PART
I
ITEM
1.
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
This
Report on Form 20-F is being filed as an annual report under the Securities
Exchange Act of 1934 (the “Exchange Act”) and, as such, there is no requirement
to provide any information under this item.
ITEM
2.
OFFER
STATISTICS AND EXPECTED TIMETABLE
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
ITEM
3.
KEY
INFORMATION
A.
Selected
Financial Data
The
following table sets forth selected consolidated financial information which
has
been derived from our consolidated financial statements prepared in accordance
with US GAAP for our most recently completed fiscal periods consisting of the
years ended December 31, 2007, 2006, 2005, 2004, and 2003. The financial data
should be read in conjunction with our consolidated financial statements and
notes thereto and “Results of Operations” under “Item 5 - Operating and
Financial Review and Prospects.”
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|
Year
ended December 31,
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|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Income
Statements
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
1,325,994
|
|
$
|
643,370
|
|
$
|
533,521
|
|
$
|
487,710
|
|
$
|
247,293
|
|
Operating
profit (loss) before income taxes
|
|
|
54,133
|
|
|
(209,883
|
)
|
|
(78,030
|
)
|
|
(95,946
|
)
|
|
(163,313
|
)
|
Net
loss
|
|
|
108,354
|
|
|
(209,883
|
)
|
|
(78,030
|
)
|
|
(95,946
|
)
|
|
(163,313
|
)
|
Earning
(loss ) per share - basic
|
|
|
0.01
|
|
|
(0.03
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.02
|
)
|
Earning
(loss) per share - diluted
|
|
|
0.01
|
|
|
(0.03
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.02
|
)
|
Weighted
Average Common shares outstanding – basic
|
|
|
9,012,328
|
|
|
8,200,000
|
|
|
8,200,000
|
|
|
8,004,384
|
|
|
8,000,000
|
|
Weighted
Average Common shares outstanding - diluted
|
|
|
9,103,713
|
|
|
8,200,000
|
|
|
8,200,000
|
|
|
8,004,384
|
|
|
8,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,780,226
|
|
$
|
226,896
|
|
$
|
312,053
|
|
$
|
336,623
|
|
$
|
329,949
|
|
Equipment
|
|
|
22,001
|
|
|
22,677
|
|
|
16,767
|
|
|
22,421
|
|
|
23,272
|
|
Total
current liabilities
|
|
|
373,870
|
|
|
439,278
|
|
|
170,469
|
|
|
119,766
|
|
|
239,843
|
|
Stockholders’
(deficiency) equity
|
|
|
2,200,694
|
|
|
(212,382
|
)
|
|
(8,416
|
)
|
|
66,857
|
|
|
90,106
|
|
No
dividends have been declared or paid in 2007.
B.
Capitalization
And Indebtedness
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
C.
Reasons
for the Offer and Use of Proceeds
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
D.
Risk
Factors
The
following discussion in this Annual Report on Form 20-F contains forward-looking
statements regarding our business, prospects and results of operations that
involve risks and uncertainties. Our actual results may differ materially from
the results that may be anticipated by such forward-looking statements and
discussed elsewhere in this Report. Factors that could cause or contribute
to
such differences include, but are not limited to, those discussed below, as
well
as those discussed under the captions “Item 4 - Information on the Company” and
“Item 5- Operating and Financial Review and Prospects” as well as those
discussed elsewhere in this Report. In evaluating our business, prospects and
results of operations, readers should carefully consider the following factors
in addition to other information presented in this Report and in our other
reports filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect our business,
prospects and results of operations. See “Cautionary Notice Regarding Forward
Looking Statements” above.
Risk
Factors Relating to Our Company and Our Business
Our
limited operating history makes it difficult for investors to judge our
prospects.
We
have a
limited history in terms of operation. Potential investors should be aware
of
the risks associated with such, and expect that most of our revenues in the
foreseeable future be applied towards building the company. We offer a suite
of
services through our financial portals, which require partnerships and
collaborations with external parties. There is no guarantee that we will be
able
to enter into successful partnerships or collaborations. In light of this,
we
may not achieve profitability.
We
may not be able to successfully implement our growth
strategies.
We
are
pursuing a number of growth strategies. Internally, we require constant
expansion and development of our content and knowledge base. Externally, we
endeavour to create sustainable partnerships, joint ventures and acquisitions
with providers of financial products and services. Primarily, we seek out
relationships with companies with customers in North America and Asia, offering
new services for which there are no established markets, or services where
we
lack experience and expertise. In light of this, we cannot guarantee that said
new services will be commercially viable or delivered in a timely
manner.
