o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class | Name of each exchange on which registered | |
None | None |
* | Not for trading, but only in connection with the listing on the NASDAQ Global Market of American Depository Shares each representing 5 ordinary shares pursuant to the requirements of the Securities and Exchange Commission |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o |
U.S. GAAP þ | International Financial Reporting Standards as issued | Other o | ||
By the International Accounting Standards Board o |
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36 | ||||||||
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59 | ||||||||
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78 | ||||||||
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89 | ||||||||
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98 | ||||||||
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107 | ||||||||
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114 | ||||||||
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EX-4.2 | ||||||||
Exhibit 4.3 | ||||||||
Exhibit 4.4 | ||||||||
Exhibit 4.74 | ||||||||
Exhibit 4.75 | ||||||||
Exhibit 4.76 | ||||||||
Exhibit 4.78 | ||||||||
Exhibit 4.103 | ||||||||
Exhibit 4.104 | ||||||||
Exhibit 4.151 | ||||||||
Exhibit 4.152 | ||||||||
Exhibit 8.1 | ||||||||
Exhibit 12.1 | ||||||||
Exhibit 12.2 | ||||||||
Exhibit 13.1 | ||||||||
Exhibit 13.2 | ||||||||
Exhibit 15.1 | ||||||||
Exhibit 15.2 |
2
| we, us, our company, the company, our, refer to China Finance Online Co. Limited, or CFO Hong Kong and its subsidiaries, and, in the context of describing our operations include consolidated affiliates in China, Hong Kong or British Virgin Islands; |
| shares and ordinary shares refer to our ordinary shares, preferred shares refers to our preferred shares, all of which were converted into our ordinary shares upon the completion of our initial public offering on October 20, 2004, ADSs refers to our American depositary shares, each of which represents five ordinary shares, and ADRs refers to the American depositary receipts which evidence our ADSs; |
| China or PRC refers to the Peoples Republic of China, excluding Taiwan, Hong Kong and Macau; |
| Hong Kong refers to the Hong Kong Special Administrative Region of the Peoples Republic of China; and |
| all references to Renminbi, RMB or yuan are to the legal currency of China, all references to U.S. dollars, dollars, $ or US$ are to the legal currency of the United States and all references to Hong Kong dollars or HK$ are to the legal currency of Hong Kong. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. |
| our goals and strategies, including how we effect our goals and strategies; |
| our future business developments, business prospects, financial condition and results of operations; |
| our future pricing strategies or policies; |
| our plans to expand our service offerings; |
| our plans to use acquisitions and strategic investments as part of our corporate strategy; |
| competition in the PRC financial data and information services industry; |
3
| the expected growth of the online financial data and information services market; |
| performance of Chinas securities markets; |
| performance of Hong Kongs securities markets; |
| growth in our registered user accounts and subscriber base; |
| PRC governmental policies relating to taxes and how they will impact our business; |
| PRC governmental policies relating to the Internet and Internet content providers; |
| PRC governmental policies relating to the securities investment advisory companies to provide advisory services on securities and related products; |
| PRC governmental policies relating to the distribution of content, especially the distribution of financial content over the Internet; and |
| PRC governmental policies relating to mobile value-added services. |
4
For the year ended December 31, | ||||||||||||||||||||
(in thousands of U.S. dollars, except per share or per ADS data) | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||
|
||||||||||||||||||||
Consolidated statement of operations
and comprehensive income (loss) data:
|
||||||||||||||||||||
Net revenues
|
7,128 | 25,903 | 56,243 | 53,606 | 59,716 | |||||||||||||||
Cost of revenues
|
(1,468 | ) | (4,427 | ) | (9,367 | ) | (8,147 | ) | (8,497 | ) | ||||||||||
|
||||||||||||||||||||
Gross profit
|
5,660 | 21,476 | 46,876 | 45,459 | 51,219 | |||||||||||||||
Operating expenses:
|
||||||||||||||||||||
General and administrative
|
(2,956 | ) | (7,784 | ) | (15,371 | ) | (16,982 | ) | (13,208 | ) | ||||||||||
Product development
|
(742 | ) | (2,269 | ) | (5,635 | ) | (10,754 | ) | (13,028 | ) | ||||||||||
Sales and marketing
|
(2,666 | ) | (6,924 | ) | (13,521 | ) | (26,095 | ) | (26,991 | ) | ||||||||||
|
||||||||||||||||||||
Total operating expenses
|
(6,364 | ) | (16,977 | ) | (34,527 | ) | (53,831 | ) | (53,227 | ) | ||||||||||
Government subsidies
|
| 136 | 437 | 567 | 514 | |||||||||||||||
|
||||||||||||||||||||
Income (loss) from operations
|
(704 | ) | 4,635 | 12,786 | (7,805 | ) | (1,494 | ) | ||||||||||||
Interest income
|
1,003 | 1,105 | 1,609 | 1,352 | 1,590 | |||||||||||||||
Interest expense
|
| | | | (142 | ) | ||||||||||||||
Exchange gain, net
|
267 | 424 | 1,489 | 2 | 813 | |||||||||||||||
Gain from trading securities
|
| | | 41 | 1,138 | |||||||||||||||
Other income, net
|
115 | 9 | (169 | ) | (258 | ) | (7 | ) | ||||||||||||
Loss from impairment of cost method investment
|
(1,322 | ) | (11,127 | ) | | | | |||||||||||||
Income
(loss) before income tax benefit (provision)
|
(641 | ) | (4,954 | ) | 15,715 | (6,668 | ) | 1,898 | ||||||||||||
Income tax benefit (provision)
|
41 | 809 | 3,047 | 446 | (264 | ) | ||||||||||||||
Purchased pre-acquisition earning
|
| | 227 | | | |||||||||||||||
Net income (loss)
|
(600 | ) | (4,145 | ) | 18,989 | (6,222 | ) | 1,634 | ||||||||||||
Less: net (loss) attributable to the noncontrolling interests
|
| (15 | ) | (31 | ) | (2 | ) | (326 | ) | |||||||||||
Net income (loss) attributable to China Finance
Online Co. Limited
|
$ | (600 | ) | $ | (4,130 | ) | $ | 19,020 | $ | (6,220 | ) | 1,960 | ||||||||
|
||||||||||||||||||||
Net income (loss) per share attributable to China
Finance Online Co. Limited
|
||||||||||||||||||||
-basic
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.19 | $ | (0.06 | ) | $ | 0.02 | |||||||
-diluted
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.17 | $ | (0.06 | ) | $ | 0.02 | |||||||
|
||||||||||||||||||||
Net income (loss) per ADS equivalent attributable
to China Finance Online Co. Limited
|
||||||||||||||||||||
-basic(1)
|
$ | (0.03 | ) | $ | (0.22 | ) | $ | 0.96 | $ | (0.30 | ) | $ | 0.09 | |||||||
-diluted(1)
|
$ | (0.03 | ) | $ | (0.22 | ) | $ | 0.84 | $ | (0.30 | ) | $ | 0.09 |
5
For the year ended December 31, | ||||||||||||||||||||
(in thousands of U.S. dollars)(1) | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||
|
||||||||||||||||||||
Consolidated balance sheet data:
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 44,956 | $ | 74,729 | $ | 97,544 | $ | 107,391 | $ | 106,773 | ||||||||||
Current working capital(2)
|
38,011 | 53,811 | 78,226 | 81,255 | 90,146 | |||||||||||||||
Total assets
|
71,119 | 103,885 | 141,823 | 165,609 | 180,091 | |||||||||||||||
Deferred revenue, current
|
6,419 | 20,457 | 28,202 | 30,620 | 32,995 | |||||||||||||||
Total current liabilities
|
8,521 | 31,034 | 35,472 | 52,401 | 60,259 | |||||||||||||||
Deferred revenue, non-current
|
| 4,665 | 8,786 | 14,547 | 13,022 | |||||||||||||||
Total equity
|
$ | 62,453 | $ | 67,834 | $ | 96,942 | $ | 97,667 | $ | 105,843 |
(1) | Each ADS represents five ordinary shares. | |
(2) | Current working capital is the difference between total current assets and total current liabilities. |
6
Average(1) | High | Low | Period-end | |||||||||||||
(RMB per U.S.$1.00) | ||||||||||||||||
|
||||||||||||||||
December 31, 2006
|
7.9693 | 8.0705 | 7.8051 | 7.8087 | ||||||||||||
December 31, 2007
|
7.5806 | 7.8127 | 7.2946 | 7.2946 | ||||||||||||
December 31, 2008
|
6.9193 | 7.2946 | 6.7800 | 6.8225 | ||||||||||||
December 31, 2009
|
6.8314 | 6.8399 | 6.8201 | 6.8282 | ||||||||||||
December 31, 2010
|
6.7668 | 6.8284 | 6.6227 | 6.6227 | ||||||||||||
Most recent six months:
|
||||||||||||||||
November 2010
|
6.6558 | 6.6925 | 6.6239 | 6.6762 | ||||||||||||
December 2010
|
6.6515 | 6.6786 | 6.6227 | 6.6227 | ||||||||||||
January 2011
|
6.6027 | 6.6349 | 6.5876 | 6.5891 | ||||||||||||
February 2011
|
6.5840 | 6.5985 | 6.5752 | 6.5752 | ||||||||||||
March 2011
|
6.5662 | 6.5750 | 6.5564 | 6.5564 | ||||||||||||
April 2011
|
6.5292 | 6.5527 | 6.4990 | 6.4990 | ||||||||||||
May 2011 (through 16th)
|
6.5006 | 6.5108 | 6.4948 | 6.5108 |
(1) | Averages are calculated from month-end rates. |
7
8
9
10
11
12
13
| the acquisition may not further our business strategy, or we may pay more than it is worth; |
| we may not realize the anticipated increase in our revenues if we are unable to sell the acquired companys products to our customer base, or the acquired contract models of acquired contract models companies; |
| we may have difficulty identifying suitable acquisition opportunities and integrating acquired companies with our existing operations or their products and services with our existing products and services; |
| we may have higher than anticipated costs in continuing support and development of acquired products; |
| we may have multiple and overlapping product lines that are offered, priced and supported differently, which could cause customer confusion and delays; |
| our due diligence process may fail to identify problems, such as issues with unlicensed use of intellectual property; |
| we may have legal and tax exposures or lose anticipated tax benefits as a result of unforeseen difficulties in our legal entity integration activities; |
| we may face contingencies related to intellectual property, financial disclosures and accounting practices or internal controls; |
| our ongoing business may be disrupted and our managements attention may be diverted by transition or integration issues; and |
| to the extent that we issue a significant amount of equity securities in connection with future acquisitions, existing ADS holders and shareholders may be diluted and earnings per share may decrease. |
14
15
16
17
18
19
| providing CFO Software tax exemption for 2007 and a preferential tax rate of 7.5% for 2008, 2009 and 2010, and |
| providing CFO Meining and CFO Genius a preferential tax rate of 15% for 2008, 2009 and 2010. |
| providing CFO Success tax exemption for 2008 and 2009 and a preferential EIT rate of 12.5% for each of 2010, 2011 and 2012; |
| providing CFO Shenzhen Shangtong and CFO Qicheng tax exemption for 2010 and 2011 and a preferential EIT rate of 12.5% for each of 2012, 2013 and 2014; and |
| providing CFO Zhengning a reduced tax rate of 10%, 11% and 12% for 2009, 2010 and 2011, respectively, and an eventual transition to the standard tax rate of 25% in 2012. |
20
21
22
23
| any breakdowns 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; and |
| any disruption or failure in the national backbone network, which would prevent our users from logging on to our website or accessing our services. |
24
25
| revoking business and operating licenses of CFO Beijing, CFO Software, CFO Stockstar, CFO Genius, CFO Jujin, CFO Zhengning, CFO Success, CFO Fuhua or CFO Meining; |
| discontinuing or restricting our operations or those of CFO Beijing, CFO Software, CFO Stockstar, CFO Genius, CFO Jujin, CFO Zhengning, CFO Success, CFO Fuhua or CFO Meining; |
| imposing conditions or requirements with which we, CFO Beijing, CFO Software, CFO Stockstar, CFO Genius, CFO Jujin, CFO Zhengning, CFO Success, CFO Fuhua or CFO Meining could not satisfy; |
| requiring us, CFO Beijing, CFO Software, CFO Stockstar, CFO Genius, CFO Jujin, CFO Zhengning, CFO Success, CFO Fuhua or CFO Meining to restructure the relevant ownership structure or operations; |
26
| restricting or prohibiting our use of the proceeds of our initial public offering in 2004 to finance our business and operations in China; or |
| taking other regulatory or enforcement actions, including levying fines that could be harmful to our business. |
27
28
29
30
31
| Our articles of association provide for a staggered board, which means that our directors, excluding our chief executive officer, are divided into two classes, with half of our board, excluding our chief executive officer, standing for election every two years. Our chief executive officer will at all time serve as a director, and will not retire as a director, so long as he remains our chief executive officer. This means that, with our staggered board, at least two annual shareholders meetings, instead of one, are generally required in order to effect a change in a majority of our directors. Our staggered board can discourage proxy contests for the election of our directors and purchases of substantial blocks of our shares by making it more difficult for a potential acquirer to take control of our board in a relatively short period of time. |
32
| Hong Kong law permits shareholders of a company to remove directors by a shareholders resolution. Our articles of association require any shareholder who wishes to remove a director in this way to give us at least 120 days notice of the resolution, making it more difficult and time consuming for a potential acquirer who has accumulated a substantial voting position to obtain control of our board by removing opposing directors. |
| Our articles of association provide that our board can have no less than five and no more than nine directors. Our board currently has five directors. Any increase in the maximum number of directors on our board beyond nine directors can only be accomplished by amending our articles of association, which under Hong Kong law requires a shareholders supermajority vote of 75% and at least 21 days notice. These restrictions can make it more difficult for a potential acquirer who has accumulated a majority of our shares to take control of us by promptly increasing the size of our board and appointing new directors that are its nominees. |
| Hong Kong does not have merger laws that permit Hong Kong companies to merge in the same way as U.S. companies could in the United States. However, the Hong Kong Companies Ordinance has provisions that facilitate arrangements for the reconstruction and amalgamation of companies. The arrangement must be approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, representing three-fourths in value of each such class of shareholders or creditors that are present and voting either in person or by proxy at meetings convened by the High Court of Hong Kong. The arrangements must be sanctioned by the High Court of Hong Kong after shareholders or creditors approve it at the court-convened meeting. |
| Our shareholders have authorized our board of directors, without any further action by shareholders, to issue additional shares. Under Hong Kong law, the authority granted by our shareholders will remain valid until the conclusion of our next annual general meeting, or the time when our next annual general meeting is required to be held. For as long as this approval remains effective, or is renewed, our board of directors will have the power to issue additional ordinary shares (including ordinary shares represented by ADSs) and preference shares without any further action by shareholders. |
| to recognize or enforce against us judgments of courts of the United States based on the civil liability provisions of U.S. securities laws; or |
33
| to allow original actions brought in Hong Kong, based on the civil liability provisions of U.S. securities laws that are penal in nature. |
34
35
36
37
38
39
40
41
| attract visitors and market our subscription based service offerings. The pool of registered users that are attracted by the two finance portals for information and free services forms a natural target for our subscription services and brokerage services; |
| store content and serve as an integral part of our information platform; |
| serve as download platforms for our service offerings; and |
| display online advertisements. |
42
| financial analysis tools that permit users to calculate and analyze quantitatively financial data; |
| current and historical financial data and information for Chinas and Hong Kongs listed company stocks, bonds, mutual funds and stock index futures; |
| categorized news and research reports; and |
| online forums and bulletin boards. |
| Securities market data analysis tools . Our securities market data service packages are developed on the basis of Level II quotes licensed from the Shanghai and Shenzhen Stock Exchanges. In June 2006, we entered into an agreement with SSE Infonet Ltd. Co, which is associated with the Shanghai Stock Exchange. Under the definitive agreement, we are certified by Shanghai Stock Exchange to develop service packages based on Level II quotes, and upgrade the features and functions of our current products. The definitive agreement was contemplated to continue through July 31, 2012. |
| Technical Analysis. Technical analysis involves researching historical price and volume data, patterns and trends to predict the performance of a given stock. This type of analysis focuses on chart formations and formulas in identifying major and minor trends to recognize buying opportunities and exit points. |
43
| Fundamental Analysis. Fundamental analysis involves examining the companys financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental Analysis takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data. |
44
| Categorized macro information . This feature allows subscribers to search and sort up-to-date and comprehensive news and information relating to the broader financial markets or a specific financial topic or industry sector. We have a dedicated team of professional editors who collect, organize, categorize and index macro-economic and financial market information on a daily basis, according to user feedback and classification methods that we believe are accepted practice in securities markets in China. |
| Industry sector analysis . Many investors in China seek to distinguish between listed companies with investment potential and those prone to financial trouble by analyzing listed companies financial data published in their financial statements and comparing such data among companies within the same industry sector. We collect and process listed company financial data and information according to classification methods set by relevant PRC regulatory authorities, and allow subscribers to view the relative standings of listed companies in the same industry sector or geographical locations based on market accepted performance parameters, including price-to-earnings ratios and profit margins etc. |
| Fundamental analysis . Historical and real-time financial information are important to investors because they provide insight into company fundamentals. This research tool integrates the historical and real-time trading information we maintain in our database, as well as fundamental financial information such as earnings-per-share, shareholding structure, business description and competition and other related data and information. Our subscribers can receive fundamental financial and trading information organized by their specifications and display these results on a graphical interface that we designed to be easy to visualize and navigate. |
| Mutual fund analysis . Our mutual fund research tool focuses on categorizing information relating to the portfolio holdings of mutual funds. This feature allows subscribers to study the collective effect of large market players on individual stocks. This feature also offers information relating to the performance of individual mutual funds, allowing subscribers to assess the risks and rewards of investing in mutual funds. |
45
| Technical analysis . This feature allows investors interested in trends formulated by historical trading data to perform technical analysis on listed companies. With over 60 markets accepted technical indicators and a complete database of historical data and information on all of Chinas and Hong Kongs listed company stocks, our subscribers can perform extensive chart analysis and pattern recognition on any stock listed on Chinas stock exchanges. |
| Securities market data analysis . This feature provides faster and more comprehensive trading data and statistical information on market transactions. With our Securities Market Data service packages developed on the basis of Level II quotes licensed from the Shanghai and Shenzhen Stock Exchanges, our subscribers are provided with trading transparency and unique insight into a stock prices movements, and can make more informed investment decisions. |
46
47
48
| increase the breadth of our service offerings through the addition of new features and functions to our service packages; |
| enhance our subscribers experience by improving the quality of our research tools and website; |
| develop additional research tools, features and content specifically targeting the high-end subscribers; and |
| design and build new financial instrument service products that fit our strategies. |
49
| leveraging our own website platform and other online and mobile platform to increase registered user base; |
| building competitiveness in product innovation and data quality to increase both the registered users and paid subscribers; |
| building our customer database by better understanding and in depth user data mining on our registered users; |
| reinforcing internet capacity through two of our industry-leading financial portal sites and related web applications to improve users experience and stickiness. |
| upgrading our existing service offerings and expanding our present service; |
| encouraging our subscribers to migrate to newer and more comprehensive service offerings. |
| acquiring strategic resources and capabilities in order to strength entry barriers, broaden product offering, expand business scale, diverse revenue resources and monetize registered user base; and |
| obtaining access to complementary resources and capabilities through strategic partnerships that enable us to penetrate into a bigger market to solidify our leading position and enhance our brand awareness. |
| publishers and distributors of traditional media, including print, radio and television as well as radio and television programs and news focused on financial news and information; |
| internet portals providing information on business, finance and investing; |
| financial information web pages offered by websites; |
50
| stock research software vendors, especially those that develop and market stock research software through stock brokerage companies; and |
| stock brokerage companies, especially stock brokerage companies with online trading capabilities. |
| MIIT; |
| CSRC; |
51
| Ministry of Culture; |
| General Administration of Press and Publication (National Copyright Administration); |
| State Administration of Industry and Commerce; |
| Ministry of Public Security; |
| Ministry of Commerce; and |
| State Administration of Radio, Film and Television |
52
53
54
55
Jurisdiction | Legal | |||||
of | Ownership | |||||
Name | Incorporation | Interest | ||||
Fortune Software (Beijing) Co., Ltd.
|
PRC | 100 | % | |||
China Finance Online (Beijing) Co., Ltd.
|
PRC | 100 | % | |||
Beijing Fuhua Innovation Technology Development
Co., Ltd. *
|
PRC | Nil | ||||
Fortune (Beijing) Success Technology Co., Ltd.
|
PRC | 100 | % | |||
Beijing Chuangying Securities Advisory and
Investment Co., Ltd.*
|
PRC | Nil | ||||
Shanghai Meining Computer Software Co., Ltd.*
|
PRC | Nil | ||||
Zhengning Information & Technology (Shanghai)
Co., Ltd.
|
PRC | 100 | % | |||
Shanghai Chongzhi Co., Ltd.*
|
PRC | Nil | ||||
Fortune (Beijing) Qicheng Technology Co., Ltd*
|
PRC | Nil | ||||
Shanghai Stockstar Securities Advisory and
Investment Co., Ltd. *
|
PRC | Nil | ||||
Jujin Software (Shenzhen) Co., Ltd.
|
PRC | 100 | % | |||
Shenzhen Genius Information Technology Co., Ltd.
|
PRC | 100 | % | |||
Shenzhen Shangtong Software Co., Ltd. *
|
PRC | Nil | ||||
Shenzhen Newrand Securities Advisory and
Investment Co., Ltd.*
|
PRC | Nil | ||||
Shenzhen Newrand Securities Training Center*
|
PRC | Nil | ||||
Stockstar Information Technology (Shanghai) Co.,
Ltd.
|
PRC | 100 | % | |||
Daily Growth Financial Holdings Limited
|
BVI | 85 | % | |||
Daily Growth Futures Limited
|
Hong Kong | 85 | % | |||
Daily Growth Securities Limited
|
Hong Kong | 85 | % | |||
Daily Growth Wealth Management Limited
|
Hong Kong | 85 | % | |||
Daily Growth Investment Services Limited
|
Hong Kong | 85 | % | |||
Hong Kong Genius Information Technology Co., Ltd.
