306 )   (3,808 )

Gross profit (loss)

    (227 )   (301 )   24     8,650     20,306     31,397  

Operating expenses

                                     
 

Sales and marketing

    (231 )   (1,985 )   (10,626 )   (27,201 )   (143,958 )   (182,494 )
 

Product development

    (10 )   (40 )   (264 )   (830 )   (1,154 )   (2,932 )
 

General and administrative

    (298 )   (739 )   (5,180 )   (12,591 )   (94,113 )   (18,183 )
                           

Total operating expenses

    (539 )   (2,764 )   (16,070 )   (40,622 )   (239,225 )   (203,609 )
                           

Loss from operations

    (766 )   (3,065 )   (16,046 )   (31,972 )   (218,919 )   (172,212 )

Debt extinguishment loss

        (1,818 )                

Interest and other income

        1,283             22     492  

Interest and other expenses

            (719 )   (392 )   (135 )   (517 )

Loss before income taxes

    (766 )   (3,600 )   (16,765 )   (32,364 )   (219,032 )   (172,237 )

Income taxes

                         

Net loss

    (766 )   (3,600 )   (16,765 )   (32,364 )   (219,032 )   (172,237 )
                           

Net loss attributable to ordinary shareholders

    (766 )   (3,600 )   (16,792 )   (43,901 )   (219,110 )   (172,410 )
                           

        Our revenues increased rapidly in the six-quarter period from January 1, 2010 to June 30, 2011, primarily due to the increase in the number of completed transactions from nil in the first quarter of 2010 to 13.7 million in the second quarter of 2011, the increase in the number of active paying users from approximately 30,000 in the second quarter of 2010 to 2.9 million in the second quarter of 2011 and as a result of the competitive pricing arrangements negotiated with our merchants. Our cost of revenues increased over the six-quarter period consistently with the growth in revenues.

        Our total operating expenses increased significantly over the six-quarter period. Our sales and marketing expenses increased significantly from RMB0.2 million (US$0.03 million) in the first quarter of 2010 to RMB182.5 million (US$28.2 million) in the second quarter of 2011, primarily due to increased marketing spending for brand and business promotion, an increase in promotional credits to registered users and a substantial increase in our local sales force as we expanded in China. Our rate of increase in sales and marketing expenses slowed after the first quarter of 2011 due to the reduction in marketing spending. Our product development expenses generally increased from quarter to quarter over the six-quarter period primarily due to higher compensation expenses as we hired more product development personnel to support our website development and mobile platform. Our general and administrative expenses gradually increased from quarter to quarter over the four-quarter period from the first quarter of 2010 to the last quarter of 2010. The significant increase in our general and administrative expenses from the last quarter of 2010 to the first quarter of 2011 was primarily due to the acceleration of vesting of share-based awards granted to management under the 2010 Plan during the first quarter of 2011.

        In the future, our quarterly results of operations may be affected by seasonal trends caused by user behavior, payments to merchants and demand for our product and service offerings. We expect our sales to be lower during calendar quarters with more weekends and longer and more frequent holiday periods in China, such as the New Year and Spring Festival holidays, which generally fall in the first quarter, the May holidays and the October holidays. Other factors that may cause our quarterly

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operating results to fluctuate include, among others, changes in general economic conditions in China, changes in the competitive landscape, and the impact of unforeseen events, such as unexpected natural disasters or changes in industry policies of local governments or the PRC central government. See "Risk Factors—Risks Related to Our Business—Our operating results fluctuate from period to period, and, as a result, investors should not rely on quarterly operating results as being indicative of future results."

Liquidity and Capital Resources

        The following table sets forth a summary of our cash flows for the periods indicated:

 
   
   
   
  For the Six Months Ended
June 30,
 
 
  For the Period from
September 15, 2009
(date of inception) to
December 31, 2009
  For the
Year Ended
December 31,
2010
 
 
  2010
(Unaudited)
  2011
 
 
  RMB   RMB   US$   RMB   RMB   US$  
 
  (in thousands)
 

Net cash (used in) provided by operating activities

    (609 )   5,770     893     (1,946 )   (145,349 )   (22,487 )

Net cash used in investing activities

    (9 )   (4,416 )   (683 )   (31 )   (19,498 )   (3,017 )