In
addition to premium subscription services to generate revenue on our various
websites, we intend to increase website-related revenue through online banner
advertising. To date, we have had limited success with online banner
advertisement customers, which we attribute to a low number of website content
contributors. We intend to increase online banner advertisements by increasing
the number of website content contributors. Furthermore, we intend to increase
revenue through NAI’s investment seminars and conferences. In order to achieve
our aims, we will need to hire additional employees, as well as incur costs
related to increasing online advertising and conference revenues. Costs
associated with said projects may impede our financial condition and operation
results, with no guarantee of success or increase in revenue.
Unforeseen
development difficulties with our technological infrastructure may hinder our
efforts.
We
have
undertaken measures to enhance our design and technological infrastructure
in
order to improve our websites, and intend to continue doing so in the
foreseeable future. In the past, we have experienced unexpected web traffic,
leading to slow upload times or other problems. While we have worked towards
resolving these problems, it can be expected to occur again in the future,
hence
our continual efforts to upgrade and improve our websites. Unforeseeable
developmental difficulties could prevent us from implementing improvements
or
lead to higher than anticipated costs, and repeated problems in accessing our
website can deter visitors from future use. All these, and possibly other
problems, will affect our business, its operations and financial condition,
unfavourably.
Our
business could be materially and adversely affected if we fail to develop or
introduce new features and research tools.
Currently,
we offer premium subscribers a number of service packages with personalized
features and functionalities. If we fail to offer new features or tools on
a
regular basis, or if such features and tools are not favourably received, our
premium subscribers may choose to discontinue their subscription. Alternately,
if we fail to offer service packages that provide value, potential subscribers
may turn to our competitors rather than use our services. In developing new
features and tools, it is probable that we will experience challenges that
could
delay or prevent launching these new services. Furthermore, said new services
may contain errors that are discovered only after launch. Our business could
be
affected adversely in the aforementioned scenarios.
Our
revenues could decline if we fail to attract sufficient numbers of premium
subscribers to our personalized service packages or if we fail to retain our
existing subscribers.
We
depend
on the sale of our premium service packages such as MyCWN for a portion of
our
revenue, where premium subscribers pay a monthly subscription fee of $9.95
or an
annual fee of $59.95. We also offer real-time streaming of stock quotes at
different levels ranging from $30 to $40 per month. As our premium service
packages become more comprehensive and higher priced, we expect that our future
revenues and revenue growth will increasingly depend on sales of our premium
service packages to a much greater extent than other streams of revenue such
as
banner advertising. If we fail to attract a sufficient number of subscribers
to
our premium service packages, our revenues could decline. Moreover, our
financial success depends on our ability migrate free subscribers to our premium
service packages. We may not be able to continue to develop newer service
packages that appeal to subscribers. If we are fail to develop new premium
services packages that appeal to our users, or if our users continue to use
our
free services rather than purchase premium services, our revenues could
decline.
A
failure to establish and maintain strategic relationships with other companies
could decrease our subscriber and reader base, which may harm our business
We
depend
on establishing and maintaining content syndication and headline indexing
relationships with high-traffic websites for a portion of our current subscriber
and reader base. There is intense competition for relationships with these
firms
and placement on these sites, and we may have to pay significant fees to
establish additional content syndication and headline indexing relationships
or
maintain existing relationships in the future. We may be unable to enter into
or
successfully renew relationships with these firms or sites on commercially
reasonable terms. These relationships may not attract significant numbers of
subscribers or readers.
Many
companies that we may approach for a strategic relationship or who already
have
strategic relationships with us also receive financial news and information
from
other sources. As a result, these companies may be reluctant to enter into
or
maintain strategic relationships with us. Our business, results of operations
and financial condition could be materially adversely affected if we do not
establish additional, and maintain existing, strategic relationships on
commercially reasonable terms or if any of our strategic relationships do not
result in an increase in the number of subscribers or readers of our websites.
Difficulties
associated with our brand development may harm our ability to attract
subscribers and readers.
We
believe that a general increase in competition for online financial services
has
elevated the importance of brand building and brand awareness. We also believe
that maintaining and generating awareness about our websites,
www.chineseworldnet.com
and
www.na-investor.com,
as well as their
associate brands are important aspects in our efforts to continue to attract
users. Our planned products and services may not be widely recognized, and
we
will need to increase awareness amongst potential users. Despite continued
efforts to generate brand awareness, it may be ineffective cost-wise or
unsuccessful in reaching potential users. Potential users may not be receptive
to our advertising campaigns and/or other efforts. Accordingly, our efforts
may
be unsuccessful in raising awareness of our websites and their associate brands
or in persuading potential users to subscribe to our products or visit our
sites.
Our
ability to maintain and increase our readership depends on the continued growth
in use and efficient operation of the Internet.