|
Hong Kong | 100 | % |
* | Denotes variable interest entities or subsidiaries of variable interest entities |
56
57
58
59
| performance of Chinas securities markets, and user demand for market intelligence on Chinas securities markets, as well as the overall performance of Chinas economy; |
| termination of our TopView series of market data analysis products. On December 31, 2008, SSE Infonet Ltd. Co terminated the provision of TopView data to third-party software vendors, including us. We subsequently terminated the offering of TopView products to our customers. Our 2009 operating results were impacted from the TopView termination; |
| contribution of alternative revenue resources such as revenues from online advertising; |
| seasonality associated with the level of activity of our users and subscribers and the trading activities of Chinas securities markets; |
| tax refund from the PRC tax authorities for value-added-taxes we are required to pay on the sale of subscriptions to our service packages; |
| other tax incentives we receive from PRC tax authorities resulting from CFO Success, CFO Zhengning, CFO Qicheng, and CFO Shenzhen Shangtong being the Software Enterprises; CFO Software, CFO Meining and CFO Genius being the High and New Technology companies; and CFO Stockstar, CFO Jujin, and CFO Newrand are entitled to enjoy a reduced tax rate; |
| our cost structure, including, in particular, our cost for raw data, bandwidth costs and personnel-related expenses; |
| the desirability of our service packages relative to other products and offerings available in the market; |
| our ability to benefit from the acquisition of CFO Stockstar, CFO Genius, Daily Growth Securities and the contractual arrangements with CFO Newrand, CFO Fuhua, CFO Chongzhi, CFO Chuangying, CFO Securities Consulting, and CFO Shenzhen Shangtong and other VIEs; and |
| PRC telecommunication and regulatory policies. |
60
| the number of registered user accounts on our websites; |
| the number of active paying individual subscribers; and |
| the service packages selected by our subscribers. |
61
Years ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
|
||||||||||||
Subscription fees
|
$ | 50,598,929 | $ | 47,201,162 | $ | 49,518,331 | ||||||
Advertising revenue
|
2,946,389 | 3,985,699 | 7,031,219 | |||||||||
Brokerage service revenue
|
956,549 | 2,228,630 | 3,003,246 | |||||||||
Others
|
1,740,901 | 190,386 | 163,246 | |||||||||
|
||||||||||||
Total revenue from external customers
|
$ | 56,242,768 | $ | 53,605,877 | $ | 59,716,042 | ||||||
|
| if we enter into additional commercial agreements for purchasing data from new sources or if we obtain different or additional data from existing sources; or |
| due to rate increases we may experience in the future upon renewal of our existing agreements. |
62
63
64
65
66
| The revenue growth is projected at a compound annual growth rate, or CAGR. For the years 2011-2015, the CAGR of the four reporting units are approximately 7% for each of 2011 through 2014 and 10% for 2015 for Southern China; 5%, 5%, 7%, 8%, 10% for Eastern China; 7%, 2%, 8%, 9%, 9% for Northern China and 24%, 19%, 12%, 7%, 7% for Hong Kong, which is within the range of comparable companies at the time of valuation. |
| In the projection period, the cost of revenues as a percentage of revenues is expected to remain stable. |
| Operating expenses, including selling expenses, R&D expenses and general and administrative expenses, as a percentage of sales is expected to remain stable. |
| To maintain normal operations, capital expenditures are estimated to be around 8%, 2%, 3%, and 3% of revenue for the four reporting units, respectively. |
| The working capital requirement is estimated based on main accounts turnover days. |
| A perpetual growth rate after 2015 is assumed to be at 3% per year for each of the four reporting units. |
| The weighted average cost of capital, or WACC, used in the calculation is 15%, 22%, 23% and 17% for the four reporting units, respectively. |
67
(in thousands of U.S. dollars, | For the year ended December 31, | |||||||||||||||||||||||
except as % of net revenues) | 2008 | 2009 | 2010 | |||||||||||||||||||||
|
||||||||||||||||||||||||
Consolidated statement of
operations and comprehensive income
(loss) data:
|
||||||||||||||||||||||||
Gross revenues
|
$ | 57,146 | 101.6 | % | $ | 55,108 | 102.8 | % | $ | 61,408 | 102.8 | % | ||||||||||||
Business tax
|
(903 | ) | (1.6 | ) | (1,502 | ) | (2.8 | ) | (1,692 | ) | (2.8 | ) | ||||||||||||
|
||||||||||||||||||||||||
Net revenues
|
56,243 | 100 | % | 53,606 | 100 | % | 59,716 | 100 | % | |||||||||||||||
Cost of revenues
|
(9,367 | ) | (16.7 | ) | (8,147 | ) | (15.2 | ) | (8,497 | ) | (14.2 | ) | ||||||||||||
|
||||||||||||||||||||||||
Gross profit
|
46,876 | 83.3 | 45,459 | 84.8 | 51,219 | 85.8 | ||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
General and administrative
|
(15,371 | ) | (27.3 | ) | (16,982 | ) | (31.7 | ) | (13,208 | ) | (22.1 | ) | ||||||||||||
Product development
|
(5,635 | ) | (10.0 | ) | (10,754 | ) | (20.1 | ) | (13,028 | ) | (21.8 | ) | ||||||||||||
Sales and marketing
|
(13,521 | ) | (24.0 | ) | (26,095 | ) | (48.7 | ) | (26,991 | ) | (45.2 | ) | ||||||||||||
|
||||||||||||||||||||||||
Total operating expenses
|
(34,527 | ) | (61.4 | ) | (53,831 | ) | (100.4 | ) | (53,227 | ) | (89.1 | ) | ||||||||||||
Government subsidies
|
437 | 0.8 | 567 | 1.1 | 514 | 0.9 | ||||||||||||||||||
Income (loss) from operations
|
12,786 | 22.7 | (7,805 | ) | (14.6 | ) | (1,494 | ) | (2.5 | ) | ||||||||||||||
Interest income
|
1,609 | 2.9 | 1,352 | 2.5 | 1,590 | 2.7 | ||||||||||||||||||
Interest expense
|
| | | | (142 | ) | (0.2 | ) | ||||||||||||||||
Exchange gain, net
|
1,489 | 2.6 | 2 | | 813 | 1.4 | ||||||||||||||||||
Gain from trading securities
|
| | 41 | 0.1 | 1,138 | 1.9 | ||||||||||||||||||
Other expense, net
|
(169 | ) | (0.3 | ) | (258 | ) | (0.5 | ) | (7 | ) | | |||||||||||||
Income (loss) before income taxes
benefit (provision)
|
15,715 | 27.9 | (6,668 | ) | (12.4 | ) | 1,898 | 3.2 | ||||||||||||||||
Purchased pre-acquisition earning
|
227 | 0.4 | | | | | ||||||||||||||||||
Income tax benefit (provision)
|
3,047 | 5.4 | 446 | 0.8 | (264 | ) | (0.4 | ) | ||||||||||||||||
Net income (loss)
|
18,989 | 33.8 | (6,222 | ) | (11.6 | ) | 1,634 | 2.7 | ||||||||||||||||
Less: net loss attributable to
noncontrolling interests
|
31 | 0.1 | 2 | | 326 | 0.5 | ||||||||||||||||||
|
||||||||||||||||||||||||
Net income (loss) attributable to
China Finance Online Co. Limited
|
$ | 19,020 | 33.8 | % | $ | (6,220 | ) | (11.6 | %) | 1,960 | 3.3 | % |
68
69
70
71
72
For the year ended December 31 | ||||||||||||
(in thousands of U.S. dollars) | 2008 | 2009 | 2010 | |||||||||
Net cash provided by operating activities
|
$ | 27,849 | $ | 16,231 | $ | 4,585 | ||||||
Net cash used in investing activities
|
(7,410 | ) | (6,472 | ) | (14,376 | ) | ||||||
Net cash provided by financing activities
|
573 | 189 | 7,153 | |||||||||
Net increase (decrease) in cash and cash equivalents
|
22,815 | 9,847 | (618 | ) | ||||||||
Cash and cash equivalents at beginning of year
|
74,729 | 97,544 | 107,391 | |||||||||
Cash and cash equivalents at end of year
|
$ | 97,544 | $ | 107,391 | $ | 106,773 |
73
| increase the breadth of our service offerings through the addition of new features and functions to our service packages; |
| enhance our subscribers experience by improving the quality of our research tools and website; and |
| develop additional research tools, features and content specifically targeting the high-end subscribers. |
74
Office Premises | Data Purchase | Total | ||||||||||
(in U.S. dollars) | ||||||||||||
Less than 1 year
|
2,566,811 | 1,414,299 | 3,981,040 | |||||||||
1 3 years
|
1,620,586 | 79,239 | 1,699,825 | |||||||||
3 5 years
|
| | |
75
76
77
Name | Age | Position | ||||
Zhiwei Zhao
|
47 | Chief Executive Officer and a member of the Board of Directors | ||||
Hugo Shong
|
54 | Chairman of the Board of Directors | ||||
Kheng Nam Lee(1)
|
63 | Director | ||||
Ling Wang(1)(2)(3)
|
48 | Director | ||||
Fansheng Guo(1)(2)(3)
|
55 | Director | ||||
Jun (Jeff) Wang
|
40 | Chief Financial Officer | ||||
Caogang Li
|
45 | Chief Operating Officer | ||||
Kiang Dalaroy
|
54 | Chief Strategy Officer |
(1) | Member, audit committee | |
(2) | Member, compensation committee | |
(3) | Member, nominations committee |
78
79
80
81
Number of | ||||||||||||
ordinary Shares to | ||||||||||||
be issued upon | Exercise price per | |||||||||||
exercise of options | ordinary share | Date of grant | Date of expiration | |||||||||
Zhiwei Zhao
|
400,000 | $ | 1.120 | November 15, 2005 | November 15, 2015 | |||||||
|
400,000 | $ | 1.070 | July 5, 2006 | July 5, 2016 | |||||||
|
800,000 | $ | 0.960 | January 18, 2007 | January 17, 2017 | |||||||
|
750,000 | $ | 1.426 | February 22, 2010 | February 21, 2020 | |||||||
Hugo Shong
|
* | $ | 0.160 | January 5, 2004 | January 4, 2014 | |||||||
|
* | $ | 1.040 | June 15, 2004 | June 14, 2014 | |||||||
|
* | $ | 1.314 | February 18, 2005 | February 18, 2015 | |||||||
|
* | $ | 0.960 | January 18, 2007 | January 17, 2017 | |||||||
|
* | $ | 1.426 | February 22, 2010 | February 21, 2020 | |||||||
Kheng Nam Lee
|
* | $ | 0.160 | January 5, 2004 | January 4, 2014 | |||||||
|
* | $ | 1.040 | June 15, 2004 | June 14, 2014 | |||||||
|
* | $ | 1.314 | February 18, 2005 | February 18, 2015 | |||||||
|
* | $ | 0.960 | January 18, 2007 | January 17, 2017 | |||||||
|
* | $ | 1.426 | February 22, 2010 | February 21, 2020 | |||||||
Fansheng Guo
|
* | $ | 0.160 | January 5, 2004 | January 4, 2014 | |||||||
|
* | $ | 1.040 | June 15, 2004 | June 14, 2014 | |||||||
|
* | $ | 1.314 | February 18, 2005 | February 18, 2015 | |||||||
|
* | $ | 0.960 | January 18, 2007 | January 17, 2017 | |||||||
|
* | $ | 1.426 | February 22, 2010 | February 21, 2020 | |||||||
Ling Wang
|
* | $ | 0.160 | January 5, 2004 | January 4, 2014 | |||||||
|
* | $ | 1.040 | June 15, 2004 | June 14, 2014 | |||||||
|
* | $ | 1.314 | February 18, 2005 | February 18, 2015 | |||||||
|
* | $ | 0.960 | January 18, 2007 | January 17, 2017 | |||||||
|
* | $ | 1.426 | February 22, 2010 | February 21, 2020 | |||||||
Jun (Jeff) Wang
|
* | $ | 1.070 | July 5, 2006 | July 5, 2016 | |||||||
|
* | $ | 0.960 | January 18, 2007 | January 17, 2017 | |||||||
|
* | $ | 1.426 | February 22, 2010 | February 21, 2020 | |||||||
Caogang Li
|
* | $ | 1.158 | November 30, 2005 | November 30, 2015 | |||||||
|
* | $ | 0.96 | January 18, 2007 | January 17, 2017 | |||||||
|
* | $ | 1.426 | February 22, 2010 | February 21, 2020 |
* | Upon exercise of all options granted, would beneficially own less than 1% of our outstanding ordinary shares. |
82
Name | Number | Percent | ||||||
Selected Employees
|
||||||||
Zhiwei Zhao
|
8,958,493 | 8.16 | % | |||||
Jun (Jeff) Wang
|
* | * | ||||||
Caogang Li
|
* | * | ||||||
All executive officers as a group (3 persons)
|
10,558,493 | 9.62 | % |
83
| recommending to our shareholders, if appropriate, the annual re-appointment of our independent registered public accounting firm and pre-approving all auditing and non-auditing service fees permitted to be performed by the independent registered public accounting firm; |
| annually reviewing an independent registered public accounting firms report describing the independent registered public accounting firms internal quality-control procedures, any material issues raised by the most recent internal quality control review, or peer review, of the independent registered public accounting firm and all relationships between the independent registered public accounting firm and our company; |
| setting clear hiring policies for employees or former employees of the independent registered public accounting firm; |
| reviewing with the independent registered public accounting firm any audit problems or difficulties and managements response; |
| reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the U.S. securities laws; |
| discussing the annual audited financial statements with management and the independent registered public accounting firm; |
| discussing with management and the independent registered public accounting firm major issues regarding accounting principles and financial statement presentations; reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments; |
| reviewing reports prepared by management or the independent registered public accounting firm relating to significant financial reporting issues and judgments; |
| discussing earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies; |
84
| reviewing with management and the independent registered public accounting firm the effect of regulatory and accounting initiatives, as well as off-balance sheet structures on our financial statements; |
| discussing policies with respect to risk assessment and risk management; |
| reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| timely reviewing annual reports from the independent registered public accounting firm regarding all critical accounting policies and practices to be adopted by our company, all alternative treatments of financial information within U.S. GAAP that have been discussed with management and all other material written communications between the independent registered public accounting firm and management; |
| establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; |
| annually reviewing and reassessing the adequacy of our audit committee charter; |
| such other matters that are specifically delegated to our audit committee by our board of directors from time to time; |
| meeting separately, periodically, with management and the independent registered public accounting firm; and |
| reporting regularly to the full board of directors. |
| determining and recommending the compensation of our senior management; |
| reviewing and making recommendations to our board of directors regarding our compensation policies and forms of compensation provided to our directors and officers; |
| reviewing and determining bonuses for our officers and other employees; |
| reviewing and determining stock-based compensation for our directors, officers, employees and consultants; |
| administering our equity incentive plans in accordance with the terms thereof; and |
| such other matters that are specifically delegated to the compensation committee by our board of directors from time to time. |
85
| convening shareholders meetings and reporting its work to shareholders at such meetings; |
| implementing shareholders resolutions; |
| determining our business plans and investment proposals; |
| formulating our profit distribution plans and loss recovery plans; |
| determining our debt and finance policies and recommending proposals for the increase or decrease in our share capital and the issuance of debentures; |
| formulating our major acquisition and disposition plans, and plans for consolidation, division or dissolution; |
| proposing amendments to our articles of association; and |
| exercising any other powers conferred at shareholders meetings or under our memorandum and articles of association. |
86
| each person known to us to own beneficially more than 5% of our ordinary shares; and |
| each of our directors and executive officers who beneficially own any of our ordinary shares. |
* | Unless otherwise noted, the address of each shareholder is China Finance Online (Beijing) Co., Ltd., 9th Floor of Tower C, Corporate Square, No.35 Financial Street, Xicheng District, Beijing, China 100033. |
Number of Shares | ||||||||
Beneficially Owned | ||||||||
Name | Number | Percent | ||||||
5% Shareholder
|
||||||||
IDG Technology Venture Investment, Inc.(1)
|
15,670,507 | 14.13 | % | |||||
IDG Technology Venture Investments, LP (2)
|
6,723,115 | 6.06 | % | |||||
Vertex Technology Fund (III) Ltd. (3)
|
7,580,494 | 6.84 | % | |||||
Jianping Lu (4)
|
7,156,121 | 6.45 | % | |||||
Ling Zhang (5)
|
8,746,370 | 7.89 | % | |||||
C&F International Holdings Limited (6)
|
10,558,493 | 9.52 | % | |||||
FMR LLC (7)
|
14,332,020 | 12.92 | % | |||||
Directors and executive officers
|
||||||||
Hugo Shong
|
* | * | ||||||
Kheng Nam Lee
|
* | * | ||||||
Ling Wang
|
* | * | ||||||
Fansheng Guo
|
* | * | ||||||
Zhiwei Zhao
|
9,275,964 | 8.37 | % | |||||
Jun (Jeff) Wang
|
* | * | ||||||
Caogang Li
|
* | * | ||||||
All current directors and executive officers as
a group (7 persons)
|
13,295,164 | 11.99 | % |
* | Upon exercise of all options currently exercisable or vesting within 60 days of the date of this annual report, would beneficially own less than 1% of our ordinary shares. |
87
(1) | Includes 15,670,507 ordinary shares held by IDG Technology Venture Investment, Inc.. IDG Technology Venture Investment, Inc. is the limited partner of IDG Technology Venture Investments, LP and does not control IDG Technology Venture Investments, LP. IDG Technology Venture Investment, Inc., a Massachusetts corporation, is wholly owned by International Data Group Inc., a Massachusetts corporation, which is controlled by Patrick McGovern, the majority shareholder, founder and chairman of International Data Group Inc. IDG Technology Venture Investment, Inc. disclaims beneficial ownership of all of the ordinary shares owned by IDG Technology Venture Investments, LP. The registered address of IDG Technology Venture Investment, Inc. is 5 Speen Street, Framingham, MA 01701, U.S.A. | |
(2) | Includes 6,723,115 ordinary shares held by IDG Technology Venture Investments, LP. The general partner of IDG Technology Venture Investments, LP is IDG Technology Venture Investments, LLC. Messrs. Patrick McGovern and Quan Zhou are managing members of IDG Technology Venture Investments, LLC, both of whom disclaim beneficial ownership of our shares held by IDG Technology Venture Investments, LLC. IDG Technology Venture Investment, Inc. is a limited partner of IDG Technology Venture Investments, LP, and does not control IDG Technology Venture Investments, LP. IDG Technology Venture Investments, LP disclaims beneficial ownership of all of the ordinary shares owned by IDG Technology Venture Investment, Inc. The registered address of IDG Technology Venture Investments, LP is Corporation Service Company, 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805-1297, U.S.A. | |
(3) | Includes 7,580,494 ordinary shares held by Vertex Technology Fund (III) Ltd as of December 31, 2010 in the form of 1,516,098 ADS and 4 ordinary shares. Vertex Management (II) Pte Ltd is the fund manager of Vertex Technology Fund (III) Ltd, and may be deemed to have power to vote and dispose of the shares held of record by Vertex Technology Fund (III) Ltd. Vertex Venture Holdings Ltd, as the sole shareholder of Vertex Technology Fund (III) Ltd, and as the sole shareholder of Vickers Capital Limited, which is the sole shareholder of Vertex Management (II) Pte Ltd, may also be deemed to have the power to vote and dispose of these shares. The address of Vertex Technology Fund (III) Ltd is 250 North Bridge Road, #05-01 Raffles City Tower, Singapore 179101. | |
(4) | Includes (i) 4,028,156 ordinary shares held by Cast Technology, Inc.; and (ii) 3,127,965 ordinary shares held by Fanasia Capital Limited. Both Cast Technology, Inc. and Fanasia Capital Limited are held 45% and 55% by Jianping Lu and Ling Zhang, respectively. | |
(5) | Includes (i) 4,923,302 ordinary shares held by Cast Technology, Inc.; and (ii) 3,823,068 ordinary shares held by Fanasia Capital Limited. Both Cast Technology, Inc. and Fanasia Capital Limited are held 45% and 55% by Jianping Lu and Ling Zhang, respectively. | |
(6) | Includes 10,558,493 ordinary shares held by C&F International Holdings Limited, a company incorporated in British Virgin Islands. C&F International Holdings Limited holds the ordinary shares on behalf of and exclusively for the benefit of the group of employees eligible for the 2007 Equity Incentive Plan. C&F International Holdings Limited is 100% owned by C&F Global Limited, a British Virgin Islands Company, which is in turn owned by the selected employees. |
88
(7) | * | Fidelity Management & Research Company (Fidelity), a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 14,307,020 shares of the common stock outstanding of China Finance Online Co. Limited as a result of acting as investment adviser to various investment companies. The registered address is 82 Devonshire Street, Boston, Massachusetts 02109. Edward C. Johnson 3d, Chairman of FMR LLC, and FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 14,307,020 shares owned by the Funds. Members of the family of Edward C. Johnson 3d, are the predominant owners, directly or through trusts, of series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other series B shareholders have entered into a shareholders voting agreement under which all series B voting common shares will be voted in accordance with the majority vote of series B voting common shares. Accordingly, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Edward C. Johnson 3d has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the Funds Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the funds boards of trustees. |
