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Mecox Lane Limited Announces Third Quarter 2010 Results

About Non-GAAP Financial Measures

To supplement Mecox Lane's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Mecox Lane uses in this press release non-GAAP net income, which excludes share-based compensation expenses. The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Mecox Lane believes that the non-GAAP financial measure facilitates investors' and management's comparisons to Mecox Lane's historical performance and assists management's financial and operational decision making. A limitation of using the non-GAAP financial measure is that share-based compensation expenses are recurring expenses that will continue to exist in Mecox Lane's business for the foreseeable future. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from the non-GAAP measure. The accompanying table has more details on the reconciliation between the non-GAAP financial measure and its most directly comparable GAAP financial measure.

1 Gross profit excludes depreciation and amortization expenses. 

2 Non-GAAP net income excludes share-based compensation expenses. The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections of "About Non-GAAP Financial Measures" and the accompanying table of "Mecox Lane Limited - Consolidated Statement of Operations Information - Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures" at the end of this press release. 

3 Cost of goods sold excludes depreciation and amortization expenses.

For investor and media inquiries please contact:
In China:
Phili Xu
Mecox Lane Limited
Tel: +86-21-6495-0500 or +86-21-5464-9900 Ext. 8161
Justin Knapp
Ogilvy Financial, Beijing
Tel: +86-10-8520-6556
In the U.S.:
Jessica Barist Cohen
Ogilvy Financial, New York
Tel: +1-646-460-9989
Mecox Lane Limited    
Consolidated Balance Sheet Information     
  December 31,  September 30, 
  2009 2010
  $ $
Current assets:     
Cash and cash equivalents  18,757,853  21,932,475
Short-term investments  7,322,363  -- 
Accounts receivable, net of allowances of $101,878 and $101,878 as of  December 31, 2009 and September 30, 2010, respectively  1,925,924  1,657,189
Other receivables  4,118,038  4,991,008
Advances to suppliers and prepaid expenses  1,585,946  1,365,189
Merchandise inventories  19,237,919  29,790,678
Deferred tax assets—current portion  1,586,694  1,586,694
Total current assets   54,534,737  61,323,233
Property and equipment, net  6,661,692  8,330,182
Intangible asset, net  882,953  1,245,150
Deferred tax assets—long term portion  118,088  118,088
Other non-current assets  870,813  412,297
TOTAL ASSETS  63,068,283  71,428,950
Current liabilities:     
Accounts payable   19,533,202  24,098,441
Advances from customers  5,146,785  5,632,247
Amount due to related parties  175,741  9,933
Accrued expenses  7,779,932  5,485,925
Other current liabilities  3,200,162  4,545,523
Income tax payable  1,920,342  -- 
Total current liabilities   37,756,164  39,772,069
Mezzanine equity:    
Convertible non-redeemable preference shares    
 Series B preference shares ($0.0001 par value; 8,600,000 shares authorized;  8,551,400 shares issued and outstanding as of December 31, 2009 and  September 30, 2010; liquidation value $18,476,503)  18,476,503  18,476,503
 Series C preference shares ($0.0001 par value; 1,450,000 shares authorized;  1,441,024 shares issued and outstanding as of December 31, 2009 and  September 30, 2010; liquidation value $3,113,535)  3,113,535  3,113,535
 Series D preference shares ($0.0001 par value; 1,750,000 shares authorized;                           1,733,832 shares issued and outstanding as of December 31, 2009 and  September 30, 2010; liquidation value $3,746,188)  3,764,188  3,764,188
Redeemable noncontrolling interests  25,000  25,000
Equity (deficit):    
Ordinary shares ($0.0001 par value; 390,000,000 shares authorized,  209,230,993 shares issued and outstanding as of September 30, 2010)      20,923  20,923
Additional paid-in capital   29,116,169  31,584,020
Accumulated deficit  (30,654,082)  (27,329,471)
Accumulated other comprehensive income  1,349,883  1,902,183
Total Mecox Lane Limited equity   (167,107)  6,177,655
Noncontrolling interests  100,000  100,000
Total equity  (67,107)  6,277,655
Mecox Lane Limited    
Consolidated Statement of Operations Information     
  Three-month Periods Ended September 30
  2009 2010
  $ $
Net revenues:    
 Online platform  28,676,241  43,913,604
 Directly operated stores  8,403,823  6,525,743
 Franchised stores  3,603,914  4,896,132
Total net revenues  40,683,978  55,335,479
Cost of goods sold (excluding depreciation and amortization)    
 Online platform  17,520,008  27,294,746
 Directly operated stores  3,362,850  2,834,811
 Franchised stores  2,031,784  3,210,150
Total cost of goods sold (excluding depreciation and amortization)                            22,914,642  33,339,707
Operating expenses:    
 Selling, general and administrative expenses  16,710,391  20,122,843
 Depreciation and amortization  1,019,868  1,072,001
 Other income, net  (140,471)  (115,211)
Total operating expenses  17,589,788  21,079,633
Income from operations  179,548  916,139
Interest income  111,862  58,683
Income before income taxes  291,410  974,822
Income tax expense  61,193  177,418
Net income  230,217  797,404
Earnings per ordinary share:    
 Basic  0.001  0.002
 Diluted  0.001  0.002
Earnings per ADS    
 Basic  0.005  0.017
 Diluted  0.005  0.013
Weighted average ordinary shares used in per share calculation    
 Basic  205,381,732  205,381,732
 Diluted  340,357,826  383,594,914
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures  
Non-GAAP net income (1)  1,015,504  1,620,021
Note (1) We define non-GAAP net income, a non-GAAP financial measure, as net income excluding share-based compensation expenses. We review non-GAAP net income together with net income to obtain a better understanding of our operating performance. We also believe it is useful supplemental information for investors and analysts to assess our operating performance without the effect of non-cash sharebased compensation expenses, which have been and will continue to be significant recurring expenses in our business. However, the use of non-GAAP net income has material limitations as an analytical tool. One of the limitations of using non-GAAP net income is that it does not include all items that impact our net income for the period. In addition, because non-GAAP net income is not calculated in the same manner by all companies, it may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP net income in isolation from or as an alternative to net income prepared in accordance with U.S. GAAP.
The following table sets forth the reconciliation of non-GAAP net income, a non-GAAP financial measure, from net income, our most directly comparable financial measure presented in accordance with U.S. GAAP, for the periods indicated.        
  Three-month Periods Ended September 30
  2009 2010
  $ $
Net income  230,217  797,404
Add back: Share-based compensation expenses                                                                  785,287  822,617
Non-GAAP net income  1,015,504  1,620,021

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