Net cash provided by financing activities

    1,000     101,234     15,662     33,660     821,650     127,121  

Net increase in cash and cash equivalents

    382     102,588     15,872     31,683     656,803     101,617  

Cash and cash equivalents at beginning of the period/year

        382     59     382     102,970     15,931  

Effect of foreign exchange rate change on cash

                    (10,899 )   (1,686 )

Cash and cash equivalents at end of the period/year

    382     102,970     15,931     32,065     748,874     115,862  

        To date, we have financed our operations primarily through cash from operations and the issuance of Series A, Series B and Series C preferred shares in 2010 and 2011. We had nil short-term or long-term bank borrowings outstanding as of December 31, 2009 and 2010 and June 30, 2011. Our cash position improved from 2009 to 2010 primarily as a result of the launch of our website in March 2010 and our Series A and Series B preferred share financing.

        We are a holding company and conduct our operations primarily through our subsidiaries and VIE in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with accounting standards and regulations applicable to such subsidiaries.

        Our cash position is affected by PRC laws on statutory reserves and dividend distributions. Under PRC law, each of our PRC subsidiaries and consolidated VIE must set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve reaches 50% of its registered capital. Furthermore, each of our PRC subsidiaries and VIE is required to allocate a discretionary portion of its after-tax profits to its staff welfare and bonus fund. We have not been required to allocate any amount to such reserves since we have not achieved profitability. Although the statutory reserves can be used, among other means, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, companies may not distribute the reserve funds as cash dividends except upon a liquidation of these subsidiaries. In addition, dividend payments from our PRC subsidiaries could be delayed as we may only distribute such dividends upon completion of annual audits of the subsidiaries.

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        We believe that our current levels of cash balances and cash flows from operations will be sufficient to meet our anticipated cash needs to fund our operations for at least the next 12 months, assuming we receive no proceeds from this offering. We will use the net proceeds from this offering to expand our business operations as disclosed under "Use of Proceeds." In addition, our cash flows from operations could be affected by our payment terms with our merchants. See "—Descriptions of Certain Statement of Operations Items—Cost of Revenues" for a detailed discussion of our payment terms with our merchants. Furthermore, we may need additional cash resources in the future if we experience adverse business conditions or other developments or if we find and wish to pursue opportunities for investment, acquisitions, strategic cooperation or other similar actions.

    Operating Activities

        Net cash used in operating activities amounted to RMB145.3 million (US$22.5 million) in the six months ended June 30, 2011, primarily attributable to net loss incurred of RMB391.3 million (US$60.5 million) and an increase in deposits with merchants and other assets of RMB45.3 million (US$7.0 million) primarily due to an increase in prepayments to merchants as a result of an increase in sales, and advertising agents following the growth of our business and marketing campaigns. These increases were partly offset by an increase of payables to merchants of RMB98.6 million (US$15.3 million) an increase of advances from registered users of RMB70.5 million (US$10.9 million) and an increase of payroll and welfare payables of RMB17.4 million (US$2.7 million), principally related to an increase in operations and advertising costs in connection with the growth of our business.

        Net cash provided by operating activities amounted to RMB5.8 million (US$0.9 million) in 2010, primarily attributable to net loss incurred of RMB53.5 million (US$8.3 million) and an increase in deposits with merchants of RMB25.1 million (US$3.9 million), primarily due to an increase in prepayments to merchants as a result of an increase in sales. These increases were partly offset by an increase of advances from registered users of RMB57.8 million (US$8.9 million) and an increase of payables to merchants of RMB11.6 million (US$1.8 million), principally related to an increase in sales and increased prepayments to merchants before redemption or settlement, respectively.

        Net cash used in operating activities amounted to RMB0.6 million in the period from September 15, 2009 (date of inception) to December 2009 primarily attributable to our net loss of RMB0.7 million as a result of the incurrence of set-up costs.

    Investing Activities

        Our investing activities primarily relate to purchases of property and equipment, including servers, office equipment and vehicles. Net cash used in investing activities was RMB19.5 million (US$3.0 million) in the six months ended June 30, 2011. Net cash used in investing activities was RMB4.4 million (US$0.7 million) in 2010. Net cash used in investing activities was RMB9,000 in the period from September 15, 2009 (date of inception) to December 31, 2009.