The
web-based information market is rapidly evolving. Our business would be
adversely affected materially if web usage does not continue to grow or grows
slowly. Web usage may be inhibited for a number of reasons beyond our control,
such as:
·
inadequate
network infrastructure;
·
security
and privacy concerns;
·
inconsistent
quality of service; and
·
unavailability
of cost-effective, high-speed access to the Internet.
Our
readers depend on Internet service providers, online service providers and
other
website operators for access to our websites. Many of these companies providing
such services have filed for bankruptcy. Many have experienced significant
service outages in the past and could experience service outages, delays and
other difficulties unrelated to our systems. These occurrences could cause
our
readers to perceive the web in general or our websites in particular as an
unreliable medium and, therefore, cause them to use other media to obtain their
financial news and information. We also depend on a number of information
providers to deliver information and data feeds on a timely basis. Our websites
could experience disruptions or interruptions in service due to the failure
or
delay in the transmission or receipt of this information, which could materially
and adversely affect our business, results of operations and financial
condition.
We
may be held liable for information retrieved from our website and such potential
liability could harm our business.
Because
our services can be used to download and distribute information to others,
there
is a risk that claims may be made against us for defamation, negligence,
copyright or trademark infringement or other claims based on the nature and
content of that material, such as violation of censorship laws in the PRC.
In
addition, we do not carry any liability insurance to indemnify us for all
liability that may be imposed. Any imposition of liability could have a material
adverse effect on our business, results of operations and financial condition.
We
may be liable for the content of our
electronic
and hard copy publishing and such potential liability could harm our
business.
We
are
paid by companies to produce company reviews, which are distributed to target
investors by email, mail and published on our website. Our users may request
and
receive directly from us a hard copy of any such review. We make no
recommendation for the purchase of securities in any of our public company
clients’ securities and each report contains a disclaimer to that effect. We do
not send out unsolicited copies of the reports on our client companies’ behalf.
We receive a fee from the client company for preparing the report but receive
no
underlying interest in the client company’s securities nor do we take any
position in those securities.
Although
we have a disclaimer on each review, it may be perceived by users that we are
endorsing our client companies as an investment. Potential liability issues
may
arise should our users invest in these companies and lose money based upon
an
inaccurate perception that we have endorsed such an investment. Liability issues
include the defence of a law suit that could be brought by a user seeking
compensation for the losses it has suffered which could involve us in costly
and
time-consuming litigation in defending such a suit. We have no liability
insurance in place to protect us against such a potential suit.
A
failure of our internal security measures or breach of our privacy protections
could cause us to lose subscribers and subject us to liability.
Users
who subscribe to our premium subscription-based products are required to supply
certain personal information which we use to administer our services. We also
require users of some of our free products and features to provide us with
certain personal information. Additionally, we rely on security and
authentication technology licensed from third parties to perform real-time
credit card authorization and verification, and at times rely on third parties,
including technology consulting firms, to help protect its infrastructure from
security threats. In this regard, our users depend on us to keep their
personal information safe and private from third parties. If users perceive
that
we are not protecting their privacy, or if the technology developed by these
third parties does not function as anticipated and our information security
measures are breached, our users could be discouraged from registering to use
our services, which could have a material adverse effect on our business,
results of operations and financial condition.
Our
business is dependent on the level of trading activity in PRC’s securities
markets. Volatility in PRC’s securities markets could dampen investors’ interest
in such markets and adversely affect our revenue and
profitability.
Our
business is dependent on user demand for market intelligence on various
securities markets, including PRC’s securities markets. The demand for
investment in PRC’s securities markets has fluctuated with the level of trading
activity there. In the last several years, PRC’s securities markets have
experienced significant decline. On June 6, 2005, the Shanghai Stock Exchange
Index reached its lowest level since March 1997, and over the past five years
both the Shanghai Stock Exchange A-Share Index and the Shenzhen Stock Exchange
Index have experienced significant decline in index value. If the PRC’s
securities markets continue to weaken, and if investors’ interest in PRC’s
securities markets continues to decline, our business could be significantly
and
adversely affected.
A
substantial amount of our revenues are billed on a fixed-price basis which
may
be subject to cost over-runs and we may incur a loss as a
result.
A
substantial percentage of our IR/PR business and the planned Portal business,
which are explained in more detail under Item 4 - “Information on the Company,”
are individual and short-term projects billed on a fixed-price basis as
distinguished from a method of billing on a time and materials basis. Our
failure to obtain new business in any given quarter or estimate accurately
the
resources and time required for an engagement, to manage client expectations
effectively regarding the scope of services to be delivered for the estimated
fees or to complete fixed-price engagements within budget, on time and to
clients’ satisfaction could expose us to risks associated with cost overruns,
which could have a material adverse effect on our business.
A
failure to attract individual investors to our investment seminars and
conferences could decrease the attendance of presenting companies at our
seminars and conferences, which may adversely affect our revenues.