* | Pyramis Global Advisors Trust Company (PGATC), an indirect wholly-owned subsidiary of FMR LLC and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 25,000 shares of the outstanding common stock of the China Finance Online Co. Limited as a result of its serving as investment manager of institutional accounts owning such shares. The registered address is 900 Salem Street, Smithfield, Rhode Island, 02917. Edward C. Johnson 3d and FMR LLC, through its control of Pyramis Global Advisors Trust Company, each has sole dispositive power over 25,000 shares and sole power to vote or to direct the voting of 0 shares of common stock owned by the institutional accounts managed by PGATC as reported above. | |
* | As of March 31, 2011, FMR LLC holds 8,005,180 shares or 7.22% of the common stock outstanding of China Finance Online Co. Limited according to the 13G filed with the SEC on April 8, 2011, including 7,980,180 shares held by Fidelity and 25,000 shares held by PGATC. |
89
90
| a strategic consulting service agreement between CFO Software and CFO Chongzhi; |
| a technical support agreement between CFO Software and CFO Chongzhi; |
91
| an operation agreement between CFO Software and CFO Chongzhi; |
| a loan agreement with Xun Zhao and Zhenfei Fan. We entered into a loan agreement with Xun Zhao and Zhenfei Fan to extend to them a loan in the amount of $65,958 and $80,615, respectively, for the sole purpose of financing their acquisition of equity interests in CFO Chongzhi; |
| a purchase option agreement among CFO Software, CFO Chongzhi, Xun Zhao and Zhenfei Fan; |
| voting arrangements with each of Xun Zhao and Zhenfei Fan regarding their voting rights in CFO Shangtong; and |
| a share pledge agreement among CFO Software, Xun Zhao and Zhenfei Fan. |
92
| a strategic consulting and service agreement between CFO Software and CFO Chuangying; |
| a technical support agreement between CFO Software and CFO Chuangying; |
| an operation agreement between CFO Software and CFO Chuangying; |
| a loan agreement with Yang Yang and Zhenfei Fan. We entered into a loan agreement with Yang Yang and Zhenfei Fan to extend to each of them a loan in the amount of $322,100 and $263,500, respectively, for the sole purpose of financing their acquisition of equity interests in CFO Chuangying; |
| a purchase option agreement among CFO Software, CFO Chuangying, Yang Yang and Zhenfei Fan; and |
| voting arrangements with each of Yang Yang and Zhenfei Fan regarding their voting rights in CFO Chuangying. |
| a strategic consulting service agreement between CFO Success and CFO Shenzhen Shangtong; |
| a technical support agreement between CFO Success and CFO Shenzhen Shangtong; |
| an operation agreement between CFO Success and CFO Shenzhen Shangtong; |
| a loan agreement with Lin Yang and Shaoming Shi. We entered into a loan agreement with Lin Yang and Shaoming Shi to extend to each of them a loan in the amount of $80,500 and $65,900, respectively, for the sole purpose of financing their acquisition of equity interests in CFO Shenzhen Shangtong; |
93
| a purchase option agreement among CFO Success, CFO Shenzhen Shangtong, Lin Yang and Shaoming Shi; |
| voting arrangements with each of Lin Yang and Shaoming Shi regarding their voting rights in CFO Shenzhen Shangtong; and |
| a share pledge agreement among CFO Success, Lin Yang and Shaoming Shi. |
| a strategic consulting service agreement between CFO Chuangying and CFO Qicheng; |
| a technical support agreement between CFO Chuangying and CFO Qicheng; |
| an operation agreement between CFO Chuangying and CFO Qicheng; |
| a loan agreement with Lin Yang and Yang Yang. We entered into a loan agreement with Lin Yang and Yang Yang to extend to each of them a loan in the amount of $80,500 and $65,900, respectively, for the sole purpose of financing their acquisition of equity interests in CFO Qicheng; |
| a purchase option agreement among CFO Chuangying, CFO Qicheng, Lin Yang and Yang Yang; |
| voting arrangements with each of Lin Yang and Yang Yang regarding their voting rights in CFO Qicheng; and |
| a share pledge agreement among CFO Chuangying, Lin Yang and Yang Yang. |
94
95
96
| the fifth anniversary of the consummation of our initial public offering, or October 24, 2009; |
| upon such holder holding less than 1% of our outstanding ordinary shares after our initial public offering; and |
| upon such holder becoming eligible to sell all of such holders registrable securities pursuant to Rule 144 under the Securities Act within any three-month period without volume limitations, under Rule 144(k), or under any comparable securities law of a jurisdiction other than the United States for sale of registrable securities in such jurisdiction. |
97
98
Sales Price | ||||||||
High | Low | |||||||
Yearly highs and lows
|
||||||||
Year 2006
|
9.68 | 3.95 | ||||||
Year 2007
|
47.68 | 4.53 | ||||||
Year 2008
|
26.15 | 4.72 | ||||||
Year 2009
|
13.54 | 6.97 | ||||||
Year 2010
|
9.10 | 6.20 | ||||||
Quarterly highs and lows
|
||||||||
First Quarter 2009
|
11.44 | 6.97 | ||||||
Second Quarter 2009
|
13.54 | 9.17 | ||||||
Third Quarter 2009
|
13.28 | 8.64 | ||||||
Fourth Quarter 2009
|
9.25 | 7.28 | ||||||
First Quarter 2010
|
9.01 | 6.86 | ||||||
Second Quarter 2010
|
8.19 | 6.20 | ||||||
Third Quarter 2010
|
8.28 | 6.90 | ||||||
Fourth Quarter 2010
|
8.59 | 6.53 | ||||||
First Quarter 2011
|
7.27 | 4.32 | ||||||
Monthly highs and lows
|
||||||||
November 2010
|
8.59 | 7.32 | ||||||
December 2010
|
7.77 | 6.53 | ||||||
January 2011
|
7.27 | 5.65 | ||||||
February 2011
|
5.94 | 5.07 | ||||||
March 2011
|
5.50 | 4.32 | ||||||
April 2011
|
6.39 | 4.22 |
99
100
| dealers in securities or currencies; |
| traders in securities that elect to use a mark-to-market method of accounting for securities holdings; |
| banks or other financial institutions; |
101
| insurance companies; |
| tax-exempt organizations; |
| regulated investment companies or real estate investment trusts; |
| U.S. expatriates; |
| partnerships and other entities treated as partnerships for U.S. federal income tax purposes or persons holding ADSs through any such entities; |
| persons that hold ADSs as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment; |
| U.S. Holders (as defined below) whose functional currency for tax purposes is not the U.S. dollar; |
| persons liable for alternative minimum tax; or |
| persons who actually or constructively own 10% or more of the total combined voting power of all classes of our shares (including ADSs) entitled to vote. |
| a citizen or resident of the United States for U.S. federal income tax purposes; |
| a corporation, or other entity taxable as a corporation, that was created or organized in or under the laws of the United States or any political subdivision thereof; |
| an estate the income of which is subject to U.S. federal income tax regardless of its source; or |
| a trust if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect to be treated as a U.S. person. |
102
| at least 75% of its gross income is passive income (the income test), or |
| at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the asset test). |
103
| the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares, |
| the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income, and |
| the amount allocated to each other taxable year will be subject to the highest tax rate in effect for that taxable year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such taxable year. |
104
| that gain is effectively connected with the conduct of a U.S. trade or business and, if an applicable income tax treaty so requires as a condition for you to be subject to U.S. federal income tax with respect to income from your ADSs, such gain is attributable to a permanent establishment that you maintain in the United States; or |
| you are a nonresident alien individual and are present in the United States for at least 183 days in the taxable year of the sale or other disposition and either (1) your gain is attributable to an office or other fixed place of business that you maintain in the United States or (2) you have a tax home in the United States. |
105
106
107
Category | Depositary actions | Associated fee | ||
(a) Depositing or substituting
the underlying shares |
Each person to whom ADSs are issued against deposits of shares, including deposits and issuances in respect of: | US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs issued | ||
|
||||
|
Share distributions, stock dividend, stock split, merger | |||
|
||||
|
Exchange of securities or any other transaction or event affecting the ADSs or the deposited securities | |||
|
||||
(b) Receiving or distributing
dividends |
Distribution of cash dividends | US$0.02 or less per ADS |
108
Category | Depositary actions | Associated fee | ||
(c) Selling or exercising rights
|
Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities | Up to US$5.00 for each 100 ADSs (or portion thereof) | ||
|
||||
(d) Withdrawing an underlying
security |
Acceptance of ADRs surrendered for withdrawal of deposited securities | US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered | ||
|
||||
(e) Transferring, splitting or
grouping receipts
|
Transfers of depositary receipts | US$1.50 per ADS | ||
|
||||
(f) General depositary
services, particularly those charged on an annual basis |
Services performed by the
depositary in administering the ADRs |
US$0.02 per ADS (or portion thereof) not more than once each calendar year and payable at the sole discretion of the depositary by billing ADR Holders or by deducting such charge from one or more cash dividends or other cash distributions | ||
|
||||
(g) Expenses of the Depositary
|
Expenses incurred on behalf of ADR Holders in connection with:
Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment The depositarys or its custodians compliance with applicable law, rule or regulation Stock transfer or other taxes and other governmental charges Cable, telex and facsimile transmission and delivery charges fees for the transfer or registration of deposited securities in connection with the deposit or withdrawal of deposited securities Expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency) Any other charge payable by depositary or its agents in connection with the servicing of the shares or the deposited securities |
Expenses payable at the sole discretion of the depositary by billing ADR Holders or by deducting such charges from one or more cash dividends or other cash distributions |
109
110
111
112
For the Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Audit Fees
(1)
|
US$ | 735,000 | US$ | 735,000 | US$ | 735,000 | ||||||
|
||||||||||||
Tax Fees
(2)
|
| | 119,737 | |||||||||
|
(1) | Audit Fees means the aggregate fees in each of the fiscal years listed for professional services rendered by Deloitte Touche Tohmatsu CPA Ltd. for the audit of our annual financial statements, review of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. | |
|
||
(2) | Tax Fees means the aggregate fees billed in each of the fiscal years listed for professional tax services rendered by Deloitte Touche Tohmatsu CPA Ltd. |
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
F-19
F-20
F-21
F-22
F-23
F-24
F-25
F-26
F-27
F-28
F-29
F-30
F-31
F-32
F-33
F-34
F-35
F-36
F-37
F-38
F-39
F-40
F-41
F-42
F-43
F-44
F-45
F-46
F-47
F-48
F-49
F-50
Exhibit
Number
Description
1.1
2.1
2.2
2.3
4.1
4.2
*
4.3
*
4.4
*
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Table of Contents
Exhibit
Number
Description
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
Table of Contents
Exhibit
Number
Description
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
Table of Contents
Exhibit
Number
Description
4.36
4.37
4.38
4.39
4.40
4.41
4.42
4.43
4.44
4.45
4.46
4.47
Table of Contents
Exhibit
Number
Description
4.48
4.49
4.50
4.51
4.52
4.53
4.54
4.55
4.56
4.57
4.58
Table of Contents
Exhibit
Number
Description
4.59
4.60
4.61
4.62
4.63
4.64
4.65
4.66
4.67
4.68
4.69
4.70
Table of Contents
Exhibit
Number
Description
4.71
4.72
4.73
4.74
*
4.75
*
4.76
*
Table of Contents
Exhibit
Number
Description
4.77
4.78
*
4.79
4.80
4.81
4.82
4.83
4.84
4.85
4.86
Table of Contents
Exhibit
Number
Description
4.87
4.88
4.89
4.90
4.91
4.92
4.93
4.94
4.95
4.96
Table of Contents
Exhibit
Number
Description
4.97
4.98
4.99
4.100
4.101
4.102
4.103
4.104
4.105
4.106
4.107
4.108
4.109
Table of Contents
Exhibit
Number
Description
4.110
4.111
4.112
4.113
4.114
4.115
4.116
4.117
4.118
4.119
4.120
Table of Contents
Exhibit
Number
Description
4.121
4.122
4.123
4.124
4.125
4.126
4.127
4.128
4.129
4.130
Table of Contents
Exhibit
Number
Description
4.131
4.132
4.133
4.134
4.135
4.136
4.137
4.138
4.139
4.140
4.141
4.142
Table of Contents
Exhibit
Number
Description
4.143
4.144
4.145
4.146
4.147
4.148
4.149
4.150
4.151
*
4.152
*
4.153
Table of Contents
Exhibit
Number
Description
4.154
4.155
4.156
4.157
8.1
*
12.1
*
12.2
*
13.1
*
13.2
*
15.1
*
15.2
*
Table of Contents
Date: May 31, 2011
CHINA FINANCE ONLINE CO. LIMITED
/s/ Jeff Wang
Name:
Jeff Wang
Title:
Chief Financial Officer
Table of Contents
and Consolidated Financial Statements
For the years ended December 31, 2008, 2009 and 2010
Table of Contents
CONTENTS
PAGE
F 1
F 2
F 4
F 5
F 6
F 7
F 47
Table of Contents
Beijing, the Peoples Republic of China
May 31, 2011
Table of Contents
(In U.S. dollars, except share-related data)
December 31,
2009
2010
$
107,391,084
$
106,773,478
14,533,347
4,281,137
4,077,398
13,310,238
9,625,461
2,724,456
8,095,396
2,644,696
3,634,653
67,588
31,272
3,236,810
3,634,120
133,656,009
150,405,125
10,268,480
8,276,275
4,779,101
4,349,181
1,479,571
1,479,571
725,261
718,800
12,602,699
12,949,587
219,473
231,107
1,878,843
1,680,936
$
165,609,437
$
180,090,582
$
30,620,060
$
32,994,717
8,244,867
10,838,363
13,310,238
9,625,461
6,424,093
101,646
221,084
123,880
155,394
52,400,691
60,259,112
14,547,248
13,021,678
994,573
966,689
67,942,512
74,247,479
Table of Contents
(In U.S. dollars, except share-related data)
December 31,
2009
2010
14,237
14,319
74,130,609
78,974,697
6,342,765
8,030,982
16,919,785
18,879,907
97,407,396
105,899,905
259,529
(56,802
)
97,666,925
105,843,103
$
165,609,437
$
180,090,582
Table of Contents
(In U.S. dollars, except share-related data)
Years ended December 31,
2008
2009
2010
$
56,242,768
$
53,605,877
$
59,716,042
9,367,143
8,146,724
8,497,145
46,875,625
45,459,153
51,218,897
15,371,171
16,982,032
13,208,337
5,635,173
10,754,380
13,027,879
13,520,295
26,095,233
26,991,093
34,526,639
53,831,645
53,227,309
436,946
567,373
514,113
12,785,932
(7,805,119
)
(1,494,299
)
1,609,112
1,352,307
1,590,218
(142,169
)
1,489,076
1,874
812,969
40,574
1,138,147
(168,536
)
(257,674
)
(7,321
)
15,715,584
(6,668,038
)
1,897,545
3,047,129
446,164
(263,386
)
226,769
$
18,989,482
$
(6,221,874
)
$
1,634,159
(30,633
)
(2,131
)
(325,963
)
$
19,020,115
$
(6,219,743
)
$
1,960,122
$
0.19
$
(0.06
)
$
0.02
$
0.17
$
(0.06
)
$
0.02
98,957,993
105,203,564
108,247,552
112,984,532
105,203,564
114,125,022
Table of Contents
AND COMPREHENSIVE INCOME
(In U.S. dollars, except share-related data)
Accumulated other
Total China Finance
Non
Total
Ordinary shares
Additional
comprehensive
Retained
Online Co. Limited
controlling
Total
comprehensive
Shares
Amount
paid-in capital
income (loss)
earnings
shareholders equity
interest
equity
income (loss)
109,754,433
14,172
58,727,378
4,501,432
4,119,413
67,362,395
471,431
67,833,826
531,449
531,449
531,449
260,000
34
41,566
41,600
41,600
8,040,150
8,040,150
8,040,150
(440,798
)
(440,798
)
1,946,646
1,946,646
1,946,646
1,946,646
19,020,115
19,020,115
(30,633
)
18,989,482
18,989,482
110,014,433
14,206
67,340,543
6,448,078
23,139,528
96,942,355
96,942,355
20,936,128
185,730
24
181,357
181,381
181,381
50,000
7
7,993
8,000
8,000
6,600,716
6,600,716
6,600,716
261,660
261,660
(105,313
)
(105,313
)
(105,313
)
(105,313
)
(6,219,743
)
(6,219,743
)
(2,131
)
(6,221,874
)
(6,221,874
)
110,250,163
14,237
74,130,609
6,342,765
16,919,785
97,407,396
259,529
97,666,925
(6,327,187
)
637,720
82
717,175
717,257
717,257
4,504,806
4,504,806
14,865
4,519,671
(377,893
)
(377,893
)
(5,233
)
(383,126
)
1,688,217
1,688,217
1,688,217
1,688,217
1,960,122
1,960,122
(325,963
)
1,634,159
1,634,159
110,887,883
14,319
78,974,697
8,030,982
18,879,907
105,899,905
(56,802
)
105,843,103
3,322,376
Table of Contents
(In U.S. dollars)
Years ended December 31,
2008
2009
2010
$
18,989,482
$
(6,221,874
)
$
1,634,159
8,040,150
6,600,716
4,519,671
2,139,145
2,987,094
3,610,026
238,077
(40,574
)
(1,138,147
)
(3,200,390
)
(917,284
)
(99,475
)
37,659
182,235
53,547
(226,769
)
(711,933
)
(722,778
)
(971,341
)
(580,453
)
(1,774,224
)
(5,390,473
)
(5,567,706
)
4,648,114
157,930
1,597,941
160,634
854,063
(11,305,861
)
3,642,887
(74,487
)
(133,601
)
20,021
9,943,656
8,206,417
(540,386
)
(182,528
)
(113,289
)
108,382
(2,482,122
)
3,387,725
2,355,637
(854,063
)
11,305,861
(3,642,887
)
126,961
(18,097
)
27,067
27,848,606
16,231,214
4,584,695
(5,006,365
)
(4,514,342
)
(906,296
)
(2,403,620
)
(1,932,472
)
(89,335
)
(383,126
)
(267,782
)
(5,616,027
)
240,775
6,830,374
(14,216,294
)
1,468
4,936
(7,409,985
)
(6,472,353
)
(14,375,768
)
531,449
181,381
717,257
41,600
8,000
6,435,586
573,049
189,381
7,152,843
1,803,516
(101,377
)
2,020,624
22,815,186
9,846,865
(617,606
)
74,729,033
97,544,219
107,391,084
97,544,219
107,391,084
106,773,478
$
169,270
$
515,782
$
377,970
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
China Finance Online Co. Limited (China Finance Online or the Company) was incorporated
in Hong Kong on November 2, 1998. China Finance Online and its subsidiaries including its
variable interest entities (collectively, the Group) are principally providing vertically
integrated financial services including news, data, analytics and brokerage through web
portals, software systems, and mobile handsets.
Details of China Finance Onlines significant subsidiaries and variable interest entities as
of December 31, 2010 were as follows:
Place of
Date of
legal
incorporation or
incorporation or
ownership
Principal
Company name
establishment
acquisition
interest
activity
Beijing, PRC
Jul. 9, 1998
100
%
Subscription service
Beijing, PRC
Dec. 7, 2004
100
%
Subscription service
Beijing, PRC
Oct. 16, 2007
100
%
Subscription service
Shenzhen, PRC
Sep. 21, 2006
100
%
Subscription service
Shenzhen, PRC
Mar. 9, 2007
100
%
Subscription service
Shanghai, PRC
Oct. 1, 2006
100
%
Subscription service
(CFO Zhengning)
Shanghai, PRC
Jan. 31, 2007
100
%
Subscription service
BVI
Jul. 16, 2007
85
%
Investment holdings
Hong Kong, PRC
Nov. 23, 2007
85
%
Brokerage service
Hong Kong, PRC
Apr. 16, 2008
85
%
Brokerage service
(Daily Growth Wealth Management)
Hong Kong, PRC
Oct. 8, 2008
85
%
Securities advising
(Daily Growth Investment Services)
HongKong, PRC
Jun. 30, 2009
85
%
N/A
HongKong, PRC
May. 18, 2010
100
%
N/A
Beijing, PRC
Dec. 31, 2000
Nil
Web portal and advertising service
Shanghai, PRC
Jun. 6, 2008
Nil
Subscription service
Beijing, PRC
Dec. 18, 2009
Nil
N/A
(CFO Chuangying) (Note 3)
Beijing, PRC
Jan. 9, 2009
Nil
Securities investment advising
(CFO Newrand ) (Note 3)
Shenzhen, PRC
Oct. 17, 2008
Nil
Securities investment advising
Shenzhen, PRC
Sep. 23, 2009
Nil
Subscription service
Shanghai, PRC
Oct. 1, 2006
Nil
Web portal, subscription and SMS
Shenzhen, PRC
Oct. 17, 2008
Nil
Securities investment training
(former name: Shanghai Securities Consulting Co., Ltd)
(CFO Securities Consulting) (Note 3)
Shanghai, PRC
Nov. 5, 2009
Nil
Securities investment advising
PRC regulations prohibit direct foreign ownership of business entities providing
certain services in PRC, such as internet content service and securities investment advisory
service. In order to comply with these regulations, China Finance Online, through its
subsidiaries, entered into contractual arrangements with the Companys variable interest
entities (VIEs) and their equity owners who are PRC citizens as follows:
The Group made loans to the shareholders of the VIEs solely for the purposes of capitalizing
the VIEs. Pursuant to the loan agreements, these loans can only be repaid by transferring
all of their interests in the VIEs to the Group or a third party designated by the Group.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES continued
The Group has entered into agreements with the VIEs and their shareholders that provide the
Group with the substantial ability to control the VIEs. Pursuant to these contractual
arrangements:
the shareholders of the VIEs have granted the Group or individuals designated by the
Group an irrevocable proxy to exercise all their voting rights as shareholders of the
VIEs, including the right to appoint directors, the general manager and other senior
management of the VIEs;
the VIEs will not enter into any transaction that may materially affect its assets,
liabilities, equity or operations without the Groups prior written consent;
the VIEs will not distribute any dividends;
the Group may purchase the entire equity interest in, or all the assets of the VIEs
at a price equal to the total principal amount of the loan lent by the Group to the
owners of the VIEs when and if such purchase is permitted by PRC law or the current
shareholders of the VIEs cease to be directors or employees of the VIEs;
the shareholders of the VIEs will not transfer, sell, pledge, dispose of or create
any encumbrance on their equity interest in the VIEs without the prior written consent
of the Group.