    Financing Activities

        Net cash provided by financing activities totaled RMB821.7 million (US$127.1 million) in the six months ended June 30, 2011, resulting from the proceeds of RMB823.0 million (US$127.3 million) received from the issuance of Series B Preferred Shares and Series C Preferred Shares, partly offset by RMB1.7 million (US$0.3 million) in issuance costs relating to the Series C Preferred Shares issuance.

        Net cash provided by financing activities totaled RMB101.2 million (US$15.7 million) in 2010 primarily resulting from the proceeds of RMB138.6 million (US$21.4 million) received from the issuance of June 2010 Convertible Notes, December 2010 Convertible Notes and Series B Preferred Shares, partly offset by RMB24.0 million (US$3.7 million) used for the repurchase of ordinary shares and RMB 12.0 million (US$1.9 million) used for the repurchase of Series A-4 preferred shares.

        Net cash provided by financing activities was RMB1.0 million in 2009 resulting from the proceeds of RMB1.0 million received from the issuance of ordinary shares.

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Capital Expenditures

        We had capital expenditures of RMB9,000, RMB4.4 million (US$0.7 million) and RMB19.5 million (US$3.0 million) for the period from September 15, 2009 (date of inception) to December 31, 2009, the year ended December 31, 2010 and the six months ended June 30, 2011, respectively. Our capital expenditures were used primarily for purchasing servers, computers and other equipment for our business. We expect to incur more capital expenditures, as we (i) purchase additional computers and servers and (ii) expanding our network infrastructure to support the growth of our business.

Contractual Obligations

        The following table sets forth our contractual obligations as of December 31, 2010:

 
  Payments Due by Period  
 
  Less than
1 Year
  1-3 Years   4-5 Years   More than
5 years
  Total  
 
  (RMB in thousands)
 

Operating lease obligations

    4,231     1,595             5,826  

Purchase obligations

    14,414                 14,414  
                       
 

Total

    18,645     1,595             20,240  
                       

        Our operating lease obligations related to lease agreements for our corporate offices and storage facilities. Purchase obligations primarily represent non-cancelable contractual obligations related to advertising and marketing services. Other than the obligations set forth above, we did not have any long-term debt obligations, operating lease obligations, purchase obligations or other long-term liabilities as of December 31, 2010.

Off-Balance Sheet Arrangements

        We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder's equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Internal Control over Financial Reporting

        In connection with the audit of our consolidated financial statements for the period from September 15, 2009 (date of inception) to December 31, 2009 and the year ended December 31, 2010, we and our independent registered public accounting firm identified one material weakness and certain other deficiencies in our internal control over financial reporting. As defined in AU 325, Communicating Internal Control Related Matters Identified in an Audit, of the PCAOB Standard and Related Rules, a material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the company's financial statements will not be prevented, or detected and corrected on a timely basis. The material weakness identified relates to our lack of sufficient resources with the requisite U.S. GAAP and SEC financial accounting and reporting expertise to support the accurate and timely preparation and presentation of our consolidated financial statements and related disclosures, which resulted in certain undetected errors in our previously issued consolidated financial statements. See "Note 2—RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS" to our Consolidated Financial Statements for additional information.

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        To address the material weakness and other certain deficiencies, we have implemented, and are in the process of implementing, a number of measures to improve our internal control over financial reporting, including:

    we hired a chief financial officer and a U.S. GAAP reporting and finance controller who have U.S. GAAP experience through either working at major accounting firms or U.S. listed companies;

    we have set up a review process to ensure proper financial statement closing and reporting procedures;

    we plan to hire more full-time professionals with the requisite U.S. GAAP, tax and SEC reporting experience;

    we plan to hire an internal control specialist and engage outside consultants to assist in establishing internal control processes and oversight measures to improve our U.S. GAAP reporting and our financial reporting processes to comply with requirements under the Sarbanes-Oxley Act of 2002; and

    we plan to formalize our information technology policies and procedures, including establishing formal procedures and documentation for any IT program changes, application management, user access, and data backup and recovery processes.

        In addition, upon the completion of this offering, we will establish an audit committee under our board of directors in accordance with the applicable SEC and NASDAQ requirements to provide adequate independent oversight with respect to our accounting and financial reporting. We also plan to maintain an internal audit function to further ensure accuracy of U.S. GAAP reporting. See also "Risk Factors—Risks Related to Our Business—If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may, therefore, be adversely impacted."