As
part
of NAI’s investor relations and public relations services, the organization of
Chinese investment seminars represent a significant portion of total revenue.
Currently, presenting companies are charged a fee of $4,000 and standard exhibit
spaces costs $2,000, while individual investors are invited to attend free
of
charge. Presenting companies and exhibitors typically attend for the purpose
of
meeting individual investors, and it is to all parties’ advantage to offer free
admission to individual investors. The success of our seminars is dependent
upon
the number of individual investors that attend, failing to achieve this would
result in a decline of presenting companies and exhibitors, thereby affecting
the overall revenue of NAI. The existing price to presenting companies and
exhibitors may increase in the future, which may also cause a decline in
participating companies and exhibitors, thereby affecting our financial
condition as a whole.
A
failure to maintain strategic relationship with partner companies in organizing
financial seminars in PRC may adversely affect our business.
In
expanding our financial seminars in PRC, we may depend on establishing and
maintaining the partnerships with local companies in PRC, such as agents,
internet platform partners, consulting companies, project event organizers,
in
various disciplines such as marketing our company and/or events, seminar
organization and coordination. We may be unable to enter into or successfully
renew relationships with these companies or partners on commercially reasonable
terms.
Many
companies that we may approach for a strategic relationship or who already
have
strategic relationships with us will have financial commitments and
responsibilities involved with our company. Failure to establish or maintain
relationships with said companies would significantly affect our
business.
A
failure to establish and maintain an operation centre in PRC may have adverse
effect on our financial seminars organization in PRC
Plans
to
establish an operation centre in PRC for the purposes of business expansion
may
involve commercial terms and conditions such as business license registration
and technology rights, as well as operation costs such as office rental costs
and wages. Failure to establish and upkeep the PRC operation centre will
adversely affect the expansion of our business.
We
do not own the URLs for our principal websites. If we lose the right to use
our
two principal website address or URLs, our business could be seriously
harmed.
Our
two
principal website addresses or Uniform Resource Locators (URLs),
www.chineseworldnet.com
and
www.na-investor.com
,
are
currently licensed from Register.com on a yearly basis. As per the Service
Agreement with Register.com, there is no guarantee that we can renew the
licensing agreement with regard to the two principal website addresses or URLs.
If we lose the right to use the
www.chineseworldnet.com
and
www.na-investor.com
domain
names, they may become property of our competitors or other parties, either
of
which would have a material adverse effect on our business, prospects, financial
condition, results of operation and share price.
If
we are not able to respond successfully to technological or industry
developments, our business may be materially and adversely
affected.
The
online financial data and information services market is characterized by rapid
advancements in technology, evolving industry standards and changes in customer
needs. New services or technologies may render our existing services or
technologies less competitive or obsolete. Responding and adapting to
technological developments and standard changes in our industry, the integration
of new technologies or industry standards, or the upgrading of our networks
may
require substantial time, effort and capital investment. In the event that
we
are unable to respond successfully to technological industry developments,
this
may materially and adversely affect our business, results of operations and
competitiveness.
Our
business would be adversely affected if we do not continue to expand and
maintain an effective customer support force.
We
offer
subscribers customer support in English, Cantonese and Mandarin through a North
American toll free telephone number. The purpose of customer support is to
resolve subscriber issues as well as explain our company’s service offerings.
Many staff members involved in customer support are relatively new to the
company, and may not have the training or experience to effectively serve our
clients. We will need to increase our customer support force as our business
expands, as well as provide adequate training. We may not be able to hire and
retain employees without short-term disruptions to our operations, and locating
multilingual workers is a challenge. Failure to maintain a working customer
support team may adversely affect our business.
Our
future performance is dependent on our ability to retain key
personnel.
Our
performance is substantially dependent on the performance of our senior
management and key technical personnel. In particular, our success depends
on
the continued efforts of our senior management team. In addition, we intend
to
grant stock options to many of our employees in lieu of salary raise. Due to
potential fluctuation of our future share price, our employees may have options
at strike prices far above the then current share price. As a result, many
of
our employees may not consider their options to be valuable compensation, and
we
may need to provide additional compensation, in the form of additional salary,
bonuses or equity, in an effort to retain existing employees. Our inability
to
retain employees, particularly our senior officers, and key sales, technical,
marketing and other service personnel in our key revenue producing businesses
could have a material adverse effect on our prospects, business, operations,
financial conditions and share price.
Our
long-term liquidity and capital resources are
uncertain.
We
believe revenue generated through our current operations, combined with our
cash
resources, are adequate to fund our current marketing programs in North America.
However, we anticipate the need to secure additional financing in order to
implement our planned expansion in Asia. We have yet to enter into agreements
with respect to additional financing, but expect to raise funds through debt
or
stock offerings to accredited investors. In the event that an opportunity for
acquisition arises, or additional funds are required, we may not be successful
in raising the additional capital needed for this purpose. See Item 4
“Information on the Company”.