The Group has entered into a series of contractual arrangements with each VIE and its
individual shareholders, pursuant to which the Group provides services to the VIEs in
exchange for fees. The principal services agreements that the Group has entered into with
VIEs include:
strategic consulting services agreement, pursuant to which the amount of the fee to
be charged is 30% of each VIEs income before tax;
technical support services agreement, pursuant to which the amount of the fee to be
charged is 30% of each VIEs income before tax;
operating support services agreement, pursuant to which the amount of the fee to be
charged is 40% of each VIEs income before tax;
Through the above contractual arrangements, the Group has the right to determine the amount
of these fees and they are intended to transfer substantially all of the economic benefits
of each VIE to the Company.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES continued
Details of significant VIEs and their counterparts which substantially control the VIEs as
of December 31, 2010 were as follows:
VIE Name
Contractual Arrangement Date
Counterpart
May 27, 2004
CFO Beijing
June 8, 2008
CFO Software
October 17, 2008
CFO Software and CFO Success
January 21, 2009
CFO Software
August 3, 2009
CFO Success
November 20, 2009
CFO Chuangying
Risks in relation to the VIE structure
The Company believes that the contractual arrangements entered with the VIEs are in
compliance with PRC law and are legally enforceable. However, uncertainties in the PRC
legal system could limit the Companys ability to enforce these contractual arrangements and
if the shareholders of the VIEs were to reduce their interests in the Company, their
interests may diverge from that of the Company and that may potentially increase the risk
that they would seek to act contrary to the contractual terms, for example by influencing
the VIEs not to pay the service fees when required to do so.
Adoption of authoritative pronouncement regarding VIEs
In June 2009, the Financial Accounting Standards Board (FASB) issued an authoritative
pronouncement to amend the accounting rules for VIEs. The amendments effectively replace
the quantitative-based risks-and-rewards calculation for determining which reporting entity,
if any, has a controlling financial interest in a variable interest entity with an approach
focused on identifying which reporting entity has (1) the power to direct the activities of
a variable interest entity that most significantly affect the entitys economic performance
and (2) the obligation to absorb losses of, or the right to receive benefits from, the
entity. Additionally, an enterprise is required to assess whether it has an implicit
financial responsibility to ensure that a variable interest entity operates as designed when
determining whether it has the power to direct the activities of the variable interest
entity that most significantly impact the entitys economic performance. The new guidance
also requires additional disclosures about a reporting entitys involvement with variable
interest entities and about any significant changes in risk exposure as a result of that
involvement.
The new guidance is effective at the start of a reporting entitys first fiscal year
beginning after November 15, 2009, and all interim and annual periods thereafter. The new
VIE model requires that, upon adoption, a reporting entity should determine whether an
entity is a VIE, and whether the reporting entity is the VIEs primary beneficiary, as of
the date that the reporting entity first became involved with the entity, unless an event
requiring reconsideration of those initial conclusions occurred after that date. When
making this determination, a reporting entity must assume that new guidance had been
effective from the date of its first involvement with the entity. The Group adopted the new
guidance on January 1, 2010.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES continued
Adoption of authoritative pronouncement regarding VIEs
continued
The Company has consolidated its VIEs under the authoritative literature prior to the
amendment discussed above because it was the primary beneficiary of those entities. Because
the Company, through its wholly owned subsidiary, has (1) the power to direct the activities
of the VIE that most significantly affect the entitys economic performance and (2) the
right to receive benefits from the VIE, it continues to consolidate the VIE upon the
adoption of the new guidance which therefore, other than for additional disclosures,
including those for prior periods, had no accounting impact.
The following financial statement amounts and balances of the VIEs and their subsidiaries
were included in the accompanying consolidated financial statements as of and for the years
ended:
Year ended December 31,
2009
2010
$
66,591,127
$
84,004,604
16,333,249
22,035,259
Year ended December 31,
2008
2009
2010
$
11,790,437
$
16,766,910
$
25,737,779
2,380,554
2,354,387
3,614,094
Year ended December 31,
2008
2009
2010
$
16,539,572
$
(24,061,646
)
$
9,078,975
(533,240
)
(1,560,927
)
178,192
31,573,849
14,785,320
1,477,018
1,945,739
(59,929
)
1,922,878
There are no consolidated VIEs assets that are collateral for the VIEs obligations and can
only be used to settle the VIEs obligations.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Group have been prepared in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP).
Basis of consolidation
The consolidated financial statements include the financial statements of China Finance
Online, its subsidiaries and its variable interest entities. All inter-company transactions
and balances have been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments which are
unrestricted as to withdrawal or use, and which have remaining maturities of three months or
less when purchased.
Restricted cash
Restricted cash represents the security deposit for the credit standby letter issued by a
bank to provide guarantee for the short-term loan borrowed by CFO HK Genius. The
restriction period is one year.
Fair value
Fair value is the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
When determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, the Group considers the principal or most
advantageous market in which it would transact and it considers assumptions that market
participants would use when pricing the asset or liability.
Authoritative literature provides a fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels. The level in the
hierarchy within which the fair value measurement in its entirety falls is based upon the
lowest level of input that is significant to the fair value measurement as follows:
Level 1-inputs are based upon unadjusted quoted prices for identical instruments traded in
active markets.
Level 2-inputs are based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not active and
model-based valuation techniques for which all significant assumptions are observable in the
market or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3-inputs are generally unobservable and typically reflect managements estimates of
assumptions that market participants would use in pricing the asset or liability. The fair
values are therefore determined using model-based techniques that include option pricing
models, discounted cash flow models, and similar techniques.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Trust bank balances held on behalf of customers
Daily Growth Securities and Daily Growth Futures receive fund from customers for purpose of
buying or selling securities on behalf of its customers and deposits the fund in its
interest-bearing bank account. Such bank balance represents an asset of the Group for the
amounts due to customers for the trust bank balance held on their behalf and payable to
customers on demand. The Group also recognizes a corresponding liability.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities
and revenue and expenses in the financial statements and accompanying notes. Significant
accounting estimates reflected in the Groups financial statements include cost method
investment, goodwill and impairment of long-lived assets, income taxes and stock-based
compensation. Actual results could differ from those estimates.
Trading securities
Trading securities are securities that are bought and held principally for the purpose of
selling them in the near term and are reported at fair value, with unrealized gains and
losses recognized in earnings.
Property and equipment, net
Property and equipment, net are carried at cost less accumulated depreciation. Depreciation
is calculated on a straight-line basis over the following estimated useful lives:
5 years
5 years
5 years
5 years
Shorter of the lease term or 5 years
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Acquired intangible assets, net
Acquired intangible assets are estimated by management based on the fair value of assets
acquired. Identifiable intangible assets are carried at cost less accumulated amortization.
Amortization of definite-lived intangible assets is computed using the straight-line method
over the estimated average useful lives, which are as follows:
15 years
5 years
4-5 years
3-4 years
3 years
10 years
Certain trademarks resulting from the acquisitions of business and certain trading rights
bought by the Company are determined to have indefinite lives. If an intangible asset is
determined to have an indefinite life, it is not amortized until its useful life is
determined to be no longer indefinite.
An intangible asset that is not subject to amortization is tested for impairment at least
annually if events or changes in circumstances indicate that the asset might be impaired.
Such impairment test consists of a comparison of the fair values of the assets with their
carrying amounts and an impairment loss is recognized if and when the carrying amounts
exceed the fair values.
The estimates of fair values of intangible assets not subject to amortization are determined
using various discounted cash flow valuation methodologies. Significant assumptions are
inherent in this process, including estimates of discount rates. Discount rate assumptions
are based on an assessment of the risk inherent in the respective intangible assets. During
the years ended December 31, 2008, 2009 and 2010, the Group did not record any impairment
losses associated with intangible assets.
Impairment of long-lived assets
The Group reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may no longer be recoverable.
When these events occur, the Group compares the carrying value of the long-lived assets to
the estimated undiscounted future cash flows expected to result from the use of the assets
and their eventual disposition. If the sum of the expected undiscounted cash flow is less
than the carrying amount of the assets, the Group would recognize an impairment loss based
on the fair value of the assets. There were no impairment losses in the years ended
December 31, 2008, 2009 and 2010.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Business combinations
Business combinations are recorded using the purchase method of accounting. On January 1,
2009, the Company adopted a new accounting pronouncement with prospective application which
made certain changes to the previous authoritative literature on business combinations.
From January 1, 2009, the assets acquired, the liabilities assumed, and any noncontrolling
interest of the acquiree at the acquisition date, if any, are measured at their fair values
as of that date. Goodwill is recognized and measured as the excess of the total
consideration transferred plus the fair value of any noncontrolling interest of the
acquiree, if any, at the acquisition date over the fair values of the identifiable net
assets acquired. Previously, any noncontrolling interest was reflected at historical cost.
Common forms of the consideration made in acquisitions include cash and common equity
instruments. Consideration transferred in a business acquisition is measured at the fair
value as at the date of acquisition.
Where the consideration in an acquisition includes contingent consideration the payment of
which depends on the achievement of certain specified conditions post-acquisition, from
January 1, 2009, the contingent consideration is recognized and measured at its fair value
at the acquisition date and if recorded as a liability it is subsequently carried at fair
value with changes in fair value reflected in earnings. For periods prior to January 1,
2009, contingent consideration was not recorded until the contingency was resolved.
Goodwill
The excess of the purchase price over the fair value of net assets acquired is recorded on
the consolidated balance sheet as goodwill.
The Company completes a two-step goodwill impairment test. The first step is to compare the
fair values of each reporting unit to its carrying amount, including goodwill. If the fair
value of each reporting unit exceeds its carrying amount, goodwill is not considered to be
impaired and the second step will not be required. If the carrying amount of a reporting
unit exceeds its fair value, the second step is to compare the implied fair value of
goodwill to the carrying value of a reporting units goodwill. The implied fair value of
goodwill is determined in a manner similar to accounting for a business combination with the
allocation of the assessed fair value determined in the first step to the assets and
liabilities of the reporting unit. The excess of the fair value of the reporting unit over
the amounts assigned to the assets and liabilities is the implied fair value of goodwill.
An impairment loss is recognized for any excess in the carrying value of goodwill over the
implied fair value of goodwill.
The Group performs goodwill impairment tests annually on December 31 by comparing the
carrying value to the fair value of each reporting unit. Based on the Groups assessment,
there was no impairment of goodwill for the years ended December 31, 2008, 2009 and 2010.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Revenue recognition
The Group generates revenue primarily from annual subscription fees from subscribers to
their financial data and information services including their downloadable proprietary
research tools. The Group recognizes revenues when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is
fixed or determinable and (4) collectibility is probable. Upon receipt of the upfront cash
payments from the subscriber, the Group will activate the subscribers account and provide
the subscriber the access code. This will commence a certain subscription period according
to the customer demand and the full payment will be deferred and recognized ratably over the
subscription period. The Group recognizes revenue ratably over the life of the arrangement.
The Group derives its advertising fees from advertising sales on their website principally
for a fixed period of time, generally less than one year. Revenues from advertising
arrangements are recognized ratably over the period the advertising is displayed.
The Group also derives commission from its brokerage services provided by the subsidiaries,
Daily Growth Securities and Daily Growth Futures which buy or sell securities and futures on
their customers behalf. The commission income is recognized on a trade date basis as
transactions occur.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Business taxes and value added taxes
Revenue is recorded net of business taxes when incurred. The Group is subject to business
taxes of 3%-5% on taxable services provided to its customers. During the years ended
December 31, 2008, 2009, and 2010, business taxes totaled $903,330, $1,501,799, and
$1,692,069, respectively.
The Groups PRC subsidiaries are subject to value added tax at a rate of 17% on
subscription-based revenue. Value added tax payable on subscription-based revenue is
computed net of value added tax paid on purchases. In respect of subscription-based
revenue, however, if the net amount of value added tax payable exceeds 3% of
subscription-based revenue, the excess portion of value added tax can be refunded
immediately. The Group therefore is subject to an effective net value added tax burden of
3% from subscription-based revenue and records value added tax on a net basis. Net amount
of value added tax is recorded either in the line item of other current liabilities or
prepaid expenses and other current assets on the face of consolidated balance sheet.
Subscription-based revenue includes the benefit of the rebate of value added taxes on sale
of the downloadable software received from the Chinese tax authorities as part of the PRC
government policy of encouraging software development in the PRC. In 2008, 2009 and 2010,
the Group recognized $4,834,336, $4,424,737, and $3, 711, 613, respectively, in value added
tax refunds.
Government subsidies
The Group records government subsidies when granted by local government authority and are
not subject to future return. The government subsidies include R&D subsidy, business tax
refund, innovation fund and high-tech company subsidy. Government subsidies granted totaled
$436,946, $567,373 and $514,113 for the years ended December 31, 2008, 2009 and 2010,
respectively.
Deferred revenue
Payments received in advance of service are recorded as deferred revenue until earned and
when the relevant revenue recognition requirements have been met.
Cost method investment
For investments in an investee over which the Group does not have significant influence, the
Group carries the investment at cost and recognizes income as any dividends declared from
distribution of investees earnings. The Group reviews the cost method investments for
impairment whenever events or changes in circumstances indicate that the carrying value may
no longer be recoverable. An impairment loss is recognized in earnings equal to the
difference between the investments cost and its fair value at the balance sheet date of the
reporting period for which the assessment is made. The fair value of the investment would
then become the new cost basis of the investment.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Foreign currency translation
The functional and reporting currency of the Company is the United States dollar (U.S.
dollar). The financial records of the Groups subsidiaries and VIEs located in the PRC,
Hong Kong and British Virgin Island are maintained in their local currencies, the Renminbi
(RMB), Hong Kong Dollars (HK$), and U.S. Dollars (US$), respectively, which are also
the functional currencies of these entities.
Monetary assets and liabilities denominated in currencies other than the functional currency
are translated into the functional currency at the rates of exchange ruling at the balance
sheet date. Transactions in currencies other than the functional currency during the year
are converted into functional currency at the applicable rates of exchange prevailing when
the transactions occurred. Transaction gains and losses are recognized in the statements of
operations.
The Groups entities with functional currency of RMB and HK$ translate their operating
results and financial position into the US$, the Groups reporting currency. Assets and
liabilities are translated using the exchange rates in effect on the balance sheet date.
Revenues, expenses, gains and losses are translated using the average rate for the year.
Translation adjustments are report as cumulative translation adjustments and are shown as a
separate component of other comprehensive income.
Foreign currency risk
The RMB is not a freely convertible currency. The State Administration for Foreign
Exchange, under the authority of the Peoples Bank of China, controls the conversion of
Renminbi into foreign currencies. The value of the RMB is subject to changes in central
government policies and to international economic and political developments affecting
supply and demand in the China Foreign Exchange Trading System market. Cash and cash
equivalents of the Group included aggregate amounts of $79,921,228, $93,753,238 and
$92,922,206 at December 31, 2008, 2009 and 2010 which were denominated in RMB.
Cost of raw data
Cost of raw data is expensed as incurred and is recorded in cost of revenues.
Product development expenses
Costs of product development, including investment in data capability, are expensed as
incurred until technological feasibility has been established, at which time any additional
costs would be capitalized. The Group essentially completed its development concurrently
with the establishment of technological feasibility, and, accordingly, no costs have been
capitalized.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Advertising costs
The Group expenses advertising costs as incurred. Total advertising expenses were
$1,102,779, $4,819,561, and $6,077,608 for the years ended December 31, 2008, 2009 and 2010,
respectively, and have been included as part of sales and marketing expenses in the
accompanying consolidated statements of operations.
Income taxes
Current income taxes are provided for in accordance with the laws of the relevant tax
authorities. Deferred income taxes are recognized for temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial statements, net
operating loss carry forwards and credits by applying enacted statutory tax rates applicable
to future years. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Current income taxes are provided for in accordance with
the laws of the relevant tax authorities.
The impact of an uncertain income tax position on the income tax return is recognized at the
largest amount that is more-likely-than not to be sustained upon audit by the relevant tax
authority. An uncertain income tax position will not be recognized if it has less than a
50% likelihood of being sustained. Interest and penalties on income taxes will be
classified as a component of the provisions for income taxes.
Comprehensive income (loss)
Comprehensive income (loss) includes net income (loss) and foreign currency translation
adjustments. Comprehensive income (loss) is reported as a component of the consolidated
statements of equity and comprehensive income (loss).
Fair value of financial instruments
Financial instruments include cash and cash equivalents, restricted cash, accounts
receivable, trading securities, cost method investment, accounts payable and short-term
loan.
The carrying values of cash and cash equivalents, restricted cash, accounts receivable,
trading securities, accounts payable and short-term loan approximate their fair value due to
their short-term maturities.
The carrying value of the cost method investment was $1,479,571 as of December 31, 2009 and
2010, which approximate the fair value of the investment based on the valuation performed by
the Company, with the assistance of American Appraisal China Limited, an independent
valuation firm.
The Group does not use derivative instruments to manage risks.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Share-based compensation
Share-based compensation with employees is measured based on the grant date fair value of
the equity instrument. The Group recognizes the compensation costs net of an estimated
forfeiture rate using the straight-line method, over the requisite service period of the
award, which is generally the vesting period of the award. The estimate of forfeitures will
be adjusted over the requisite service period to the extent that actual forfeitures differ,
or are expected to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative catch-up adjustment in the period of change and will also
impact the amount of share-based compensation expense to be recognized in future periods.
Share awards issued to nonemployees are measured at fair value at the earlier of the
commitment date or the date the services is completed and recognized over the period the
service is provided or as goods is received.
Effective January 1, 2009, the Group adopted an authoritative pronouncement issued by the
FASB regarding noncontrolling interest in the accompanying consolidated financial
statements. The pronouncement requires noncontrolling interest to be separately presented
as a component of equity in the accompanying consolidated financial statements. The
presentation regarding noncontrolling interest was retroactively applied for all the
presented periods.
Net income (loss) per share
Basic net income (loss) per share attributable to China Finance Online Co. Limited is
computed by dividing net income (loss) attributable to China Finance Online Co. Limited by
the weighted average number of ordinary shares outstanding during the period. Diluted net
income (loss) per ordinary share attributable to China Finance Online Co. Limited reflects
the potential dilution that could occur if securities or other contracts to issue ordinary
shares were exercised or converted into ordinary shares. The dilutive effect of the stock
options and nonvested shares is computed using treasury stock method.
Concentrations of credit risk
Financial instruments that potentially expose the Group to concentrations of credit risk
consist principally of cash and cash equivalents, restricted cash and accounts receivable.
The Group places its cash and cash equivalents and restricted cash with financial
institutions with high-credit ratings and quality.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Concentrations of credit risk
continued
The Group conducts ongoing credit evaluations of its customers and generally does not
require collateral or other security from its customers except for the accounts
receivable-margin clients which represents the margin loan to customers for securities
purchase. The accounts receivable-margin client was collateralized by the securities the
margin client purchased. The Group manages its credit risk by collecting up-front fee from
its customers and billing at regular intervals during the contract period. The Group
assesses the adequacy of allowance for doubtful accounts primarily based upon the age of the
receivables and factors surrounding the credit risk of specific customers.
Details of clients accounting for 10% or more of accounts receivable are as follows:
Year ended December 31,
2009
2010
Amount
%
Amount
%
$
$
1,498,895
12.8
$
1,027,365
19.1
$
1,444,874
12.3
$
617,365
11.5
$
These clients are all margin clients who have collateralized the securities they purchase to
the Group.
There were no customers with 10% or more of the Groups revenues during 2008, 2009, or 2010.
Recently issued accounting pronouncements not yet adopted
On January 21, 2010, the FASB issued authoritative guidance to improve disclosures about
fair value measurements. This guidance amends previous guidance on fair value measurements
to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and
separate disclosures about purchases, sales, issuances, and settlements relating to Level 3
measurement on a gross basis rather than as a net basis as currently required. This
guidance also clarifies existing fair value disclosures about the level of disaggregation
and about inputs and valuation techniques used to measure fair value. This guidance is
effective for annual and interim periods beginning after December 15, 2009, except for the
requirement to provide the Level 3 activities of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for annual and interim periods
beginning after December 15, 2010. Early application is permitted and in the period of
initial adoption, entities are not required to provide the amended disclosures for any
previous periods presented for comparative purposes. The Group does not expect the adoption
of this pronouncement will have a significant effect on its consolidated financial position
or results of operations.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Recently issued accounting pronouncements not yet adopted
continued
In April 2010, the FASB issued an authoritative pronouncement regarding the milestone method
of revenue recognition. The scope of this pronouncement is limited to arrangements that
include milestones relating to research or development deliverables. The pronouncement
specifies guidance that must be met for a vendor to recognize consideration that is
contingent upon achievement of a substantive milestone in its entirety in the period in
which the milestone is achieved. The guidance applies to milestones in arrangements within
the scope of this pronouncement regardless of whether the arrangement is determined to have
single or multiple deliverables or units of accounting. The pronouncement will be effective
for fiscal years, and interim periods within those years, beginning on or after June 15,
2010. Early application is permitted. Companies can apply this guidance prospectively to
milestones achieved after adoption. However, retrospective application to all prior periods
is also permitted. The Group does not expect the adoption of this pronouncement will have
a significant impact on its consolidated financial position or results of operations.
In December 2010, the FASB issued an authoritative pronouncement on when to perform Step 2
of the goodwill impairment test for reporting units with zero or negative carrying amounts.
The amendments in this update modify Step 1 so that for those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it is more likely than not
that a goodwill impairment exists. In determining whether it is more likely than not that
goodwill impairment exists, an entity should consider whether there are any adverse
qualitative factors indicating that an impairment may exist. The qualitative factors are
consistent with existing guidance, which requires that goodwill of a reporting unit be
tested for impairment between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its carrying
amount. For public entities, the guidance is effective for impairment tests performed
during entities fiscal years (and interim periods within those years) that begin after
December 15, 2010. Early adoption will not be permitted. For nonpublic entities, the
guidance is effective for impairment tests performed during entities fiscal years (and
interim periods within those years) that begin after December 15, 2011. Early application
for nonpublic entities is permitted; nonpublic entities that elect early application will
use the same effective date as that for public entities. The Group does not expect the
adoption of this pronouncement will have a significant effect on its consolidated financial
position or results of operations.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Recently issued accounting pronouncements not yet adopted
continued
In December 2010, the FASB issued an authoritative pronouncement on disclosure of
supplementary pro forma information for business combinations. The objective of this
guidance is to address diversity in practice regarding the interpretation of the pro forma
revenue and earnings disclosure requirements for business combinations. The amendments in
this update specify that if a public entity presents comparative financial statements, the
entity should disclose revenue and earnings of the combined entity as though the business
combination(s) that occurred during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. The amendments also expand the supplemental
pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. The amendments affect any public
entity as defined by Topic 805 that enters into business combinations that are material on
an individual or aggregate basis. The amendments will be effective for business
combinations consummated in periods beginning after December 15, 2010, and should be applied
prospectively as of the date of adoption. Early adoption is permitted. The Group does not
expect the adoption of this pronouncement will have a significant effect on its consolidated
financial position or results of operations.