Quantitative and Qualitative Disclosure about Market Risk

    Foreign Exchange Risk

        Our revenues, costs and expenses are generally denominated in Renminbi. Our assets and liabilities are also denominated in Renminbi, except for cash held in other currencies, which included U.S. dollar denominated cash balance of US$23.5 million (RMB151.9 million) as of June 30, 2011. As a result, fluctuations in the exchange rates between the U.S. dollar and Renminbi will affect our results of operations and financial condition in U.S. dollar terms. Such fluctuations will also affect us with respect to the translation of the net proceeds that we will receive from this offering into Renminbi. The Renminbi's exchange rate with the U.S. dollar is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under this policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For almost two years after reaching a high against the U.S. dollar in July 2008, the Renminbi traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the Renminbi fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would increase the Renminbi exchange rate flexibility and since that time the Renminbi has gradually appreciated against the U.S. dollar. However, it remains unclear how this flexibility might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the Renminbi against the U.S. dollar.

        To the extent that we need to convert U.S. dollars we receive from this offering or other financing activities into the Renminbi for our operations or other uses within the PRC, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would

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receive from the conversion. On the other hand, a decline in the value of the Renminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the prices of ADSs. Assuming a 5% appreciation of the RMB against the U.S. dollar, our U.S. dollar denominated cash balance would have decreased to RMB143.1 million as of June 30, 2011.

    Interest Rate Risk

        Our exposure to interest rate risk primarily relates to finance income generated by excess cash invested in demand deposits with original maturities of three months or less. We have not used any derivative financial instruments to manage our interest risk exposure. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. However, our future finance income may be lower than expected due to changes in market interest rates.

    Inflation Risk

        In recent years, inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the change in China's Consumer Price Index decreased by 0.7% in 2009 and increased 3.3% in 2010. If inflation rises, it may materially and adversely affect our business.

    Credit Risk

        As of December 31, 2009, December 31, 2010 and June 30, 2011, substantially all of our cash and cash equivalents were held by reputable financial institutions. We believe that we are not exposed to unusual risks as these financial institutions have high credit quality. We have not experienced any losses on deposits of cash and cash equivalents.

        Users pay for our online business through a network of third-party payment service providers. We have not experienced any significant bad debts with respect to our accounts receivable, and made no allowance for doubtful accounts in 2009, 2010 and six months ended June 30, 2011.

Critical Accounting Policies and Estimates

Revenue Recognition

        We generate our revenues from selling group-purchase vouchers for the offerings of products and services by our merchants, respectively, at discounted prices to our registered users. We devote substantial resources in selecting qualifying merchants, thereby ensuring the quality of products and services sold by our merchants through our website. Once a merchant is selected, we contract with the selected merchant for the specified product or service group-purchase vouchers to be offered on our website, along with the timing of the offer, the voucher price and the price at which we will pay the merchant, shipping terms and conditions, if applicable, and the minimum threshold of vouchers for the specified product or service to be sold in order to validate the group-purchase voucher offer.

        We present revenue on a net basis (representing the amount billed to paying users less the amount paid to merchants) in accordance with ASC 605-45. We act as an agent rather than as the principal in the delivery of the products or services underlying the vouchers as we do not assume the risks and rewards of ownership of products nor are we responsible for the actual fulfillment of services. Both of these are the responsibilities of the merchants.

        We recognize revenue when the following criteria are met: persuasive evidence that an arrangement exists, which is typically established at the point when we enter into cooperating agreements with our merchants and at the point when the price becomes fixed or determinable; collectability is reasonably assured, which occurs when the paying users remit payments to our third party payment service providers for vouchers purchased; and services to our merchants have been rendered. Our users have the ability to hold the vouchers until their expiration for full refunds, and

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therefore, the underlying sale from which we earn the related commission as an agent is not culminated until our users actually redeem their vouchers. Until such time, the proceeds received by us from selling the group-purchase vouchers are recorded as advances from registered users. During the period from the offer validation to the point of voucher redemption, we are also contractually obligated to provide, maintain and support an online voucher verification system which our merchants must use to validate vouchers before services can be redeemed by the users. We also provide ongoing customer service support to our merchants through redemption of the vouchers, and we frequently assist our merchants in arranging for third party logistics companies to deliver their products to our users. We have concluded these performance obligations to be a substantive and an integral part of our service delivery process from which we earn our revenue. Based on the above considerations, revenue recognition is deferred until the redemption of the group-purchase vouchers by our users for the delivery of products or consumption of the services, at which time the underlying sale from which we earn our commission has been culminated and we have completed our service obligations to our merchants. Our obligations to our merchants after voucher redemption by our users are inconsequential and did not impact revenue recognition for all periods/years presented.