We
face significant competition which could adversely affect our business,
financial condition and results of operations
.
The
online financial data and information services market for the Chinese community
in North America is relatively new, with few substantial barriers to entry
and
is competitive and rapidly changing. The number of financial news and
information sources competing for consumers’ attention and spending has
increased since we commenced operations and we expect that competition will
continue to intensify. We currently compete, directly and indirectly, for paying
subscribers and viewers with companies in the business of providing financial
data and information services, including publishers and distributors of
traditional media, Internet portals providing information on business, finance
and investing, dedicated financial information websites, personal stock research
software vendors and stock brokerage companies, especially stock brokerage
companies with online trading capabilities.
Many
of
our existing competitors, as well as a number of potential new competitors,
have
longer operating histories, greater name recognition, larger customer bases
and
significantly greater financial, technical and marketing resources than we
do.
This may allow them to adopt our business model and devote greater resources
than we can to the development and promotion of service offerings similar to
or
more advanced than our own. These competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns,
adopt
more aggressive pricing policies and offer products and services that achieve
greater market acceptance than ours. They may also undercut us by making more
attractive offers to our existing and potential employees, content providers
and
sponsors. New and increased competition could result in price reductions for
our
research tools, reduced margin or loss of market share, any of which could
materially and adversely affect our business, results of operations and
financial condition.
In
addition, a number of companies in PRC offer stock quotes, economic and
company-specific news, historical stock performance statistics, online chatting
regarding individual securities and other features for free over the Internet.
If users determine that the information available for free over the Internet
is
sufficient for their investing needs, they would be unlikely to pay for
subscription to our services, thus reducing our revenues and net income and
forcing us to develop a new business model. Furthermore, the amount and quality
of information available for free over the Internet may expand in the future,
reducing the attractiveness of our services and forcing us to spend additional
money to develop more sophisticated services in order to compete. There can
be
no assurance that we would be successful in developing a new business model
or
more advanced services in response to either of the above challenges. Failure
to
do so would lead to significant declines in our number of subscribers, revenues
and net income.
We
may be involved in future litigation over our use of technology
rights.
We
currently own and license technology from third parties. As we continue to
introduce new services that require new technology, we anticipate that we may
need to license additional third-party technology. These existing and additional
technology licenses may not be available to us on commercially reasonable terms,
if at all. In addition, it is possible that in the course of using new
technology, we may inadvertently breach the technology rights of third parties
and face liability. Our inability to obtain these technology licenses or avoid
breaching third party technology rights could delay or compromise our
introduction of new services and could materially and adversely affect our
business and financial condition.
We
cannot
be certain that our website content and online services and tools do not or
will
not infringe upon patents, valid copyrights or other intellectual property
rights held by third parties. We may become subject to legal proceedings and
claims from time to time relating to the intellectual property of others in
the
ordinary course of our business. If found to have violated the intellectual
property rights of others, we may be banned from using such intellectual
property, and we may incur licensing fees or be forced to develop alternatives.
In addition, we may incur substantial expenses in defending against these third
party infringement claims, regardless of their merit. Successful infringement
or
licensing claims against us may result in substantial monetary liabilities,
which may materially and adversely affect our business.
We
enter
into confidentiality agreements with our employees and consultants, and control
access to and distribution of our documentation and other licensed information.
In spite of these precautions, it may be possible for such persons to breach
such precautions or controls or a third-party to copy or otherwise obtain and
use our licensed services or technology without authorization, or to develop
and
apply similar technology independently. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited, and the
global nature of the Internet and the media makes it practically impossible
to
control the ultimate destination of our products. Policing the unauthorized
use
of our licensed technology is difficult as are the steps necessary to prevent
the misappropriation or infringement of our licensed technology. In addition,
litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others, which could result in substantial cost to us,
divert our resources and have a material adverse effect on our business, results
of operations and financial condition.
Our
strategy of expansion through acquisitions has been and will continue to be
costly and may not be effective, and we may realize losses on our
investments.
We
have
acquired, and intend to continue to acquire, companies and assets that we
believe will enhance our revenue growth, operations and profitability. Our
acquisitions may result in the use of significant amounts of cash, dilutive
issuances of our common shares and amortization expenses related to goodwill
and
other intangible assets, each of which could materially and adversely affect
our
business. These acquisitions involve significant risks,
including:
|
·
|
the
difficulties of integrating, assimilating and managing the operations,
technologies, intellectual property, products and personnel of the
acquired business;
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·
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the
diversion of management attention from other business
concerns;
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·
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the
reduced availability of favourable financing for future
acquisitions;
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|
·
|
the
additional expense associated with acquired contingent
liabilities;
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our
inability to manage adequately the currency, interest rate and equity
price fluctuations relating to our acquisitions and
investments;
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·
|
the
loss of key employees in acquired
businesses;
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|
·
|
the
risk of being sued by terminated employees and contractors;
and
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·
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our
lack of familiarity with local market and other conditions and business
practices.
|
If
we
acquire another business, we would need to integrate, manage and protect our
interests in our acquired businesses successfully, and failure to do so could
have a material adverse effect on our business, results of operations and
financial condition.