3.
ACQUISITIONS
To expand its market share during 2008, 2009 and 2010, China Finance Online made a number of
acquisitions of businesses. Each acquisition has been recorded using the purchase method of
accounting, and accordingly the acquired assets and liabilities were recorded at their fair
values on the dates of acquisitions and the results of their operations have been included
in the Groups results of operations since the dates of their acquisitions.
Acquisition of CFO Chuangying
On January 9, 2009, CFO Software, one subsidiary of the Company, entered into a series of
contractual arrangements with CFO Chuangying, which is a China Securities Regulatory
Commission or CSRC licensed securities investment advisory firm. As a result of the
contractual arrangements, the Group became the primary beneficiary of CFO Chuangying. (see
Note 1). For the acquisition, the total cash consideration was $585,112, of which, $563,145
was paid in 2009 and the remaining consideration of $21,967 was paid in 2010. The purchase
price was allocated to assets acquired and liabilities assumed as of the acquisition day as
follows and the goodwill was allocated to subscription services and other related services
operating segment.
Useful life
$
549,758
15 years
549,758
(137,440
)
412,318
172,794
585,112
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
3.
ACQUISITIONS continued
Acquisition of CFO Securities Consulting
On November 5, 2009, CFO Chongzhi, one VIE of the Group acquired 80% of the equity interest
of CFO Securities Consulting, which is a CSRC licensed securities investment advisory firm.
For the acquisition, the total cash consideration was $1,328,040, of which, $1,260,672 was
paid in 2009 and the remaining consideration of $67,368 was paid in 2010. Following an
independent valuation performed by American Appraisal China Limited, the Group allocated the
purchase price to assets acquired and liabilities assumed as of the acquisition day as
follows and the goodwill was allocated to subscription services and other related services
operating segment.
Useful life
$
8,282
222,317
350,191
15 years
900,596
15 years
1,481,386
(312,697
)
(261,660
)
907,029
421,011
1,328,040
On November 9, 2010, CFO Chongzhi contributed additional capital of $3,762,227 (equivalent
to RMB25,000,000) in CFO Securities Consulting, consequently, the Groups beneficial
interest in CFO Securities Consulting increased from 80% to 92.5%. On November 17, 2010 and
December 20, 2010 CFO Chongzhi acquired the remaining 5% and 2.5% equity interest in CFO
Securities Consulting for total cash consideration of $383,126. The difference of $377,893
between the carrying value of noncontrolling interest and the total cash consideration was
recorded as additional paid-in capital on the consolidated balance sheet. Since then, the
Group became the 100% beneficiary of CFO Securities Consulting.
The Net income attributable to China Finance Online Co. Limited and transfers from the
noncontrolling interest as of December 31, 2010 is as below:
2010
$
1,960,122
(377,893
)
1,582,229
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
3.
ACQUISITIONS continued
Acquisition of CFO Newrand
On October 17, 2008, CFO software, entered into a series of contractual arrangements with
CFO Newrand, which is a CSRC licensed securities investment advisory firm. As a result of
the contractual arrangements, the Group became the primary beneficiary of CFO Newrand. (see
Note 1). For the acquisition, the total cash consideration was $3,826,296, of which,
$3,709,037 was paid in 2008 with the remaining consideration of $117,259 paid in 2009. The
purchase price was allocated to assets acquired and liabilities assumed as of the
acquisition day as follows and the goodwill was allocated to subscription services and other
related services operating segment.
Useful life
$
1,521,109
1,183,926
15 years
440,496
15 years
3,145,531
(406,106
)
2,739,425
1,086,871
3,826,296
Acquisitions of Huifu Jinyuan Co., Ltd & Zhongcheng Futong Co., Ltd
On October 22, 2008 and October 29, 2008, CFO Software entered into a series of contractual
arrangements with Huifu Jinyuan Co., Ltd (CFO Huifu) and Zhongcheng Futong Co., Ltd (CFO
Zhongcheng ), respectively. As a result of the contractual arrangements, the Group became
the primary beneficiary of CFO Huifu and CFO Zhongcheng. For the forementioned
acquisitions, the total cash considerations were $255,974, and $202,359 was recorded on the
consolidated balance sheet as goodwill which was allocated to subscription services and
other related services operating segment.
Acquisition of Daily Growth Securities
In March 2008, the Group injected further capital of $11,565,000 (equivalent to
HK$90,000,000) in Daily Growth Securities; consequently, the Groups equity interest in
Daily Growth Securities increased from 85% to 98.5%. On May 15, 2008, the Company acquired
the remaining 1.5% equity interest in Daily Growth Securities for a cash consideration of
$678,073 including $61,405 in transaction costs and recorded $456,501 as goodwill on the
consolidated balance sheet by which Daily Growth Securities became wholly owned by the
Company.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
3.
ACQUISITIONS continued
The following summarized unaudited pro forma results of operations for the years ended
December 31, 2008 and 2009 assuming that all significant acquisitions during the year ended
December 31, 2008 and 2009 occurred as of January 1, 2008 and 2009, respectively. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the significant acquisitions occurred as of January
1, 2008 and 2009, nor is it indicative of future operating results.
For the years ended December 31
2008
2009
(unaudited)
(unaudited)
$
56,371,385
$
53,605,878
$
18,858,118
$
(6,318,295
)
$
0.19
$
(0.06
)
$
0.17
$
(0.06
)
Fair value of acquired assets
The Group measured the fair value for the assets acquired, with the assistance of American
Appraisal, an independent valuation firm, using discounted cash flow techniques, and these
assets were classified as Level 3 assets because the Group used unobservable inputs to value
them, reflecting the Groups assessment of the assumptions market participants would use in
valuing these purchased intangible assets.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
4.
ACCOUNTS RECEIVABLE
December 31,
2009
2010
2,724,456
8,095,396
$
2,724,456
$
8,095,396
2,676,136
3,670,692
(31,440
)
(36,039
)
$
2,644,696
$
3,634,653
Accounts receivable- margin clients represent the receivables derived in the brokerage
service in Daily Growth Securities, which is pledged by the customers purchased securities.
Accounts receivable-others represent the receivables derived in other ordinary business
without any collateral or other security from its customers.
5.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
December 31,
2009
2010
$
526,492
$
170,018
261,460
134,341
212,294
84,350
805,212
1,209,399
817,532
975,066
175,434
81,031
409,194
632,061
1,073,519
791,132
$
4,281,137
$
4,077,398
Notes:
(i)
The advertising deposit represents amounts of deposit paid to advertising
agent, which is expected to be refunded within a year.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
6.
TRADING SECURITIES
The Group purchased trading securities in 2009 and 2010. The Group measured the trading
securities at fair value based on quoted market prices in an active market. As a result the
Group has determined the valuation of its trading securities falls within Level 1 of the
fair value hierarchy. As of December 31, 2010, the fair value of trading securities was
$31,272. Gains and losses on the trading securities are recognized in the consolidated
statement of operations for the years ended December 31, 2009 and 2010 were $40,574 and
$1,138,147, respectively.
7.
COST METHOD INVESTMENT
In December 2005, the Group purchased 9,800,000 Series B preferred shares in Moloon for
$15,000,000, which represents a 25% interest in Moloon on an if-converted basis. China
Finance Onlines investment in these preferred shares was not in-substance common stock, and
accordingly, the investment has been recorded as a cost method investment.
In April 2006, the Group sold part of its investment in Moloon to a third party for a cash
consideration of $1,187,500 and reduced the Groups investment in Moloons preferred shares
to 9,100,000 shares.
Moloon is a Chinese wireless technology and service provider. In 2006, China Mobile
Communication Corporation, primarily through which Moloon provided its MVAS service to its
customers, announced policy changes which had a substantial negative impact on Moloons MVAS
business. Following an independent valuation prepared by American Appraisal China Limited,
the Group determined that its investment in Moloon was impaired and recorded an impairment
loss of $1,322,000.
Thereafter, in 2007 Moloon adopted new strategies to transform itself into a provider of
mobile online gaming services in China. However, despite the new strategies Moloons
financial conditions have deteriorated and, following an independent valuation prepared by
American Appraisal China Limited, the Group determined that its investment in Moloon was
further impaired and recorded an additional impairment loss of $11,127,000 in 2007, reducing
the carrying balance of such investment to $1,479,571. There was no further impairment of
the Groups cost method investment in Moloon for the year ended December 31, 2008 and 2009.
In August 2010, Moloon was wholly acquired by Ocean Butterflies Holdings Inc., a private and
independent music and entertainment production company incorporated in the Cayman Islands
(Ocean Butterflies Holdings ), in the form of shares exchange between Moloon and Ocean
Butterflies Holdings (the Share Swap Transaction). As a result of the Share Swap
Transaction, the Group holds 7,439,479 ordinary shares of Ocean Butterflies Holdings, which
represents 16.82% of shares in Ocean Butterflies Holdings. The investment is still recorded
as a cost method investment.
Following an independent valuation performed by American Appraisal China Limited, there was
no impairment of the Groups cost method investment in Ocean Butterflies Holdings Inc. for
the year ended December 31, 2010.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
8.
PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of:
December 31,
2009
2010
$
7,759,146
$
8,196,351
1,874,318
1,786,148
2,384,253
2,776,313
645,517
665,547
2,667,512
3,122,796
15,330,746
16,547,155
(5,062,266
)
(8,270,880
)
$
10,268,480
$
8,276,275
Depreciation expense for the years ended December 31, 2008, 2009, and 2010 were $1,794,368,
$2,495,028, and $3,048,634, respectively.
9.
ACQUIRED INTANGIBLE ASSETS, NET
Acquired intangible assets, net, arose from the acquisitions of CFO Genius, CFO Meining,
CFO-Stockstar, CFO Newrand, Daily Growth Securities, CFO Zhongcheng, CFO Chuangying and CFO
Securities Consulting and from the establishment of Daily Growth Futures during 2006 through
2010 and consisted of the following:
December 31,
2009
2010
$
843,561
$
869,736
64,475
64,241
64,475
64,241
850,883
877,286
686,857
708,170
27,094
27,934
12,155
12,533
3,426,717
3,533,047
73,226
75,498
6,049,443
6,232,686
(1,270,342
)
(1,883,505
)
$
4,779,101
$
4,349,181
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
9.
ACQUIRED INTANGIBLE ASSETS, NET continued
Amortization expense for the years ended December 31, 2008, 2009 and 2010 was $344,777,
$492,066 and $561,392, respectively. Future amortization expenses of acquired intangible
assets with determinable lives are $444,708, $243,086, $243,086, $243,086 and $2,176,997 for
2011, 2012, 2013, 2014 and 2015 and thereafter, respectively.
10.
GOODWILL
Changes in goodwill for the years ended December 31, 2008, 2009 and 2010 were as follows:
Southern
Eastern
Northern
China
China
China
Hong Kong
Total
2,330,274
8,210,504
202,759
1,274,975
12,018,512
421,011
172,794
593,805
(1,945
)
(6,886
)
35
(822
)
(9,618
)
2,328,329
8,624,629
375,588
1,274,153
12,602,699
72,247
267,620
11,654
(4,633
)
346,888
2,400,576
8,892,249
387,242
1,269,520
12,949,587
The Group performs the annual impairment tests on December 31 of each year. Based on
impairment test performed, no impairment of goodwill was recorded during the years ended
December 31, 2008, 2009 and 2010, respectively.
11.
BANK FACILITIES AND SHORT-TERM LOANS
The Group obtained a term loan facility amount up to $2,569,637 and a revolving loan
facility amount up to $10,150,067 from a bank. The facilities are guaranteed by a standby
letter of credit, which is secured by the Groups restricted cash of $14,533,347. As of
December 31, 2010, $6,424,093 of loans was outstanding under such loan facilities. The
outstanding loans have the interest margin, which is 1.8%, plus Hong Kong Interbank Offered
Rate ranging from 0.08% to 0.24%. The facilities will be matured in July 2011.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
12.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of:
December 31,
2009
2010
$
4,355,130
$
5,402,453
436,834
476,282
144,979
61,653
444,278
879,983
487,461
685,246
308,566
593,698
131,603
64,536
519,763
99,593
288,123
252,898
1,328,554
89,335
1,038,795
993,467
$
8,244,867
$
10,838,363
(i)
In October 2010, the CSRC promulgated the Provisional Regulations on Securities Investment
Advisory and Provisional Regulations on Issuance of Securities Research Reports (collectively
referred to as the New Regulations), which will be effective on January 1, 2011.
The New Regulations allow securities investment advisory companies to provide advisory services for securities and
related products under the framework of the provisional regulations and receive service compensation.
The New Regulations prohibit the activities of those participants without licenses, thus benefitting
the Company which has the licenses.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
The New Regulations also allow the customer to terminate the service with securities investment
advisory company within five days after the service agreement is signed and request refund
of the subscription fee. It further emphasizes that the customer must take full responsibility
of its own investment decision, rather than the advisory company.
The Company has noticed
certain customers claimed for refund of the subscription fee which were received by the
Company in 2010, in excuse of not fully realizing the risks associated with their own investment
decisions prior to the implementation of the New Regulations. In consideration of the transitory
period of the New Regulations and the Companys business from a long-term perspective, the
Company made a $1,328,554 accrual based on the actual requests from customers and the estimation of
future refund in the year of 2011. The estimated refund was recorded as reduction of revenue in relation
to the subscription fee of 2010 or deferred revenue depending on whether or not the service has been
provided.
13.
STOCK OPTIONS AND NONVESTED SHARES
As of December 31, 2010, the Company and its subsidiary Daily Growth Holding have three
share-based compensation plans, which are described below. The compensation cost that has
been charged against income for those plans was $8,040,150, $6,600,716, and $4,519,671 for
2008, 2009, and 2010, respectively.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
13.
STOCK OPTIONS AND NONVESTED SHARES continued
In January 2004, the Company adopted the 2004 stock incentive plan (the 2004 Plan) which
allows the Company to offer a variety of incentive awards to employees, directors, officers
and other eligible persons in the Group, and consultants and advisors outside the Group.
Options to purchase 5,688,488 ordinary shares are authorized under the Plan. In September
2004 and December 2006, the Company increased the total number of ordinary shares available
for issuance under the 2004 Plan by an additional 10,000,000 shares. In June 2009, the
shareholders approved the increase in the number of ordinary shares available for issuance
under the 2004 Plan by 3,000,000 ordinary shares. In June 2010, the Companys shareholders
approved the increase in the number of ordinary shares available for issuance under the 2004
Plan by 3,000,000 ordinary shares annually until December 31, 2014. As a result the total
number of ordinary shares authorized under the 2004 Plan was 21,688,488 as of December 31,
2010.
Options to employees
In 2008, the Company granted totaling 2,820,840 stock options to officers and employees at
an exercise price that equaled the trading price of the stock upon the stock option grant.
These options vest over 3 years.
In 2009, the Company granted totaling 10,000 stock options to an employee at an exercise
price that equaled the trading price of the stock upon the stock option grant. These
options vest over 3 years.
In 2010, the Company granted totaling 3,562,000 stock options to employees at an exercise
price that equaled the trading price of the stock upon the stock option grant. These
options vest over 3 years.
The fair value of employee options was estimated on the basis of the Black-Scholes Option
Pricing model with the following assumptions:
Years ended December 31,
2009
2010
2.03
%
1.11%-2.47
%
5.98 years
5.98 years
57.92
%
54.37%-57.06
%
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
13.
STOCK OPTIONS AND NONVESTED SHARES continued
Options to employees
continued
(1)
Expected volatility
The volatility of the underlying ordinary shares during the life of the options was
estimated based on the historical stock price volatility of the Company and listed
comparable companies over a period comparable to the expected term of the options.
(2)
Risk-free interest rate
Risk-free interest rate was estimated based on the yield to maturity of treasury
bonds of the United States with a maturity period close to the expected term of the
options.
(3)
Expected option life
The Group used the simplified method to estimate the expected life.
(4)
Dividend yield
The dividend yield was estimated by the Company based on its expected dividend policy
over the expected term of the options.
(5)
Exercise price
Options are generally granted at an exercise price equal to the fair market value of
the Companys shares at the date of grant.
In October and December 2008, ten employees of the Company surrendered their rights to
purchase in total of 970,000 ordinary shares of the Company at the exercise price ranged
from $2.44 to $3.134 pursuant to the 2004 Plan. On December 1, 2008, the Company granted
new options to purchase 970,000 ordinary shares at the exercise price of $1.26 to the ten
employees which will vest in 3 years pursuant to the 2004 Plan. The foregoing was accounted
for as a modification of the share based compensation awards. An incremental compensation
cost of $76,200 arising from the modification was measured at the excess of the fair value
of the new options at the grant date over the fair value of the options surrendered by the
ten employees at the date of modification. The total unrecognized compensation cost of
$1,122,361, which was the sum of the remaining unrecognized share based compensation amount
of $1,046,161 of the original awards and the incremental cost resulting from the
modification as of the modification date, was recognized over the requisite service period
of the newly granted option awards.
Options to non-employees
The Company granted 6,919,500 and 350,000 stock options to non-employees in 2004 and 2005,
respectively. All of the options have vested as of December 31, 2008.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
13.
STOCK OPTIONS AND NONVESTED SHARES continued
2008
2009
2010
Weighted
Weighted
Weighted
Number
average
Number
average
Number
average
of options
exercise price
of options
exercise price
of options
exercise price
10,557,568
$
0.84
11,439,978
$
0.91
10,834,298
$
0.87
2,820,840
$
1.79
10,000
$
1.65
3,562,000
$
1.43
(829,670
)
$
0.69
(236,480
)
$
0.80
(637,720
)
$
1.12
(138,760
)
$
1.00
(69,360
)
$
1.22
(655,340
)
$
1.27
(970,000
)
$
2.81
(309,840
)
$
2.03
11,439,978
$
0.91
10,834,298
$
0.87
13,103,238
$
0.99
7,903,538
$
0.80
9,439,258
$
0.82
9,316,838
$
0.82
The following table summarizes information with respect to stock options outstanding at
December 31, 2010:
Options outstanding
Option exercisable
Aggregate
Aggregate
Weighted
Weighted
intrinsic
Weighted
intrinsic
average
average
value as of
average
value as of
Number
remaining
exercise
December 31,
Number
exercise
December 31,
outstanding
contractual life
price
2010
exercisable
price
2010
2,845,738
2,845,738
200,000
200,000
1,435,100
1,435,100
27,000
27,000
400,000
400,000
200,000
200,000
700,000
700,000
2,699,000
2,699,000
100,000
100,000
123,600
123,600
886,800
582,800
10,000
3,600
3,426,000
50,000
13,103,238
5.31 years
$
0.99
$
4,563,063
9,316,838
$
0.82
$
4,549,079
The weighted-average grant-date fair value of options granted during the years 2008, 2009
and 2010 was $1.04, $0.91 and $0.78, respectively. The total intrinsic value of options
exercised during the years ended December 31, 2008, 2009 and 2010 was $594,813, $155,880,
and $115,985, respectively.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
13.
STOCK OPTIONS AND NONVESTED SHARES continued
Summary of stock options to employees and non-employees
continued
As of December 31, 2010, 3,760,100 ordinary shares were available for future grant of
awards. The Company recognized share-based compensation expenses of $1,217,980, $1,290,446
and $ 1,765,437 for stock option in the years ended December 31, 2008, 2009 and
2010, respectively.
As of December 31, 2010, there was $1,342,249 unrecognized share-based compensation expenses
relating to the stock options, which is expected to be recognized over a weighted average
period of 2 years.
In July 2007, the Company adopted the 2007 Equity incentive plan (the 2007 Plan) and
granted nonvested shares covering 10,558,493 ordinary shares of the Company to the employees
who were eligible for the 2007 Plan. The vesting of the nonvested shares are subject to
achieving certain operating performance targets and rendering service to the Company for the
requisite service period stated in the 2007 Plan.
The grant date fair value of a nonvested share was measured at the quoted market price of
the Companys equity shares. The nonvested shares shall become vested during the three
years following the grant date from July 2007 to June 2010 based on the Companys certain
operating performance targets for the years 2008 and 2009. Based on the Companys operating
performance during 2008 and 2009, 4,329,024, 2,886,016 and 1,443,008 shares were vested in
2008, 2009 and 2010.
The Company recognized a compensation expense of $6,822,170, $5,310,270 and $2,655,135 for
the nonvested shares in 2008, 2009 and 2010, respectively.
In 2009, in light of the significant global economic downturn and its impact on the Groups performance, the board approved the Amended Restricted Stock Issuance and Allocation Agreement
(the Amended Agreement), which was executed on July 1, 2010 to extend the performance period and the vesting term. Under the Amended Agreement,
there were 1,900,445 granted nonvested shares, which were not vested due to the operating
performance targets for 2008 and 2009 were not achieved, became eligible for vesting if the
Company can achieve the new performance targets for 2010, 2011 or 2012. The change of
performance target was accounted for as a modification of the terms of the nonvested share
award, and no other terms or conditions of the award were modified. Immediately before the
modification, the share based compensation expense of the 1,900,445 nonvested shares that
expected to be recognized over the vesting period was zero. As the Company continues to
believe that it is not probable that the new performance targets will be achieved,
therefore, there is no incremental compensation cost associated with the modification.
There was no share based compensation expense recognized in 2010 after the modification date
due to the new performance target of 2010 was not achieved.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
13.
STOCK OPTIONS AND NONVESTED SHARES continued
A summary of the status of the nonvested shares as of December 31, 2008, 2009 and 2010, and
changes during the year ended December 31, 2010 is presented below.
Weighted-
average grant/
Aggregate
modification
intrinsic
Nonvested shares
Shares
date fair value
value
10,558,493
1.84
46,246,199
(4,329,024
)
(6,086,608
)
6,229,469
1.84
8,758,633
(2,886,016
)
(5,520,949
)
3,343,453
1.84
4,881,441
(1,443,008
)
(2,117,855
)
1,900,445
1.43
2,481,981
In November 2010, Daily Growth Holdings, a subsidiary of the Company, implemented the 2010
equity incentive plan (the plan) under which the Company transferred 1,500 nonvested shares which representing 15% of total Daily Growth Holdings equity interest to its
management group as a share incentive. If the grantees left the
Company before the third anniversary of the grant date when the nonvested shares become vested,
they should transfer the shares to the Company at no
consideration. Therefore, the total share based compensation expenses are recognized ratably
over the three years of vesting period. In addition, as the grantees are entitled to all
the shareholders rights, including the dividend rights since the date of grant, the 15%
share of the earnings of Daily Growth Holdings is recognized as noncontrolling interest on
the Companys consolidated financial statements since November 1, 2010, the date of grant.