        We provide cash refunds or issuance of credits to our registered users for unsatisfactory products delivered or services rendered by our merchants to our users under our "Three Guarantees". Our merchants are contractually responsible and liable for the quality of the products or services provided and we also hold the right to claim reimbursements from our merchants, therefore the amounts of costs that we incurred as a result of such refunds were inconsequential for all periods/years presented.

        In accordance with ASC sub-topic 650-50, Customer Payments and Incentives ("ASC 605-50"), in the event we sell group-purchase vouchers for a specific merchant to our users at a loss that results in negative revenue on a cumulative basis since the inception of the overall relationship between the merchant and us, the amount of the cumulative shortfall is re-characterized to expense. During the year ended December 31, 2010 and the six-month periods ended June 30, 2010 (unaudited) and June 30, 2011, we re-characterized RMB4,531, RMB272 (unaudited) and RMB3,138 (US$485) to "Sales and marketing" expense.

User Credits

        Historically, we have issued referral credits to our existing registered users ("referrers") pursuant to certain of our marketing programs offered to promote our group-purchase platform to new users ("referees'). In exchange for the promotional services provided by the referrers, we deposit credits that can be used for future purchases in the referrers' accounts upon the registration by the referees. To qualify for the referral credits, a referrer only needs to be a registered user at the time of referral and does not have to have made a prior purchase from us, nor do the referees have to complete a future sales transaction with us. Commencing January 2011, the referral credit program was modified such that a referrer can only receive the referral credit when the referee registers and makes a purchase. The referral program was cancelled as of July 2011.

        From time to time, we also offer lucky draws for credits that are available to all registered users, regardless whether the users have previously completed a sales transaction with us. Lucky draw credits are deposited into the users' accounts to be used for future purchases.

        Pursuant to ASC 605-50, the merchants are considered our customers under the deemed agency relationship model, therefore when user credits are issued to our registered users, we record the obligation within "Accrual for credits," with a charge to "Sales and marketing" expense. The accrual for credits is released when used by the registered users to make purchases on our website. All credits issued to registered users do not carry expiration dates.

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Fair Value of Financial Instruments

        The carrying amounts of financial assets and liabilities, such as accounts receivable, accounts payable and amounts due to/from related parties, approximate their fair values due to their short-term maturities.

        Debt instruments are in general initially recognized at their principal amounts, except for the case when the debt instrument is issued at a discount in exchange for services, it is initially recorded at fair value that is determined by us with the assistance of an independent third-party valuation firm. Convertible redeemable preferred shares issued through the conversion of convertible debts, are initially recognized at the then carrying values of convertible debts immediately prior to their conversion, less issuance costs. Convertible redeemable preferred shares issued through a combination of cash proceeds and conversion are initially recognized at an amount equal to the sum of the cash proceeds from issuance and the carrying value of the convertible debts immediately prior to their conversion, less issuance costs. The convertible redeemable preferred shares are subsequently accreted to redemption values using the effective interest rate method to the earliest redemption date.

Debt Modifications

        We record gains or losses as the result of modifications to the terms of debt instruments that result in the present value of the cash flows under the new terms to be at least 10% different from the present value of the remaining cash flows under the original terms. Such gains or losses are calculated based on the difference between the carrying value of the existing debt instruments on the date of modification and the fair value of the newly modified debt instruments. When a modification is made to the conversion option embedded in a debt instrument that results in less than 10% change in the present value of the cash flows of the underlying debt instrument, any increase in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification) is recognized as a reduction to the carrying amount of the debt instrument with a corresponding increase in "Additional paid-in capital." Any decrease in the fair value of an embedded conversion option resulting from a modification is not recognized.

Impairment of Long-lived Assets

        Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for long-lived assets is based on the amount by which the carrying value exceeds the fair value of the asset, which is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. No impairment of long-lived assets was recognized for any of the years presented.