If
economic and other conditions further deteriorate, or if market or other values
continue to fluctuate, we may need to provide for further decreases in value
or
increased unrealized losses. Our results of operations, financial condition,
prospects and share price could be adversely and materially affected,
particularly if we are unable to hedge or adequately hedge our exposure to
reduced valuations.
Our
strategy of expansion through acquisitions may affect our ability to receive
favourable financing terms.
Our
future acquisitions may result in the use of significant amounts of cash,
dilutive issuances of our common shares and amortization expenses related to
goodwill and other intangible assets, each of which could materially and
adversely affect our financial condition. In addition, there is no guarantee
that those acquisitions will actually enhance our revenue, operations and
profitability. If those benefits do not materialize as expected, our financial
conditions may worsen to include lower cash balance, lower profitability, higher
debt level and lower credit rating. These will likely affect our ability to
receive favourable debt or equity financing. As a result, we may need to accept
a less than favourable financing such as issuing debt at a higher interest
rate
or issuing common shares at below book value or market value, should we require
additional capital for our operations.
Risks
Relating to Our Industry
Intense
competition could reduce our market share and harm our financial performance.
A
number
of financial news and information sources compete for consumers’ and
advertisers’ attention and spending. We compete for advertisers, readers, staff
and outside contributors with many types of companies, including:
·
English
Content:
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online
services or websites focused on business, finance and investing,
such as
CBS.MarketWatch.com, CNBC on MSN Money, CNNfn.com, The Wall Street
Journal
Online, TheStreet.com, Globeinvestor.com, TheNewYorkTimes.com,
DowJones.com, SmartMoney.com, and The Motley Fool;
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publishers
and distributors of traditional media, including print, radio and
television, such as The Wall Street Journal, Fortune, Bloomberg Business
Radio and CNBC;
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-
|
providers
of terminal-based financial news and data, such as Bloomberg Business
News, Reuters News Service and Dow Jones Markets;
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-
|
web
“portal” companies, such as Yahoo! MSN.com, and America Online;
and
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-
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online
brokerage firms, many of which provide financial and investment news
and
information, such as Charles Schwab, E*TRADE and TD Waterhouse.
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|
web
“portal” companies, such as Yahoo! China, Yahoo! Hong Kong, bidu.com,
China.com, Taiwan.com, Sina.com, Sohu.com, HongKong.com, Tom.com,
36.com,
Netease.com, Yam, and Hinet;
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publishers
and distributors of traditional media, including print, radio and
television, such as Apple Daily, MingPao Daily, SingTao Daily, ChinaByte
and Xinhua News Agency;
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-
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online
brokerage firms, many of which provide financial and investment news
and
information, such as whsb.com, Cash Online, Pt123.com;
and
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-
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online
services or websites focused on business, finance and investing,
such as
Chinesefn.com, HKNasdaq.com, Chinese.wsj.com,
www.cnyes.com
,
www.jrj.com
.
|
Our
ability to compete depends on many factors, including the originality,
timeliness, insightfulness and trustworthiness of our content and that of our
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts.
Many
of
our existing competitors, as well as a number of potential new competitors,
have
longer operating histories, greater name recognition, larger customer bases
and
significantly greater financial, technical and marketing resources than we
do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive research and development, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies (including offering more
of
their financial news and commentary for free) and make more attractive offers
to
existing and potential employees, outside contributors, strategic partners
and
advertisers. Our competitors may develop content that is equal or superior
to
our content or that achieves greater market acceptance than our content. It
is
also possible that new competitors may emerge and rapidly acquire significant
market share. We may not be able to compete successfully for advertisers,
readers, staff or outside contributors, which could materially adversely affect
our business, results of operations and financial condition. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could materially and adversely affect our business, results
of operations and financial condition.
We
also
compete with other websites, television, radio and print media for a share
of
advertisers’ total advertising budgets. If advertisers perceive the Internet or
our websites to be a limited or an ineffective advertising medium, they may
be
reluctant to devote a portion of their advertising budget to Internet
advertising or to advertising on our websites.