The fair value of the share incentive was determined to be $1,188 per share. The Group
recognized $99,099 share based compensation cost for the year ended December 31, 2010.
As of December 31, 2010, there was $1,683,378 unrecognized compensation cost relating to
nonvested shares, which is expected to be recognized over a weighted average period of 3
years.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
14.
INCOME TAXES
Hong Kong
China Finance Online, Daily Growth Securities, Daily Growth Futures, Daily Growth Wealth
Management, Daily Growth Investment Services, CFO HK Genius and other five subsidiaries were
established in Hong Kong. These companies were subject to Hong Kong profit tax at 16.5%.
These companies have not recorded tax provision for Hong Kong profits tax as there were no
assessable profits arising in or derived from Hong Kong.
British Virgin Islands
Companies that were incorporated in the BVI are not subject to taxation in their country of
incorporation. Subsidiaries incorporated in the BVI include Daily Growth Holdings and other
five subsidiaries.
PRC
The Groups PRC entities are subject to 25% PRC Enterprise Income Tax (EIT) on the taxable
income in accordance with the relevant PRC income tax laws, except for certain entities that
enjoy preferential tax rates, which are lower than the statutory rates, as described below.
Under the EIT Law and its implementing rules, an enterprise which qualifies as a high and
new technology enterprise (the HNTE) is entitled to a tax rate of 15%. CFO Software, CFO
Meining and CFO Genius obtained the HNTE status in 2008.
Under the EIT law and its implementing rules, enterprises that obtain status of Software
Enterprises are entitled to be exempted from EIT tax for the first two profit-making years
and enjoy a preferential 12.5% tax rate, which is half of the standard EIT rate of 25% for
the three years thereafter.
A summary of the main PRC entities that subject to tax preferential policies for the year
ended December 31, 2010 is as follows:
PRC entities
Chinese enterprise income tax rate
Qualification for preferential tax rate
Full tax exemption for the year 2008 and 2009 and a preferential tax rate of 12.5% from 2010 to 2012.
Software Enterprises
Full tax exemption for the years 2010 and 2011, and preferential tax rate of 12.5% from 2012 to 2014
Software Enterprises
Full tax exemption for the years 2010 and 2011, and preferential tax rate of 12.5% from 2012 to 2014
Software Enterprises
Full exemption for the year 2008 and preferential tax rate of 10%, 11% and 12% from 2009 to 2011.
Software Enterprises
Transition tax rate 22%, 24% for 2010, 2011 and 25% from 2012 and thereafter.
Transition rules of the EIT Law
Transition tax rate 22%, 24% for 2010, 2011 and 25% from 2012 and thereafter.
Transition rules of the EIT Law
Transition tax rate 22%, 24% for 2010, 2011 and 25% from 2012 and thereafter.
Transition rules of the EIT Law
Preferential tax rate of 7.5% from 2008 to 2010.
HNTE and local tax policy to apply 50% reduced tax rate
Preferential tax rate of 15% from 2008 to 2010.
HNTE
Preferential tax rate of 15% from 2008 to 2010.
HNTE
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
14.
INCOME TAXES continued
PRC
continued
The HNTE status obtained by CFO Software, CFO Meining and CFO Genius in 2008 under the EIT
Law is valid for three years and qualifying entities can then apply to renew for an
additional three years provided their business operations continue to qualify for the HNTE
status. The Group assumed its qualifying entities will continue to obtain the renewal in
the future. Accordingly, in calculating deferred tax assets and liabilities, the Group
assumed its qualifying entities will continue to renew the HNTE status at the conclusion of
the initial three year period.
CFO Chongzhi, CFO
Zhongcheng and Shanghai Shangtong Co., Ltd. (CFO-Shangtong) are approved by the local tax
authority in 2009 and 2010 to file their income tax by adopting the deemed-profit method.
Under this method, the three entities filed their income tax by calculating as 2.5% of the
gross revenues. This method is subject to be reevaluated by the local tax authority in the
future.
The EIT Law includes a provision specifying that legal entities organized outside of the PRC
will be considered residents for PRC Income tax purposes if the place of effective
management or control is within the PRC. The implementation rules to the EIT Law provide
that non-resident legal entities will be considered PRC residents if substantial and overall
management and control over the manufacturing and business operations, personnel,
accounting, properties, etc, occurs within the PRC. Despite the present uncertainties
resulting from the limited PRC tax guidance on the issue, the Group does not believe that
currently the legal entities organized outside of the PRC within the Group should be treated
as residents for EIT law purposes. If the PRC tax authorities subsequently determine that
the Company and its subsidiaries registered outside the PRC should be deemed a resident
enterprise, the Company and its subsidiaries registered outside the PRC will be subject to
the PRC income tax at a rate of 25%.
If the Company were to be non-resident for PRC tax purpose, dividends paid to it out of
profits earned after January 1, 2008 would be subject to a withholding tax. In the case of
dividends paid by PRC subsidiaries the withholding tax would be 10% not considering the
arrangements for the Avoidance of Double Taxation on income and Prevention of Fiscal
Evasion with respect to Taxes on Income between mainland and Hong Kong.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
14.
INCOME TAXES continued
PRC
continued
Aggregate undistributed earnings of the Groups subsidiaries located in PRC that are taxable
upon distribution to the Group are considered to be indefinitely reinvested because the
Group does not have any present plan to pay any cash dividends on its ordinary shares in the
foreseeable future and intends to retain most of its available funds and any future earnings
for use in the operation and expansion of its business. Accordingly, no deferred tax
liability has been accrued for the Chinese dividend withholding taxes that would be payable
upon the distribution of those amounts to the Company as of December 31, 2010.
Income tax (provision) benefit was as follows:
December 31,
2008
2009
2010
$
(153,261
)
$
(471,120
)
$
(362,861
)
3,200,390
917,284
99,475
$
3,047,129
$
446,164
$
(263,386
)
The principal components of deferred income taxes were as follows:
December 31,
2009
2010
$
2,852,510
$
2,785,595
200,775
828,746
183,525
19,779
3,236,810
3,634,120
$
1,829,496
$
1,680,936
2,321,949
4,038,354
4,151,445
5,719,290
(2,272,602
)
(4,038,354
)
$
1,878,843
$
1,680,936
(994,573
)
(966,689
)
$
(994,573
)
$
(966,689
)
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
14.
INCOME TAXES continued
PRC
continued
A valuation allowance of $2,272,602 and $4,038,354 was established as of December 31, 2009
and 2010, respectively, for the entities that have incurred losses because the Group
believes that it is more likely than not that the related deferred tax assets will not be
realized in the future. At December 31, 2010, operating loss carry forwards includes
approximately $13.2 million which will expire by 2015, and $7.3 million which will carry
forward indefinitely.
A reconciliation between the statutory PRC enterprise income tax rate of 25% and the
effective tax rate is as follows:
Years ended December 31,
2008
2009
2010
%
%
%
25.0
(25.0
)
25.0
(74.3
)
(38.2
)
(221.8
)
1.3
2.6
9.7
39.0
45.9
143.2
(7.9
)
(14.4
)
(32.2
)
(2.2
)
22.4
89.9
(19.1
)
(6.7
)
13.8
During the years ended December 31, 2008, 2009 and 2010, if the China Finance Onlines
subsidiaries in the PRC were neither in the tax holiday period nor had they been
specifically allowed special tax concessions, they would have recorded additional income tax
expense of $11,660,280, $2,373,822 and 4,208,756, respectively. The impact of the tax
holidays on basic net income per ordinary share was an increase of $0.12, $0.02 and $0.04,
for the years ended December 31, 2008, 2009 and 2010, respectively.
The Group did not identify significant unrecognized tax benefits for the years ended
December 31, 2008, 2009 and 2010. The Group did not incur any interest and penalties
related to potential underpaid income tax expenses and also believed that the adoption of
pronouncement issued by FASB regarding accounting for uncertainty in income taxes did not
have a significant impact on the unrecognized tax benefits within 12 months from December
31, 2010.
Since September 2010, the relevant tax authorities of the Groups subsidiaries and VIEs have
not conducted a tax examination. In accordance with relevant PRC tax administration laws,
tax years from 2005 to 2010 of the Groups PRC subsidiaries and VIEs remain subject to tax
audits as of December 31, 2010, at the tax authoritys discretion.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
15.
AMERICAN DEPOSITARY SHARES (ADS) PLAN
In October 2005, the Group issued 2,000,000 ordinary shares to its American Depositary
Receipt bank and in exchange received 400,000 ADSs for purposes of future exercise of share
options by employees.
As of December 31, 2006, all 400,000 ADSs had been issued to employees who exercised their
options. In January 2006, the Group issued 3,000,000 ordinary shares to its American
Depositary Receipt bank and in exchange received 600,000 ADSs for purposes of future
exercise of share options by employees.
As of December 31, 2007, 905,256 American depositary shares (ADSs) had been issued to
employees and the remaining 94,744 ADSs continued to be held by the Group for future
exercises. These 94,744 ADSs represent 473,720 ordinary shares of the Group.
As of December 31, 2008, the remaining ADSs carried from 2007 were used for option exercise.
No ADS is outstanding for potential option exercises.
In June 2009, the shareholders approved the increase in the number of ordinary shares
available for issuance under the 2004 Plan by 3,000,000 ordinary shares.
In June 2010, the shareholders approved the increase in the number of ordinary shares
available for issuance under the 2004 Plan by 3,000,000 ordinary shares annually until
December 31, 2014.
16.
REPURCHASED SHARES
In year 2005, the Group repurchased 10,708,030 ordinary shares at prices ranging from $1.13
to $1.41 per share, including brokerage commission, for a total consideration of
$13,200,394. In year 2007, the Group granted 10,558,493 nonvested shares to employees out
of the repurchased shares. Therefore there were 149,537 repurchased shares at the end of
2007. In year 2008 and 2009, 95,950 and 750 repurchased shares were used for options
exercised by employees, respectively. Therefore, the number of the remaining repurchased
share as of December 31, 2008, 2009 and 2010 was 53,587, 52,837 and 52,837, respectively.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
17.
NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income (loss) per share
for the years indicated:
Years ended December 31,
2008
2009
2010
$
19,020,115
$
(6,219,743
)
$
1,960,122
98,957,993
105,203,564
108,247,552
14,026,539
5,877,470
112,984,532
105,203,564
114,125,022
$
0.19
$
(0.06
)
$
0.02
$
0.17
$
(0.06
)
$
0.02
As of December 31, 2008 and 2010, 1,491,776 options and zero nonvested shares, and 767,083
options and zero nonvested shares were excluded in computation of diluted net income per
share,respectively, because their effects were anti-dilutive. For year 2009, all of the
options and nonvested shares were anti-dilutive because the Group was in the loss position.
18.
MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION
Full time employees of the Group in the PRC participate in a government-mandated defined
contribution plan pursuant to which certain pension benefits, medical care, unemployment
insurance, employee housing fund and other welfare benefits are provided to employees.
Chinese labor regulations require the Group to accrue for these benefits based on certain
percentages of the employees salaries. The total provisions for such employee benefits
were $1,913,046, $3,228,517 and $3,898,237 for the years ended December 31, 2008, 2009 and
2010 respectively.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
19.
NONCONTROLLING INTEREST
Daily Growth
CFO Securities
Daily Growth
Securities
Consulting
Holdings
Total
471,431
471,431
(440,798
)
(440,798
)
(30,633
)
(30,633
)
261,660
261,660
(2,131
)
(2,131
)
259,529
259,529
(5,233
)
(5,233
)
14,865
14,865
(254,296
)
(71,667
)
(325,963
)
(56,802
)
(56,802
)
20.
COMMITMENTS
The Group leases certain office premises and purchases data under non-cancelable leases.
Rent expense under operating leases for 2008, 2009 and 2010 were $2,038,449, $2,970,407 and
$3,067,950, respectively.
Future minimum payments under non-cancelable operating leases and data purchase agreements
were as follows:
Year ending
3,981,040
1,331,688
276,728
91,409
$
5,680,865
21.
SEGMENT AND GEOGRAPHIC INFORMATION
The Group has two operating segments (1) online financial data subscription service and
other related services, (2) brokerage service. Operating segments are defined as components
of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision-makers in deciding how to allocate resources and
in assessing performance. The Groups chief executive officer and chief operating officer
have been identified as the chief operating decision makers. The Groups chief operating
decision makers direct the allocation of resources to operating segments based on the
profitability and cash flows of each respective segment.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
21.
SEGMENT AND GEOGRAPHIC INFORMATION continued
The Group evaluates performance based on several factors, including net revenue, cost of
revenue, operating expenses, income from operation. The accounting policies of the business
segments are the same as those described in Note 2: Summary of Significant Accounting
Policies. The following tables show the operations of the Groups operating segments:
For the year ended December 31, 2010
Subscription
services and
other related
Brokerage
services
services
Consolidated
$
56,712,796
$
3,003,246
$
59,716,042
8,098,809
398,336
8,497,145
10,976,571
2,231,766
13,208,337
13,027,879
13,027,879
25,241,232
1,749,861
26,991,093
49,245,682
3,981,627
53,227,309
514,113
514,113
(117,582
)
(1,376,717
)
(1,494,299
)
147,245,516
32,845,066
180,090,582
For the year ended December 31, 2009
Subscription
services and
other related
Brokerage
services
services
Consolidated
$
51,377,247
$
2,228,630
$
53,605,877
7,498,892
647,832
8,146,724
15,302,683
1,679,349
16,982,032
10,754,380
10,754,380
25,762,671
332,562
26,095,233
51,819,734
2,011,911
53,831,645
567,373
567,373
(7,374,006
)
(431,113
)
(7,805,119
)
137,075,374
28,534,063
165,609,437
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
21.
SEGMENT AND GEOGRAPHIC INFORMATION continued
For the year ended December 31, 2008
Subscription
services and
other related
Brokerage
services
services
Consolidated
$
55,286,219
$
956,549
$
56,242,768
(9,181,922
)
(185,221
)
(9,367,143
)
(14,055,716
)
(1,315,455
)
(15,371,171
)
(5,635,173
)
(5,635,173
)
(13,342,967
)
(177,328
)
(13,520,295
)
(33,033,856
)
(1,492,783
)
(34,526,639
)
436,946
436,946
13,507,387
(721,455
)
12,785,932
124,128,214
17,695,097
141,823,311
Enterprise wide disclose
The Group derives revenue from external customers for each of the following services during
the years presented:
Years ended December 31,
2008
2009
2010
$
50,598,929
$
47,201,162
$
49,518,331
2,946,389
3,985,699
7,031,219
956,549
2,228,630
3,003,246
1,740,901
190,386
163,246
$
56,242,768
$
53,605,877
$
59,716,042
Substantially all of the Companys revenues for the years ended December 31, 2008, 2009 and
2010 were generated from the PRC and Hong Kong.
As of December 31, 2008, 2009 and 2010, respectively, substantially all of long-lived assets
of the Group are located in the PRC and Hong Kong.
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(In U.S. dollars)
22.
STATUTORY RESERVES AND RESTRICTED NET ASSETS
PRC legal restrictions permit payments of dividends by the Groups PRC entities only out of
their retained earnings, if any, determined in accordance with PRC regulations. Prior to
payment of dividends, pursuant to the laws applicable to the PRC Domestic Enterprises and
PRC Foreign Investment Enterprises, the PRC entities must make appropriations from after-tax
profit to non-distributable statutory reserve funds as determined by the Board of Directors
of the Group. These reserve funds include the (1) general reserve, (2) enterprise expansion
fund and (3) staff bonus and welfare fund. Subject to certain cumulative limits, the general
reserve fund requires annual appropriations of not less than 10% of after-tax profit (as
determined under accounting principles and financial regulations applicable to PRC
enterprises at each year-end); the other two funds are to be made at the discretion of the
board of directors of each of the Groups subsidiaries.
These reserve funds can only be used for specific purposes and are not distributable as cash
dividends.
The appropriation to these reserves by the Groups PRC subsidiaries were $3,335,073, $nil
and $221,679 in 2008, 2009 and 2010.
The balance of the statutory reserves was 5,485,798 and 5,707,477 as of December 31 2009 and
2010. Such reserves have been included in the retained earnings of the Companys
consolidated balance sheet.
As a result of these PRC laws and regulations and the requirement that distributions by PRC
entities can only be paid out of distributable profits computed in accordance with PRC GAAP,
the PRC entities are restricted from transferring a portion of their net assets to the
Group. Amounts restricted include paid-in capital and the statutory reserves of the
Companys PRC subsidiaries and VIEs. As of December 31, 2010, the aggregate amounts
restricted which represented the amount of net assets of the relevant subsidiaries and VIEs
in the Group not available for distribution was $74,864,472. As a result of the above
restrictions, parent-only financials are presented on financial statement Schedule I.
23.
SUBSEQUENT EVENT
Grant of share option
On February 1
st
, 2011, the Company granted 200,000 options to an employee with an
exercise price of $1.14 per share.
Table of Contents
Financial information of Parent Company
Balance sheets
(In U.S. dollars, except share-related data)
December 31,
2009
2010
$
3,620,238
$
2,808,010
19,016,051
3,637,539
20,352
99,156
25,836,613
26,638,314
48,493,254
33,183,019
47,893,966
72,211,545
1,479,571
1,479,571
50,534
50,534
$
97,917,325
$
106,924,669
367,357
313,903
142,572
710,861
$
509,929
$
1,024,764
14,237
14,319
74,130,609
78,974,697
6,342,765
8,030,982
16,919,785
18,879,907
97,407,396
105,899,905
$
97,917,325
$
106,924,669
Table of Contents
Statements of operations
(In U.S. dollars)
December 31,
2008
2009
2010
$
$
$
139,276
(139,276
)
577,934
1,071,533
760,786
53,202
8,040,150
6,600,716
4,420,572
8,618,084
7,672,249
5,234,560
50,970
4,510
2,249
25,997,391
1,469,390
6,500,738
1,589,838
(21,394
)
830,971
$
19,020,115
$
(6,219,743
)
$
1,960,122
Table of Contents
Parent Company Statement of Shareholders Equity and Comprehensive Income
(In U.S. dollars, except share data)
Additional
Accumulated other
Total
Ordinary shares
paid-in
comprehensive
Retained
shareholders
Comprehensive
Shares
Amount
capital
income (loss)
earnings
equity
income
109,754,433
14,172
58,727,378
4,501,432
4,119,413
67,362,395
531,449
531,449
260,000
34
41,566
41,600
8,040,150
8,040,150
1,946,646
1,946,646
1,946,646
19,020,115
19,020,115
19,020,115
110,014,433
14,206
67,340,543
6,448,078
23,139,528
96,942,355
20,966,761
185,730
24
181,357
181,381
50,000
7
7,993
8,000
6,600,716
6,600,716
(105,313
)
(105,313
)
(105,313
)
(6,219,743
)
(6,219,743
)
(6,219,743
)
110,250,163
14,237
74,130,609
6,342,765
16,919,785
97,407,396
(6,325,056
)
637,720
82
717,175
717,257
4,420,572
4,420,572
84,234
84,234
(377,893
)
(377,893
)
1,688,217
1,688,217
1,688,217
1,960,122
1,960,122
1,960,122
110,887,883
14,319
78,974,697
8,030,982
18,879,907
105,899,905
3,648,339
Table of Contents
Statements of cash flows
(In U.S. dollars, except share-related data)
December 31,
2008
2009
2010
$
19,020,115
$
(6,219,743
)
$
1,960,122
8,040,150
6,600,716
4,420,572
(25,997,391
)
(1,469,390
)
(6,500,738
)
84,695
28,525
(78,804
)
(15,071,573
)
(105,742
)
(1,845,474
)
(1,541,036
)
31,836
(53,454
)
(47,217
)
129,250
568,289
(15,512,257
)
(1,004,548
)
(1,529,487
)
531,449
181,381
717,257
41,600
8,000
573,049
189,381
717,257
(2
)
(2
)
2
(14,939,210
)
(815,169
)
(812,228
)
19,374,617
4,435,407
3,620,238
$
4,435,407
$
3,620,238
$
2,808,010
Party A: Shenzhen Securities Information Co., Ltd SEAL: /s/company seal | ||||
Address: F6, Building 10, Shangbu Industrial Zone, Honglixi road, | ||||
Futian District, Shenzhen | ||||
|
Tel: 86-755-83276743 | Representative to sign: | ||
|
Fax: 86-755-83201393 | Date: March 7, 2011 | ||
Bank of deposit and account No.: Futian Branch of Merchants Bank | ||||
|
||||
Party B: Fortune Software (Beijing) Co., Ltd. SEAL: /s/company seal | ||||
Address: Floor 9, Tower C, Corporate Square, No. 35 Financial Street, | ||||
Xicheng District, Beijing 100033, China | ||||
|
Tel: 86-10-58325388 | Representative to sign: | ||
|
Fax: 86-10-58325300 | Date: March 7, 2011 |
*** | - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission |
|
By: | Shanghai Stock Exchange | ||||
|
Information Network Co., Ltd. |
*** | - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission |
2.2 |
Designated bank and account by Party A:
Bank: China Merchants Bank, Shanghai Branch, Jinqiao Sub-branch Name: Shanghai Stock Exchange Information Network Co., Ltd. Account No.: |
Party A: Shanghai Stock Exchange Information
Network Co., Ltd.
|
Party B: Fortune Software (Beijing) Co., Ltd. | |
|
||
(Signature or Seal) /s/
|
(Signature or Seal) /s/ | |
|
||
[COMPANY SEAL]
|
[COMPANY SEAL] | |
|
||
Date of Execution:
|
Date of Execution: |
*** | - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission |
Product/ Service | Product/Service | |||||||
Type | Name | Description | Quantity | Select | ||||
Satellite System
|
Shanghai Broadband
Satellite VSAT |
Subscribe by Party B
from Shanghai
Stock Communication Co., Ltd. |
One Set | Yes | ||||
Ground System
|
INTERNET Transmission | Provided by Party A, *** | One Set | Yes | ||||
|
Dedicated Line Transmission | Provided by Party A, *** | One Set | No |
Notes: | None |
Party A: Shanghai Stock Exchange Information
Network Co., Ltd.