Income Taxes

        In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.

        We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a charge to income tax expense, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable. We consider past performance, future expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In addition, the calculation of

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our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the various jurisdictional tax authorities. If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result.

Share-based Compensation

        We account for share-based compensation in accordance with ASC sub-topic 718-10 ("ASC 718-10"), Compensation—Stock Compensation: Overall, for share-based payment transactions with employees. Under the fair value recognition provisions of ASC 718-10, share-based compensation costs are measured at the grant date using an option pricing model. We have elected to recognize compensation costs on a straight-line basis over the requisite service period with a graded vesting schedule. ASC 718-10 requires forfeiture to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation is recorded net of estimated forfeitures such that the expense is recorded for those share-based awards that are expected to vest.

        In accordance with ASC 718, we treat a modification to the terms of an award as an exchange of the original award for a new award, which requires the calculation of an incremental value associated with the new award based on the excess of the fair value of the modified award over the fair value of the pre-modification award measured immediately before the modification based on current circumstances.

        We record share-based compensation expenses for awards granted to non-employees in exchange for services at fair value in accordance with the provisions of ASC 505-50, Equity-Based Payment to Non-Employees. For the awards granted to non-employees, we will record compensation expenses equal to the fair value of the share options at the measurement date, which is determined to be the earlier of the performance commitment date or the service completion date.

Recent Accounting Pronouncements

        In October 2009, the Financial Accounting Standards Board, or FASB, issued ASU 2009-13, which amends ASC sub-topic 605-25, Regarding Revenue Arrangements with Multiple Deliverables. ASU 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. This ASU is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-13 did not have a material impact on our consolidated financial statements.

        In January 2010, the FASB issued ASU 2010-06, which amends ASC 820, Fair Value Measurements and Disclosures, to require a number of additional disclosures regarding (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements and (4) the transfers between Levels 1, 2 and 3. We adopted this ASU on January 1, 2010 except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements.

        In April 2010, the FASB issued ASU 2010-13, Compensation—Stock Compensation ("ASC 718"): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The objective of this standard is to address the classification of an employee share-based payment award with an exercise price dominated in the currency of a market in which the underlying equity security trades. ASC 718 provides guidance on the classification of a share-based payment award as either equity or liability. A share-based payment award that contains a condition that is not a market, performance, or service condition is required to be

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classified as a liability. ASU 2010-13 provides amendments to ASC 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trade should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this standard are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 31, 2010. Early application is permitted. The adoption of ASU 2010-13 did not have a material impact on our consolidated financial statements.

        In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards ("IFRS") ("ASU 2011-04"). The objective of this standard is to develop common fair value measurement and disclosure requirements under U.S. GAAP and IFRS and improve their understandability. Some of the amendments clarify the FASB's intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. We do not expect the adoption of ASU 2011-04 to have a material impact on our consolidated financial statements.

        In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income ("ASU 2011-05"). The objective of this standard is to increase the prominence of items reported in other comprehensive income ("OCI"). ASU 2011-05 requires companies to present items of net income, items of OCI and total comprehensive income in either one continuous statement or two separate but consecutive statements. Companies will no longer be allowed to present OCI in the statement of stockholders' equity. ASU 2011-05 also requires companies to display reclassification adjustments for each component of OCI in both net income and OCI and present the components of OCI in their interim and annual financial statements. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We do not expect the adoption of ASU 2011-05 to have a material impact on our consolidated financial statements.

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INDUSTRY

Growth of Consumption in China

        The rapid pace of economic development and urbanization in China has resulted in a rising class of consumers with growing consumption power. According to Euromonitor International data as of August 2011, China's annual per capita disposable income reached RMB16,099 (US$2,491) in 2010 and is forecasted to grow at a CAGR of 11.3% to RMB27,509 (US$4,256) in 2015. This has fueled the growth of the retail and service sectors in China, which accounted for a large proportion of consumer expenditures in China in 2010, as shown in the chart below. According to Euromonitor International data as of August 2011, China's retail market reached RMB7.5 trillion (US$1.2 trillion) in 2010 and is forecasted to grow at a CAGR of 11.1% to RMB12.7 trillion (US$2.0 trillion) by 2015. China's consumer service sector also represents a significant market opportunity. For example, the total consumer foodservice market in China reached RMB2.3 trillion (US$355.8 billion) in 2010, according to Euromonitor International data as of August 2011. The total retail travel products market in China reached RMB188.3 billion (US$29.1 billion) in 2010, according to an April 2011 Euromonitor report.