Furthermore,
we are experiencing increased competition with a growing number of companies
in
the United States and Canada with respect to our conference and seminar business
and IR/PR services. There is a growing trend for these companies to put on
trade
shows and conferences regarding investing in China, which competes with our
business. If we are not able to effectively compete with these companies for
the
limited marketing budgets of participants, our business may be adversely
affected and our financial performance may be harmed.
Computer
equipment problems and failures could adversely affect our
business
.
Problems
or failures in our Internet-related equipment, including our file servers,
computers and software could result in interruptions or slow response times
on
our websites, which could reduce the attractiveness of our websites to
advertisers and users. Equipment problems and failures could result from a
number of causes, including but not limited to an increase in the number of
users of our websites, computer viruses, outside programmers penetrating and
disrupting our software systems, human error, fires, floods, power and
telecommunications failures, and internal breakdowns. In addition, any
disruption in Internet access provided by third parties could have an adverse
effect on our ability to provide the services that it proposes to offer to
our
members which in turn may have an adverse effect on the number of members we
are
able to attract to our websites.
Our
computer network is vulnerable to hacking, viruses and other
disruptions
.
Inappropriate
use of our Internet services or errors or omissions in processing instructions
or data available in our computer system or databases could jeopardize the
security of confidential information stored in our computer system, which may
cause us to lose key clients, expose us to liability for our clients’ losses and
prevent us from securing future business, any of which could have a material
adverse effect on our prospects, business, financial condition, results of
operations and share price.
Inappropriate
use of the Internet includes attempting to gain unauthorized access to
information or systems—commonly known as cracking or hacking. Our current
policies, procedures and configurations for managing our systems, including
our
computer servers, may not be adequate to protect our facilities and the
integrity of our user and customer information. Although we intend to implement
security measures to protect our facilities and the integrity of our user and
customer information, such measures could be ineffective or circumvented.
Alleviating problems caused by computer viruses or other inappropriate uses
or
security breaches may require interruptions, delays or cessation in our
services, in addition to the outages that occur in our systems from time to
time
for various reasons, including power interruptions, errors in instructions,
equipment inadequacy, capacity and other technical problems. We do not carry
errors and omissions or other insurance covering losses or liabilities caused
by
computer viruses or security breaches. Compromises or breaches in the security
or integrity of our facilities or customer or user information, or inappropriate
use of our Internet services, could subject us to litigation and could adversely
affect our customer base, business, prospects, share price, results of operation
and financial condition.
Existing
and future laws and regulations may increase our costs of doing business and
our
legal compliance expenditures, and could decrease our
readership.
Existing
domestic and international laws or regulations and private industry guidelines
specifically regulate communications or commerce on the web. Furthermore, laws
and regulations that address issues such as user privacy, pricing, online
content regulation, taxation of electronic commerce transactions and the
characteristics and quality of online products and services are under
consideration by federal, state, local and foreign governments and agencies
and
by private industry groups. Several telecommunications companies have petitioned
the Federal Communications Commission to regulate Internet service providers
and
online services providers in a manner similar to the regulation of long distance
telephone carriers and to impose access fees on such companies. The governments
of other states or foreign countries might attempt to regulate our transmissions
or levy sales or other taxes relating to our activities. These regulations,
if
imposed, could increase the cost of transmitting data over the web.
In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Our business, results of operations and financial
condition could be materially and adversely affected by the adoption or
modification of laws or regulations relating to the Internet.
The
interpretation and application of existing securities laws to web-based
financial news providers, including laws governing investment advisors,
investment companies and broker/dealers, by the Securities and Exchange
Commission and state securities regulators, is a developing area. If, as this
area matures, our activity is interpreted as subjecting it to regulation, we
could be subject to liability, and our business, results of operations and
financial condition could be materially and adversely affected.
We
are
also subject to various federal and state regulations concerning the collection
and use of information regarding individuals. These laws include the Children’s
Online Privacy Protection Act, and state laws which limit or preclude the use
of
voter registration and drivers’ license information, as well as other laws that
govern the collection and use of consumer credit and financial information,
including the Gramm-Leach-Bliley Act. Although our compliance with applicable
federal and state laws, regulations and industry guidelines has not had a
material adverse effect on our business, governments, trade associations and
industry self-regulatory groups may enact more burdensome laws, regulations
and
guidelines, including antitrust and consumer privacy laws, for us and our
customers. The U.S. federal and various state governments have been
investigating certain Internet companies regarding their use of personal
information and have recently proposed limitations on the collection and use
of
information regarding Internet users. The European Union has enacted its own
privacy regulations that may result in limits on the collection and use of
certain information from users in Europe. We could incur additional expenses
if
any new regulations regarding the use of personal information are introduced
or
if these agencies chose to investigate our privacy practices. Also, as a
consequence of governmental legislation or regulation or enforcement efforts
or
evolving standards of fair information collection practices, we may be required
to make changes to our products or services in ways that could diminish the
effectiveness of the product or service or our attractiveness to potential
customers, which could materially and adversely affect our business, financial
condition or results of operations. Any new laws or regulations relating to
the
web, or certain application or interpretation of existing laws, could decrease
the growth in the use of the web, decrease the demand for our websites or
otherwise materially and adversely affect our business.