|
Party B: Fortune Software (Beijing) Co., Ltd. | |
|
||
(Signature or Seal) /s/
|
(Signature or Seal) /s/ | |
|
||
[COMPANY SEAL]
|
[COMPANY SEAL] | |
|
||
Date of Execution:
|
Date of Execution: |
*** | - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission |
1. | Party B acknowledges that the Plus Information belongs to Party A, and it shall actively safeguard Party As legal rights and interests in its operational activities. |
2. | Party A shall, using its best efforts, procure the completeness, timeliness and accuracy of the Plus Information, and shall assist Party B in solving technique or business problems in the process of receiving the Plus Information. |
3. | Party B undertakes to manage the Plus Information subject to Party As authorized method and scope, and for the authorized purpose only. Unless otherwise permitted by Party A, Party B shall not distribute the Plus Information to a third party, neither shall it use the Plus Information for illegal purpose or for purposes other than the authorized ones. |
4. | Party A shall actively safeguard fair trading in the market place to procure a sound operational environment. It shall crack down the counterfeit behaviors or any misconduct in connection with the use of the Plus Information. |
5. | Party B consents to abide by the regulations, the detailed rules and other related rulings of Party A or its subordinate organs, further, Party B shall cooperate with Party A or its subordinate organs in its supervision or management regarding the related business. Provided Party B violates the related rulings and refuses to correct such default act, Party A is entitled to terminate sending through the Plus Information, and Party B shall be responsible for all the consequences hereto incurred. |
6. | The Parties agree to hold Party A harmless against all commercial risks occurred in connection with Party Bs operating the Plus Information, and against risks that might be incurred in connection with the use of the Plus Information by Party B or its customers. Party A shall actively assist Party B in settling the aforesaid disputes. |
7. | Under the circumstances that the Plus Information has any omit, mistake, leakage, delay or breakdown for whatever reasons, Party B shall actively assist Party A in solving the aforesaid events and eliminating the adverse effect hereto occurred and imposed thereby on Party A. |
8. | From the date this Agreement is executed till a time requested by Party A, Party B shall sign up a definite Proprietary Information License Agreement with Shenzhen Stock Exchange to procure a full License. Otherwise, Party A is entitled to terminate this Agreement and bears no legal liability. |
9. | Any dispute arising from the performance of this Agreement shall be resolved through amicable negotiation. Provided that the dispute can not be resolved through the aforesaid means, either Party may submit such dispute to the South Branch of China International Economic and Trade Arbitration Commission for arbitration. |
10. | This Agreement is executed in four counterparts with each party holding two copies, all the copies are equally authentic. This Agreement comes into effect on the date it is signed and stamped by the Parties, and will continue to be in force till the end of the probation period. |
1. | Amendment of 11.3 of Article 11 in the Original Agreement: change to After the License attached to the Original Agreement ( Original License )expires, the Original License shall automatically be renewed for successive period of 1 year each if both party make no objection in writing and Party B make payments as agreed; if Party B applies to make any amendment to the Original License other than the term of agreement and to be granted a new License, Party B shall make application in writing to Party A no less than 3 months before the License expires. |
2. | Amendment of 11.4 of Article 11 in the Original Agreement: change to Under the circumstances that Party B fails to make application in writing to apply for a new license, or Party A disagree to grant a new license to Party B, the Original License shall automatically be renewed for successive period of 1 year each if both party make no objection in writing and Party B make payments as agreed; either Party make objection to the Original License, this Agreement shall terminate accordingly, Party A shall cease providing CFFEX Futures Information to Party B and Party B shall not continue to use or dealing in CFFEX Futures Information. |
*** | - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission |
3. | Amendment of the first clause of o . Payment Method of Appendix 2 in the Original Agreement: change to 1. Party B shall pay the license fee to Party annually. Party B shall pay the license fee for the new licensed year of *** to the Bank and Account designated by Party A no less than 15 working days before the start of the new licensed year. |
4. | Party A classifies End Users of the 5 Prices Quotations into Full-price User and Free User: |
(1) | Full-price User: refers to the user who received Level-2 related services from Party Bs products of the same month and charged by Party B according to the PAYMENT AGREEMENT of the Party As Level-2 information set by Party A. The calculation of Full-price Users includes all End Users except the users recognized by Party A in writing as Free User. |
(2) | Free User: refers to the user who received Level-2 related services from Party Bs products of the same month and not charged by Party B as recognized by Party A in writing. Free Users include the two types below: |
a. | Users from China Securities Regulatory Commission and its subsidiaries or other users approved by Party A to be Free Users. |
b. | Party B can apply for up to 50 Free User to Party Bs internal employees. |
5. | Calculation of End Users of the 5 Prices Quotations |
*** | - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission |
*** | - indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission |
1. | CHAPTER ONE CONTRACT TERM | |
1.1 | Party A and Party B agree that the term of this Contract shall be as follows: |
(a) | Fixed Term: Three years, from June 21, 2010 to June 20, 2013 |
1.2 | If it is the Parties intention to continue performance under this Contract, either Party may inform the other of its or his intention to renew the Contract Term by a 30- day notice prior to the expiration of the Term. |
2. | CHAPTER TWO JOB RESPONSIBILITIES |
2.1 | The Company hereby employs Mr. Zhao to serve as the Companys CEO in consideration of its business needs. The scope and responsibilities of the CEO job include the following: |
(a) | To formulate and implement relevant policies, procedures and strategies to ensure the realization of the Companys business strategy; |
(b) | To establish a strong management system and strict internal control; |
(c) | To supervise all managing and financial activities to ensure their compliance with Chinese law and the Companys policy; |
(d) | To be responsible for timely submitting to the Board of Directors accurate reports on team management; |
(e) | To establish and direct a mechanism for solving business problems and to timely solve problems that may arise in the companys business operations; |
(f) | To establish and direct a mechanism for reducing costs and increasing efficiency; |
(g) |
To be responsible for the Companys business planning;
|
||
(h) | To participate in business development and strategic planning; |
(i) | To supervise and direct the work of the CFO, COO and other senior management officers; |
(j) | To carry out strategic acquisition, capital management, etc. pursuant to the requirements of the Board of Directors; |
(k) | To provide comments to the Board of Directors on business issues of the Company; |
(l) | Other responsibilities stipulated by the Board of Directors. |
2.2 | The CEO shall perform his duties diligently and competently pursuant to the requirements for the position. |
3. | CHAPTER THREE COMPENSATIONS AND STOCK OPTIONS |
3.1 | The salary of the CEO shall be Eight Hundred and Eighty Thousand Yuan (RMB 880,000) per annum (before tax). |
3.2 | The pay day of the Company will be between the first and the fifth days of each month and, if such days are during a holiday period, then the pay day will be the first working day after the holiday period. |
3.3 | The Companys employees shall pay personal income taxes pursuant to regulations of the government tax agency, and the Company shall withhold a corresponding amount from the monthly salary of each employee and pay that amount on behalf of the employee to the relevant tax agency. |
3.4 | In addition to what is provided for under the foregoing Article 3.3, the Company shall have the right to make other deductions from the employees salaries in accordance with laws and regulations of the State. |
3.5 | Party Bs compensations also include stock options, which will be spelled out in more details by the Compensation Committee of the company. |
4. | CHAPTER FOUR REWARDS AND PENALTIES | |
4.1 | The CEO shall abide by various rules and regulations stipulated by the Company under the law. |
4.2 | Without prior written consent of the Company, the CEO shall not accept money, gifts or any other kinds of benefits from any customer, collaborating company or other related company. |
4.3 | The CEO shall serve the Company faithfully and competently and the Company will not permit the CEO to engage in any other job on part-time basis during the term of employment. |
4.4 | The Company shall impose penalties on the CEO pursuant to regulations of the Company, if the CEO violates the Companys rules or regulations. |
5. | CHAPTER FIVE CONFIDENTIALITY AND NON-COMPETITION |
5.1 | The CEO shall safeguard the intellectual property rights and secrets of the Company, abide by relevant confidentiality agreements to which the Company is a party regarding manufacturing technologies, marketing, and unpatented technologies, and shall not engage in any business or activity that competes against the business of the Company. Specific obligations are set forth in a separate Intellectual Property, Confidentiality and Non-Competition Agreement between the Parties. |
6. | CHAPTER SIX AMENDMENT, RESCISSION, AND TERMINATION |
6.1 | If Party B is derelict of his duties or has committed any gross errors on the job, including without limitation violating the Intellectual Property, Confidentiality and Non-Competition Agreement between the Parties or laws or regulations of the State, and impairing shareholders rights or interests, the Company shall have the right to rescind this Labor Contract immediately and shall only have to pay Party B the salary for the current month without any other compensation. |
6.2 | If Party B seeks to rescind this Contract before the end of the Contract Term for personal reasons, Party B shall notify the Company in writing thirty (30) days in advance, and the Company shall pay Party B the salary for the current month without any other compensation. |
6.3 | During Party Bs term of employment, if the Company deems that the CEO has failed to reach the expected target or achieve the expected results, the Company has the right to rescind this Labor Contract; however, the Company shall notify Party B in writing thirty (30) days in advance and shall pay Party B three months salary as compensation. |
6.4 | If the Company proposes any amendment to certain provisions of this Contract due to any change in the objective conditions upon which this Contract is premised, or if the CEO proposes any amendment for personal reasons, the proposing Party shall notify the other Party in writing thirty (30) days in advance, and the Contract may be amended accordingly after both Parties agree to the proposed amendments upon consultation. |
6.5 | The CEO may not rescind this Contract pursuant to the foregoing Article 6.4 before all his liabilities for breach under this Contract and the Intellectual Property, Confidentiality and Non-Competition Agreement have been cleared. |
6.6 | The employment relationship between the Company and the CEO shall be terminated upon expiration of the Term of this Labor Contract. When this Contract is rescinded or terminated, Party B shall properly hand over his work to Party A. All office supplies, equipment, facilities and documents that Party B used or handled while working for Party A shall be delivered in good condition to Party As takeover person. Otherwise, Party A shall have the right to refuse to proceed with relevant procedures, hold Party B liable for breach pursuant to the terms of the Contract, and may claim liquidated damages from Party B. |
6.7 | Regardless of the reasons for his leaving the Company, Party B shall not defame or sue the Company, raid the Company for employees, or engage in any business or activity that competes against the Companys business except if the Company has committed tax evasion or has otherwise violated the law in its business operations. |
6.8 | Upon rescission or termination of this Contract, the Company shall complete the procedures for rescinding or terminating the Labor Contract within the stipulated time period, unless otherwise agreed upon in this Contract. |
7. | CHAPTER SEVEN LIABILITY FOR BREACH |
7.1 | Under either of the following circumstances, the Party in question shall be liable for breach of the Contract: |
(a) | The Company violates the provisions of this Contract and unilaterally rescinds this Contract, unless otherwise provided for in this Contract; |
(b) | The CEO quits his job without the Companys consent. |
7.2 | Either Party in breach of this Contract shall pay to the other Party liquidated damages. The standard liquidated damages shall be twice the salary Party B actually received for the month prior to the date of the breach. |
7.3 | If the liquidated damages provided for under the foregoing Article 7.2 is not enough to cover the losses of the other Party, then the breaching Party shall compensate the other Party for the actual losses caused by the breach. |
7.4 | The CEO warrants (1) that all the relevant information he provides to the company, including without limitation information about his identification, address, education, work experiences and professional skills, are true; (2) that, in working for the Company and entering into this Labor Contract with the Company, the CEO has not violated any agreement on confidentiality or non-competition he entered into with his previous employers or any other company or individual. If the CEO breaches this warranty, the Company has the right to rescind this Contract and demand that the CEO compensate the Company for any losses resulting from the breach. |
8. | CHAPTER EIGHT MISCELLANEOUS |
8.1 | The Employee Handbook and other rules and regulations of the Company are part of this Labor Contract. |
8.2 | This Contract has two counterparts, one for the Company, one for the employee. This Contract shall become effective upon execution by both Parties. Both counterparts shall have equal legal effect. |
8.3 | If any of the provisions of this Contract conflicts with laws and regulations of the State, the laws and regulations of the State shall prevail. |
Party A: China Finance Online (Beijing) Co., Ltd.
|
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|
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(Seal)
|
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|
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/s/ [COMPANY SEAL]
Date: JUNE 21, 2010 |
||
|
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Party B: Zhao Zhiwei
|
||
|
||
/s/ Zhao Zhiwei
|
1. | CHAPTER ONE CONTRACT TERM | |
1.1 | Party A and Party B agree that the term of this Contract shall be as follows: |
(a) | Fixed Term: Three years, from May 24, 2011 to May 23, 2014 |
1.2 | If it is the Parties intention to continue performance under this Contract, either Party may inform the other of its or his intention to renew the Contract Term by a 30- day notice prior to the expiration of the Term. |
2. | CHAPTER TWO JOB RESPONSIBILITIES |
2.1 | The Company hereby employs Mr. Wang Jun to serve as the Companys CFO in consideration of its business needs. The scope and responsibilities of the CFO job include the following: |
(a) | To formulate and implement relevant policies, procedures and strategies to ensure the realization of the Companys financial strategy; |
(b) | To establish a strong financial system and strict internal control; |
(c) | To supervise all financial activities to ensure their compliance with Chinese law and the Companys policy; |
(d) | To be responsible for timely submitting accurate financial reports; |
(e) | To establish and direct a mechanism for solving financial problems and to timely solve financial problems; |
(f) | To establish and direct a mechanism for reducing costs and increasing efficiency; |
(g) |
To be responsible for the Companys financial planning;
|
||
(h) | To participate in business development and strategic planning; |
(i) | To propose investment policies, and manage investment and transactions in accordance with approved investment guide and implementation strategy; |
(j) | To carry out strategic acquisition, capital management, listing etc. pursuant to the requirements of the Board of Directors; |
(k) | To provide comments to Senior Management of the Company and the Board of Directors on financial issues of the Company; |
(l) | Other responsibilities stipulated by the Board of Directors. |
2.2 | The CFO shall perform his duties diligently and competently pursuant to the requirements for the position. |
3. | CHAPTER THREE COMPENSATIONS AND STOCKS OPTIONS |
3.1 | The salary of the CFO shall be Eight Hundred and Twenty Thousand Yuan (RMB 820,000) per annum (before tax). |
3.2 | The pay day of the Company will be between the first and the fifth days of each month and, if such days are during a holiday period, then the pay day will be the first working day after the holiday period. |
3.3 | The Companys employees shall pay personal income taxes pursuant to regulations of the government tax agency, and the Company shall withhold a corresponding amount from the monthly salary of each employee and pay that amount on behalf of the employee to the relevant tax agency. |
3.4 | In addition to what is provided for under the foregoing Article 3.3, the Company shall have the right to make other deductions from the employees salaries in accordance with laws and regulations of the State. |
3.5 | Party Bs compensations also include stock options, which will be spelled out in more details by the Compensation Committee of the company. |
4. | CHAPTER FOUR REWARDS AND PENALTIES |
4.1 | The CFO shall abide by various rules and regulations stipulated by the Company under the law. |
4.2 | Without prior written consent of the Company, the CFO shall not accept money, gifts or any other kinds of benefits from any customer, collaborating company or other related company. |
4.3 | The CFO shall serve the Company faithfully and competently and the Company will not permit the CFO to engage in any other job on part-time basis during the term of employment. |
4.4 | The Company shall impose penalties on the CFO pursuant to regulations of the Company, if the CFO violates the Companys rules or regulations. |
5. | CHAPTER FIVE CONFIDENTIALITY AND NON-COMPETITION |
5.1 | The CFO shall safeguard the intellectual property rights and secrets of the Company, abide by relevant confidentiality agreements to which the Company is a party regarding manufacturing technologies, marketing, and unpatented technologies, and shall not engage in any business or activity that competes against the business of the Company. Specific obligations are set forth in a separate Intellectual Property, Confidentiality and Non-Competition Agreement between the Parties. |
6. | CHAPTER SIX AMENDMENT, RESCISSION, AND TERMINATION |
6.1 | If Party B is derelict of his duties or has committed any gross errors on the job, including without limitation violating the Intellectual Property, Confidentiality and Non-Competition Agreement between the Parties or laws or regulations of the State, and impairing shareholders rights or interests, the Company shall have the right to rescind this Labor Contract immediately and shall only have to pay Party B the salary for the current month without any other compensation. And for the stock options owned by Party B in accordance with Article 3.5 herein, the unfixed options shall be returned to the Company. |
6.2 | If Party B seeks to rescind this Contract before the end of the Contract Term for personal reasons, Party B shall notify the Company in writing thirty (30) days in advance, and the Company shall pay Party B the salary for the current month without any other compensation. And for the stock options owned by Party B in accordance with Article 3.5 herein, the unfixed options shall be returned to the Company. |
6.3 | During Party Bs term of employment, if the Company deems that the CFO has failed to reach the expected target or achieve the expected results, the Company has the right to rescind this Labor Contract; however, the Company shall notify Party B in writing thirty (30) days in advance and shall pay Party B three months salary as compensation. And for the stock options owned by Party B in accordance with Article 3.5 herein, the unfixed options shall be returned to the Company. |
6.4 | If the Company proposes any amendment to certain provisions of this Contract due to any change in the objective conditions upon which this Contract is premised, or if the CFO proposes any amendment for personal reasons, the proposing Party shall notify the other Party in writing thirty (30) days in advance, and the Contract may be amended accordingly after both Parties agree to the proposed amendments upon consultation. |
6.5 | The CFO may not rescind this Contract pursuant to the foregoing Article before all his liabilities for breach under this Contract and the Intellectual Property, Confidentiality and Non-Competition Agreement have been cleared. |
6.6 | The employment relationship between the Company and the CFO shall be terminated upon expiration of the Term of this Labor Contract. When this Contract is rescinded or terminated, Party B shall properly hand over his work to Party A. All office supplies, equipment, facilities and documents that Party B used or handled while working for Party A shall be delivered in good condition to Party As takeover person. Otherwise, Party A shall have the right to refuse to proceed with relevant procedures, hold Party B liable for breach pursuant to the terms of the Contract, and may claim liquidated damages from Party B. |
6.7 | Regardless of the reasons for his leaving the Company, Party B shall not defame or sue the Company, raid the Company for employees, or engage in any business or activity that competes against the Companys business except if the Company has committed tax evasion or has otherwise violated the law in its business operations. |
6.8 | Upon rescission or termination of this Contract, the Company shall complete the procedures for rescinding or terminating the Labor Contract within the stipulated time period, unless otherwise agreed upon in this Contract. |
7. | CHAPTER SEVEN LIABILITY FOR BREACH |
7.1 | Under either of the following circumstances, the Party in question shall be liable for breach of the Contract: |
(a) | The Company violates the provisions of this Contract and unilaterally rescinds this Contract, unless otherwise provided for in this Contract; |
(b) | The CFO quits his job without the Companys consent. |
7.2 | Either Party in breach of this Contract shall pay to the other Party liquidated damages. The standard liquidated damages shall be twice the salary Party B actually received for the month prior to the date of the breach. |
7.3 | If the liquidated damages provided for under the foregoing Article 7.2 is not enough to cover the losses of the other Party, then the breaching Party shall compensate the other Party for the actual losses caused by the breach. |
7.4 | The CFO warrants (1) that all the relevant information he provides to the company, including without limitation information about his identification, address, education, work experiences and professional skills, are true; (2) that, in working for the Company and entering into this Labor Contract with the Company, the CFO has not violated any agreement on confidentiality or non-competition he entered into with his previous employers or any other company or individual. If the CFO breaches this warranty, the Company has the right to rescind this Contract and demand that the CFO compensate the Company for any losses resulting from the breach. |
8. | CHAPTER EIGHT MISCELLANEOUS |
8.1 | The Employee Handbook and other rules and regulations of the Company are part of this Labor Contract. |
8.2 | This Contract has two counterparts, one for the Company, one for the employee. This Contract shall become effective upon execution by both Parties. Both counterparts shall have equal legal effect. |
8.3 | If any of the provisions of this Contract conflicts with laws and regulations of the State, the laws and regulations of the State shall prevail. |
Party A: China Finance Online (Beijing) Co., Ltd.
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(Seal)
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|
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/s/ [COMPANY SEAL]
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Date: May 24, 2011
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Party B: Wang Jun
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/s/ Wang Jun
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1. |
Documents required for registration (filing) of house tenancy contract:
|
1.1 |
The real estate title deeds or other certificates of property rights (usage right)
(The original shall be presented by the applicants and the copy shall be preserved. by
the department in charge of contract registration.);
|
1.2 |
The certificates of identity or legal personality of the lessor and the lessee,
including:
|
1.2.1 |
Entity
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1.2.2 |
Individual
|
1.3 |
The certificate of the agents identity and the letter of authorization if the
landlord entrusts an agent for management; the certificate of the agents identity and
the letter of authorization if the landlord entrusts an agent to arrange for tenancy.
|
1.4 |
The certificate that all the co-owners agree on the house tenancy and the letter of
authorization if the premises are co-owned.
|
1.5 |
The leasing contract.