2010 China's Consumer Expenditure Breakdown by Category

GRAPHIC

        Source: Euromonitor International data as of August 2011

        The retail sector in China is relatively fragmented with few nationwide merchants compared with more developed countries such as the United States. According to a January 2011 Euromonitor International report, the overall value share of the top ten retailers in China was only 7% in 2010, compared to 30% for the top ten retailers in the United States for the same period. For example, in 2010, there were over 100,000 hotels, 5.4 million retail stores and 5.9 million foodservice outlets in China according to Euromonitor International data as of August 2011. The current fragmented nature of China's retail sector can be attributed to the general economic development level of China, its vast geographical size, as well as the large number of demographic and socio-economic groups whose tastes and preferences can vary widely.

        These mostly local product and service merchants have historically largely relied on local offline marketing channels to acquire potential customers.

Rapid Growth of China's E-Commerce Market

        China has the largest Internet population in the world but its Internet penetration rate is still relatively low. China's Internet population reached 425 million and the Internet penetration rate reached 32.4% as of December 2010, compared to a penetration rate of 85.7% in the United States, according to International Data Corporation data as of August 2011. The number of unique Internet

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users buying services or products online in China is also on the rise. The number of unique Internet users buying services or products online in China grew to 80 million in 2010 and is expected to reach 183 million by 2015, compared to 176 million in the United States for 2010 according to International Data Corporation data as of August 2011. This represents a penetration rate of 18.9% and 34.2% for 2010 and 2015, respectively, among Internet users in China, compared to a penetration rate of 66.1% in the United States for 2010. China's e-commerce market size reached RMB80.0 billion (US$12.4 billion) in 2010, according to Euromonitor International data as of August 2011.

        A number of factors are driving China's e-commerce market growth, including:

    growth of the number of e-commerce companies and the product selection available;

    increased trust by consumers of e-commerce companies;

    increased availability of electronic payment methods; and

    improved logistics, fulfillment and efficient return policies.

        While e-commerce adoption in China was historically concentrated mainly in the more developed urban centers, it is now growing quickly in smaller cities and even rural areas.

        There were approximately 40 million small and medium enterprises in China in 2010 according to an article published by China's National Bureau of Statistics. For local merchants, which usually are smaller in scale and have limited access to effective sales and marketing channels, online promotions allow them to cost-effectively acquire new consumers in existing or new cities. Furthermore, the majority of local businesses, especially those established in Tier 2 or Tier 3 cities in China, have no online presence. For these companies, establishing an online presence represents a significant market opportunity that they could not otherwise achieve on their own.

China's Online Social Commerce Market

        Online social commerce refers to the purchase of products and services by a group of consumers via an online market place. These offerings are typically heavily discounted and can include products and service offerings from a broad range of categories including foodservice, travel and leisure, recreation, retail, consumer electronics and apparel. Consumers using online social commerce sites often share details of such offerings with their friends through social networking sites, or SNS, and other means, thereby spreading awareness and increasing potential participation.

        Online social commerce offerings typically exhibit the following characteristics:

    products and services are offered at a significant discount to their suggested retail price;

    offerings generally can only be redeemed when a pre-set minimum quantity has been reached and some sites also have pre-set maximum quantities;

    time limits are typically imposed on the offering in terms of the participation period as well as period in which a offering can be redeemed;

    the value of each offering is usually relatively small and big-ticket items such as real property and automobiles are not offered through online social commerce sites; and

    the sites may offer several offerings running at any given time, often personalized for an individual user based on their profile and behavior history.

        The emergence of the online social commerce business model has not only created benefits for consumers but provides an avenue for small local merchants to acquire new customers online. Online social commerce creates a new promotional solution for both nationwide and local merchants with limited resources to attract new customers and grow their businesses.

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        China's online social commerce market has grown rapidly since the first online social commerce site was launched in January 2010. There were approximately 27 million average daily unique visitors to online social commerce sites in June 2011 according to an August 2011 iResearch release and over one thousand online social commerce sites currently in China, according to iResearch.

        The number of China's online social commerce customers is expected to continue to grow rapidly.