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2. |
Directions for Filing of House Tenancy Contract:
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þ
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Before the 5 th day each month; | |
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o
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Before the / day of the / month of each quarter; | |
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o
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Before the / day of the / month of each half year; | |
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o
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Before the / day of the / month each year; |
1. |
The contract expires with the fire safety agreement is enforced conscientiously;
|
2. |
All the relevant expenses liable to Party B are fully paid and the receipt of security
deposit is provided by Party B
;
|
3. |
The Premises and attached facilities are not damaged artificially
.
|
o
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To satisfy one of the circumstances mentioned above. | |
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þ
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To satisfy all the circumstances mentioned above |
1. |
The fire safety agreement is enforced properly by Party B or the contract is terminated
by Party B or results from Party Bs illegal deeds
;
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|
2. |
Party B fails to make fully payment or provide the receipt of security deposit
;
|
|
3. |
The Premises or attached facilities are damaged or lost artificially and Party B refuses
to repair or make compensation
.
|
o
|
Party B could sublease the Premises or any part thereof to a third party during the lease term and register in the department in charge of house tenancy. The subleased term shall not exceed the lease term in this contract. | |
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o
|
During the lease term Party B could register in the department in charge of house tenancy with the certificate of Party As written consent to subleasing. The subleased term shall not exceed the lease term in this contract. | |
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þ
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Party B shall not sublease the Premises or any part of it to a third party during the lease term. |
1. |
The contract could not be performed due to force majeure;
|
|
2. |
The Premises are expropriated, taken back or dismantled by government;
|
|
3. |
Both parties reach an agreement.
|
o
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1. Request Party B to restore the Premises to the original condition; | |
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þ
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2. Claim damage compensation against Party B; | |
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þ
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3. Refuse to return the security deposit; | |
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o
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4. Claim a penalty of RMB / Yuan (capital form of the number: / ) against Party B. |
1. |
Party B fails to pay the rental on schedule for more than
/
days (
/
month);
|
2. |
The damages caused to Party A by delayed payment of the rental reach more than RMB
70,349.37
Yuan;
|
3. |
Party B uses the Premises to conduct illegal activities and damages the interests of third
parties or the public;
|
4. |
Party B changes the usage or structure of the Premises without consent from Party A;
|
5. |
Party B fails to perform its obligation of repairing or paying for the repair in violation of
Article 14 and causes serious damages to the Premises and facilities;
|
6. |
Party B decorates the Premises without consent from Party A and approval from relevant
authorities;
|
7. |
Party B subleases the Premises to a third party without consent from Party A.
|
þ
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1. Claim damage compensation against Party A; | |
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o
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2. Demand twice of the security deposit against Party A; | |
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þ
|
3. Claim a penalty of RMB 140,698.74 Yuan (capital form of the number: ONE HUNDRED AND FORTY THOUSAND SIX HUNDRED AND NINTY EIGHT RENMINBI YUAN AND SEVENTY FOUR CENTS ) against Party A. |
þ
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Shenzhen Arbitration Commission; | |
|
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o
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CITAC, Shenzhen Sub-Commission; | |
|
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o
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Local Peoples Court |
Party A (sign/seal):
Legal Representative: Tel: Account No: Entrusted Representative (sign/seal): |
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Party B (sign/seal):
Legal Representative: Tel: Account No: Entrusted Representative (sign/seal): |
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Registrar (sign/seal):
Contract Registration (filing) Department (sign/seal): |
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The Lessor (signature/seal):
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The Lessee (signature/seal): | |
Entrusted Representative:
|
Tel: | |
Tel:
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*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
1
1.1 |
The office space leased by Party A to Party B is located at Room 301, Building 8,
No. 690, Bibo Road, Pudong New Area, Shanghai (hereinafter referred to as the
Premises), and the detailed information is attached as Appendix 1.
|
1.2 |
The actual building area of the Premises is included in Appendix 1, and the purpose
of the Premises is for high-tech research and development and office use. The actual
building area of the Premises is measured by surveying institution accredited by Shanghai
Municipal Housing, Land and Resources Administration, and the filing of the surveying
result is confirmed by the Housing and Land Surveying Results Management Administration
of Pudong New Area of Shanghai.
|
1.3 |
The map of the Premises is attached as Appendix 2 with the leasing area shaded
green.
|
1.4 |
The leasing relationship is established between Party A, as the owner of the
Premises, and Party B. The contract is signed with Party As guarantee to Party B that
the Premises are not involved in any existing or potential legal dispute. Party A has
notified Party B that the Premises had been mortgaged to Bank of Shanghai, Pudong Branch
prior to signing the Contract.
|
1.5 |
The major decorations and facilities of the Premises are listed in Appendix 3, and
the delivery standard of Party A is subject to the actual condition of the Premises. Both
parties shall sign the confirmation documents as both parties agree that the confirmation
documents aforementioned shall be used as acceptance requirements of both Party As
delivery of the Premises to Party B and Party Bs return of the Premises to Party A at
the termination of the Contract.
|
2.1 |
Party B shall use the Premises complying with the agreed purposes in Appendix 4 and
all related housing and property management regulations of the Peoples Republic of China
and Shanghai City,
|
2.2 |
Party B shall not change the purpose of the Premises as agreed above without Party
As written consent and the confirmation of related authorities according to regulations.
|
3.1 |
The leasing term of the Premises is attached in Appendix 5.
|
3.2 |
Party A shall deliver the office space to Party B on April 1, 2010 for decoration.
Party B shall complete all the related procedures before entering
the Premises and starting construction. If Party B fails to receive the Premises due to
Party Bs reason, or Party A has right to delay the delivery agreed in the Contract, the
term of the lease in this Contract shall remain the same. If Party A delays the delivery
due to Party As reason, the starting date of the term shall be postponed accordingly.
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
2
4.1 |
The amount and payment method of rent of the Premises is attached in Appendix 6.
|
5.1 |
Party B shall pay a deposit to Party A as the amount and payment term agreed in
Appendix 7. Party A has right to delay the delivery of the Premises if Party B fails to
make full payment of the deposit before the delivery of the Premises.
|
5.2 |
Within the term of the lease, if Party A sustains losses due to Party Bs fault,
Party A can take the actual amount of loss from the deposit as compensation, and at the
same time Party B shall replenish the deposit to Party A.
|
5.3 |
If the deposit cannot cover Party As loss, Party A has right to recourse against
Party B separately.
|
5.4 |
After the termination of the lease or the Contract is terminated before expiration,
Party A shall deduct penalty and other fees liable to Party B according to this Contract
from the deposit and return the rest, if there is any, to Party B without interest within
15 days after the termination of the Contract.
|
5.5 |
Party B shall pay property management fees according to Appendix 8.
|
5.6 |
With the approval from government price authorities, the reasonable adjustment of
property management fees due to the change of the property management company resulted
from new recruitment of property management company or the change of cost of the property
management company (including government charges and salary adjustment of employees),
Party A shall notify Party B in writing 30 days in advance. Party B shall make payment
according to the adjusted prices.
|
5.7 |
Within the term of the lease, Party B shall make timely payment of water,
electricity, telephone bills and other fees payables notified by government utility
agencies or other reasonable evidences. Party B shall also be liable to all related fees
occurred from using the Premises, including but not limited to map checking, construction
coordination, temporary power, garbage cleaning fees, etc, and with prices to be
negotiated separately.
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
3
6.1 |
Party B shall decorate or install devices on the Premises according to the
following rules:
|
6.1.1 |
Party B shall register the decoration project with related government agency
before the construction; special project such as fire prevention and environment
protection shall be approved by related government agency.
|
6.1.2 |
Party B shall decorate or install fire prevention and electric equipments with the
draft proposed and approved by the property management company in advance. The property
management company shall notify whether the proposal is approved within 7 working days,
and refusal without cause, delayed approval or no reply shall be taken as approval.
|
6.1.3 |
Party B shall carry out the construction according to the draft approved by the
property management company. If there is need to modify the draft, Party B shall propose
the new draft following clause 6.1.1.
|
6.1.4 |
Party B shall carry out interior decorations, separations, reconstruction and
equipment installations according to laws and regulations in the Peoples Republic of
China. Party B shall be liable for the losses of Party A arising there from. Party A
shall not be liable for any delay or loss due to the refusal or delay of government
agencies.
|
6.1.5 |
Party B shall carry out interior decorations and install equipment in an
appropriate style with good quality to meet the general interior designing level and
style of Shanghai Zhangjiang Micro-electronics Port Office Buildings.
|
6.1.6 |
Party B shall install or post any illuminating advertisement, service symbol,
marks or other publicities that are visible from outside with detailed design draft
proposed to and approved in writing by the property company in advance. The property
management company shall notify whether the proposal is approved within 7 working days,
and refusal without cause, delayed approval or no reply shall be taken as approval.
|
6.2 |
The separate power meter for the Premises shall cover all electric equipments in
the Premises that Party B allows other parties to install.
|
6.3 |
Party B shall promote full cooperation between Party Bs employees, contractors,
construction workers and Party A, Party As property management company and Party As
contractors and construction workers. Party B and Party Bs contractors, construction
workers shall obey the related construction rules of the property management company.
|
7.1 |
Party B shall return the Premises to Party A at its original condition within 10
days after the termination of this Contract. Party A has right to require Party B to
remove all the decorations, reconstruction, installed equipments aforementioned and
return the Premises to Party A at its original condition(roughcast office space).
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
4
7.2 |
Party A has right to ask Party B to keep the decorations in the Premises. Party
A has right to ask Party B to transfer the decoration in the Premises to Party A and
Party B shall obey. The objects aforementioned shall be in a good to rent condition (not
include reasonable wearing). After the transfer, Party A shall be the owner of the
decorations, as a consideration, the obligation of Party B to convert the Premises back
to its original condition is partially deducted.
|
8.1 |
Party B shall not sublease, transfer or sublease, transfer, exchange in disguised
form of the Premises or any part of the Premises except to the third party in clause 8.2.
Party B shall be liable of breaching clause 8.1 if Party B allow any third party other
than in clause 8.1 to acquire the right to do business in the Premises without Party As
consent.
|
8.2 |
Party B can sublease part of the Premises to Party Bs parent company, subsidiaries
and branches with Party As written approval and proofs provided by Party B that confirm
the new company is Party Bs parent company, subsidiary or branch. And Party B shall
guarantee the purpose of the Premises is office use only.
|
8.3 |
If Party A transfer the Premises or part of the Premises, Party A shall clearly
confirm in the transfer contract that the receiver of the Premises shall be responsible
for all the rights and obligations of Party A in this Contract and promote the receiver
to make written commitment to Party B. Party As rights and obligations under this
contract are terminated thereafter.
|
9.1 |
Party B shall provide irrevocable application (hereinafter referred to as Renewal
Application) to Party A to renew the lease of the Premises in writing 6 months before
the expiration of the lease term (including the first extended term) or the extended
lease term, and both parties shall negotiate the terms and renew the lease contract with
Party As consent. If Party B fails to provide application within the time limit or both
parties fail to reach agreement on the leasing terms 3 months after the application, it
shall be taken as Party Bs disclaim of renewing the lease.
|
10.1 |
Obligations of Party A
|
10.1.1 |
Party A shall pay all taxes to government as the owner of the Premises according to laws
and regulations.
|
10.1.2 |
Party A shall provide the designed rating of the power system of the Premises and assist
Party B in application of the power meter. If Party B requires higher capacity than Party
As designed rating, the cost of capacity improvement and other related constructions shall
be liable to Party B.
|
10.1.3 |
Party A shall provide water supply and drainage system and be liable of the cost of the
construction between such system and the common corridor; Party B shall be liable of the
cost of connecting such system from the common corridor to the Premises. Party A shall
provide the vertical fire
sprinkler and be liable for the cost of such equipment; Party B shall install the
horizontal fire sprinkler according to the plan approved by fire control authorities
and be liable for the related cost, and such equipment shall be approved by fire
control authorities before the Party Bs occupation of the Premises.
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
5
10.1.4 |
Party A shall maintain and instruct the property management company to maintain the main
structure and the good condition of the Premises. Party A shall be responsible to necessary
repairmen.
|
10.2 |
Obligations of Party B
|
10.2.1 |
Party B shall maintain the clean and good condition of the interior decoration and all
accessories (belong to Party B) including but not limited to all electric equipments, fire
control equipments, electric wires and plumbing. Party B shall be responsible for the
regular maintenances of the interior decoration and all accessories and the arising costs.
|
10.2.2 |
All activities of Party B and Party Bs employees in the Premises shall obey the laws,
regulations and policy of the Peoples Republic of China.
|
10.2.3 |
Party B shall allow Party A and along with the future lessee or users to see into the
architecture and equipments of the Premises in reasonable time during
the last 3 months
before the expiration or early termination of the leasing term.
|
10.2.4 |
Party B shall ensure the usage of the Premises in line with the regulations in Appendix
4.
|
10.2.5 |
If any structure, construction, separation or other reconstructions built by Party B that
are ordered to be removed by government agency (no matter whether such construction,
separation or other reconstructions are approved by Party A), Party B shall voluntarily be
liable of the cost of such removing work.
|
10.2.6 |
Party B shall not disturb or allow other party to disturb the users of other premises or
neighboring properties.
|
10.2.7 |
Party B shall not use or allow other party to use the Premises in any illegal or immoral
purposes.
|
10.2.8 |
Party B shall voluntarily prepare all necessary official documents (including business
license, approvals or certificates, etc), and Party A is willing to provide reasonable
assistance.
|
10.2.9 |
Party B shall not carry out or allow other party to carry out any violations against the
land-use right of the Premises.
|
10.2.10 |
Party B shall provide in advance the budget plan of utilities of the Premises to Party A
for Party A to complete application procedure at the government agency.
|
10.2.11 |
Party B shall obey the administrative rules made by the property management company.
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
6
11.1 |
Both parties shall clearly agree in this contract: Party A is not liable for
compensation to Party B or any third party, rent deduction or other legal liabilities under
Force Majeure or other circumstances other than Party A fault. Party B shall exempt Party
A from liabilities of damage or losses of Party B or any third party arising there from.
|
11.2 |
Both parties shall clearly agree in this contract: Party B is not liable for
compensation to Party A or any third party, rent deduction or other legal liabilities under
Force Majeure or other circumstances other than Party B fault. Party A shall exempt Party
B from liabilities of damage or losses of Party A or any third party arising there from.
|
12.1 |
Party B shall purchase enough insurance against fire, water, third party liability,
business interruption and property insurance from a reputable insurance company for the
decorations, equipments and other properties of the Premises during the use/lease term on
Party Bs expense.
|
12.2 |
Party B shall provide valid insurance policy and the receipt of the last premium
payment for such insurance when required by the property management company.
|
13.1 |
Party A and Party B agree to terminate this Contract before the expiration of the
Contract without holding any responsibility to the other party only under any of the
following circumstances:
|
13.1.1 |
The land-use right of the land occupied by the Premises is recovered ahead of schedule by
law;
|
13.1.2 |
The Premises are requisitioned lawfully for public interests or urban development;
|
13.1.3 |
The Premises are ruined, lost or identified unsafe for habitation not due to Party As
reason;
|
13.1.4 |
Force Majeure.
|
14.1 |
The rent, property management fees, deposit or other fees payables according to this
Contract is delayed by Party B, without affecting other right of Party A, Party A has right
to claim for defaulted interest from Party B (the defaulted interest shall be calculated
from the day the payment is payable by Party B and with an daily
interest rate of ***%).
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
7
14.2 |
Party B shall clearly agree and state in this Contract: Party A has right to legally
recover the Premises and equipments provided by Party A anytime, this Contract will be
terminated accordingly, and Party B shall make payment equal to the deposit as compensation
to Party A (Both Parties shall take
necessary measurements to reduce loss, and if the actual loss of Party A is reduced, the
compensation liable to Party B will be reduced accordingly) when any of the following
events occurs:
|
14.3 |
The written statement notice of Party As exercising the right to recover the Premises
ahead of schedule according to the Contract has been dispatched by Party A to Party B
indicates Party A has fully exercised such right. It is unnecessary for Party A to actually
enter into the Premises to exercise such right.
|
14.4 |
Under the circumstance that Party B fails to return the Premises after the expiration
of the leasing term or the termination of the Contract, Party B shall pay the overdue
penalty at *** times of the original daily rent each day delayed to Party A; If the
returning is overdue over 15 days, Party A has right to enter the Premises with the
approval of the State supervision authority, and require to put seal on all items belong to
Party B in the Premises, and Party B shall be liable for the costs arising there from.
|
14.5 |
Any Party breaches this Contract shall be liable for the direct loss caused by the
breach of the Contract of the other party.
|
15.1 |
Currency
|
15.2 |
Party A has an absolute right to change the design, arrangement and facilities of any
part of the office space (except the Premises leased to Party B).
|
15.3 |
Party A has the privilege of naming the office space. Party A has right to change the
name of the office space no less than 15 days after notifying Party B, and Party A is not
liable for Party B or any third party.
|
15.4 |
This Contract is covered by the local law of the area of the office space. Both parties
shall negotiate for any dispute. If the dispute is not solved by negotiation, any Party can
institute legal proceedings to the peoples court that has jurisdiction over the area where
the office located.
|
15.5 |
The content of the Contract shall be kept confidential strictly by both Parties. Any
Party shall not disclose the content of the Contract to any third party without written
consent of the other party, except required by law or regulation.
|
15.6 |
This Contract will take effect after signed by both parties. The Contract is terminated
when the rights and obligations of both parties are completed.
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
8
15.7 |
The appendixes of the Contract shall form an integral part of the contract and
shall be as valid and effective as this Contract.
|
15.8 |
The Contract is made in five copies. Each party shall hold two copies. And the property
management company shall hold one copy.
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
9
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
10
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
11
I. |
Construction and Decorations:
|
1. |
All 6 office buildings of the second phase project are frame construction, and the No. 4 and
No.7 buildings are 7-storey high with basement height of 4.2 meters and each of the second to
the seventh floor is 4.2 meters high, and the building No. 5, 6, 8, 9 are 5-storey high with
each floor is 4.35 meters high.
|
2. |
The external wall of the building is constructed with cast in-site reinforced concrete slab
and concrete cellular block. The inner wall is constructed with aerated concrete blocks.
|
3. |
The external wall is decorated with aluminum plastic board curtain walls with the inner
heat-retaining panel as the heat prevention layer of the external wall. The aisles, elevators,
toilets and the decoration of stairway have been completed by the developer. The decoration in
the office area shall be done by the Lessee. The delivery standard includes a fine-gravel
concrete floor, a firmly-processed wall with whitewash and a whitewashed ceiling without hung
ceiling.
|
II. |
Criteria of Designed Load
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
12
III. |
Facilities Configurations
|
1. |
Electricity Supply
|
2. |
Monitoring and Intellectualization
|
3. |
Air-conditioning
|
4. |
Water Supply
|
5. |
Communications
|
(1) |
There is a telephone line available every 35 square meters and users can choose
between China Telecom and China Netcom.
|
(2) |
The internet access provided by China Telecom, China Netcom, Zhangjiang Net and broad
band is available in this area. The current bandwidths available are 512K, 1M or 2M.
|
6. |
Elevators
|
(1) |
The elevator of Building 4 adopts the product of Shanghai Yungtay Co., Ltd. Those of
Building 5 to Building 9 are products of Kone Co., Ltd. The elevators are all passenger
elevators without machine room and the load design standard is 1000kg.
|
(2) |
There are two elevators in each of the five-storey buildings and three in each of the
seven-storey buildings. Each building has one elevator that can be used for handicapped
peoples.
|
IV. |
Supporting Facilities
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
13
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
14
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
15
1. |
Rent (Calculated on the basis of construction area):
|
2. |
Both parties agree that the rent shall be paid in advance by Party B every 3 months; Party B
shall pay the rent for the next quarter before the 25
th
of the last month of the
current quarter.
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
16
1. |
Party B shall pay a deposit of *** to Party A which is as much as 3 months rent; Party B
shall pay a deposit of *** to the property management company which is as much as 3 months
property management fees.
|
2. |
Term of Deposit Payment
|
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
17
*** |
- indicates material omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commission
|
18
Jurisdiction | Legal | ||||
of | Ownership | ||||
Name | Incorporation | Interest | |||
Fortune Software (Beijing) Co., Ltd.
|
PRC | 100 | % | ||
China Finance Online (Beijing) Co., Ltd.
|
PRC | 100 | % | ||
Beijing Fuhua Innovation Technology Development
Co., Ltd. *
|
PRC | Nil | |||
Fortune (Beijing) Success Technology Co., Ltd.
|
PRC | 100 | % | ||
Beijing Chuangying Securities Advisory and
Investment Co., Ltd.*
|
PRC | Nil | |||
Shanghai Meining Computer Software Co., Ltd.*
|
PRC | Nil | |||
Zhengning Information & Technology (Shanghai)
Co., Ltd.
|
PRC | 100 | % | ||
Shanghai Chongzhi Co., Ltd.*
|
PRC | Nil | |||
Shanghai Stockstar Securities Advisory and
Investment Co., Ltd. *
|
PRC | Nil | |||
Jujin Software (Shenzhen) Co., Ltd.
|
PRC | 100 | % | ||
Shenzhen Genius Information Technology Co., Ltd.
|
PRC | 100 | % | ||
Shenzhen Shangtong Software Co., Ltd. *
|
PRC | Nil | |||
Shenzhen
Newrand Securities Advisory and Investment Co., Ltd.*
|
PRC | Nil | |||
Shenzhen Newrand Securities Training Center*
|
PRC | Nil | |||
Stockstar Information Technology (Shanghai) Co.,
Ltd.
|
PRC | 100 | % | ||
Daily Growth Financial Holdings Limited
|
BVI | 85 | % | ||
Daily Growth Futures Limited
|
Hong Kong | 85 | % | ||
Daily Growth Securities Limited
|
Hong Kong | 85 | % | ||
Daily Growth Wealth Management Limited
|
Hong Kong | 85 | % | ||
Daily Growth Investment Services Limited
|
Hong Kong | 85 | % | ||
Hong Kong Genius Information Technology Co., Ltd.
|
Hong Kong | 100 | % |
* | Denotes variable interest entity or subsidiaries of variable interest entities |
1. | I have reviewed this annual report on Form 20-F of China Finance Online Co. Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(c) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
/s/ Zhao Zhiwei | ||||
Name: | Zhao Zhiwei | |||
Title: | Chief Executive Officer | |||
1. | I have reviewed this annual report on Form 20-F of China Finance Online Co. Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(c) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
/s/ Jeff Wang | ||||
Name: | Jeff Wang | |||
Title: | Chief Financial Officer | |||
Date: May 31, 2011 | /s/ Zhao Zhiwei | |||
Name: | Zhao Zhiwei | |||
Title: | Chief Executive Officer |
Date: May 31, 2011 | /s/ Jeff Wang | |||
Name: | Jeff Wang | |||
Title: | Chief Financial Officer |
American Appraisal China Limited
1506 Dah Sing Financial Centre 108 Gloucester Road / Wanchai / Hong Kong Leading / Thinking / Performing |