Laws
and
regulations directly applicable to Internet communications, commerce and
advertising are becoming more prevalent, and new laws and regulations are under
consideration by the U.S. Congress and state legislatures. Any legislation
enacted or restrictions arising from current or future government investigations
or policy could dampen the growth in use of the Internet generally and decrease
the acceptance of the Internet as a communications, commercial and advertising
medium. The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. Moreover, it may take years to
determine the extent to which existing laws relating to issues such as
intellectual property ownership and infringement, libel, obscenity and personal
privacy apply to the Internet and Internet advertising.
Concerns
about the security of electronic commerce transactions and confidentiality
of
information on the Internet may reduce use of our network and impede our
growth.
A
significant barrier to electronic commerce and communications over the Internet
in general has been a public concern over security and privacy, especially
the
transmission of confidential information. If these concerns are not adequately
addressed, they may inhibit the growth of the Internet and other online services
generally, especially as a means of conducting commercial transactions. If
a
well-publicized Internet breach of security were to occur, general Internet
usage could decline, which could reduce traffic to our destination sites and
impede our growth.
Doing
business outside of the United States may subject us to additional
risks
.
A
substantial portion of our business is conducted outside of the United States
and as a result, our operations could be subject to various risks such as the
possibility of the loss of revenue, property or equipment due to expropriation,
nationalization, war, insurrection, terrorism or civil disturbance, the
instability of foreign economies, currency fluctuations and devaluations,
adverse tax policies and governmental activities that may limit or disrupt
markets, restrict payments or the movement of funds or result in the deprivation
of contract rights. Additionally, our ability to compete could be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from vendors in a particular
jurisdiction. We could also be subject to taxation in a number of jurisdictions,
and the final determination of our tax liabilities might involve the
interpretation of the statutes and requirements of various domestic and foreign
taxing authorities.
We
may rely on electronic commerce as a significant part of our future revenue,
but
the Internet has not yet been proven as an effective commerce medium in the
Greater China region.
Our
revenue growth also depends on the increasing acceptance and use of electronic
commerce in the region comprised of the PRC, Hong Kong and Taiwan (referred
in
this Report as “Greater China”). The Internet may not become a viable commercial
marketplace in Asia for various reasons, many of which are beyond our control,
including inexperience with the Internet as a sales and distribution channel;
inadequate development of the necessary infrastructure to facilitate electronic
commerce; concerns about security, reliability, cost, ease of deployment,
administration and quality of service associated with conducting business over
the Internet; and inexperience with credit card usage or with other means of
electronic payment in the PRC.
If
the
Internet does not become more widely accepted as a medium for electronic
commerce, our ability to generate increased revenue will be negatively
affected.
The
ability to block Internet advertising could prevent the expansion of online
advertising in Asia.
The
development of Web software that blocks Internet advertisements before they
appear on a user’s screen may hinder the growth of online advertising. The
expansion of ad blocking on the Internet may decrease our revenues because
when
an ad is blocked, it will not be downloaded from our ad server, which means
these advertisements will not be tracked as a delivered advertisement. In
addition, advertisers may choose not to advertise on the Internet or on our
advertising network because of the use of Internet advertisement blocking
software. The use of software that blocks Internet advertisements may materially
and adversely affect our business.
The
Greater China and Asian Internet industry is a developing market and is not
a
proven effective commercial medium
The
market for Internet services in Greater China and Asia has only recently begun
to develop. Since the Internet is an unproven medium for advertising and other
commercial services, our future operating results from online advertising and
electronic business solutions services will depend substantially upon the
increased use of the Internet for information, publication, distribution and
commerce and the emergence of the Internet as an effective advertising medium
in
Greater China and Asia. Many of our customers will have limited experience
with
the Internet as an advertising medium or sales and distribution channel, and
will not have devoted a significant portion of their advertising expenditures
or
other available funds to Web-based advertising or website development and may
not find the Internet to be effective for promoting their products and services
relative to traditional print and broadcast media.
Critical
issues concerning the commercial use of the Internet in Greater China and
elsewhere in Asia, including:
may
affect the adoption of the Internet to solve business needs. For example, the
cost of access, penetration rate or availability of access to technology,
hardware and software may prevent potential users in Asia from using the
Internet. Also, the use of credit cards in sales transactions is not common
in
parts of Asia. Until the use of credit cards, or another viable alternative
means of electronic payment, becomes more prevalent, the development of
electronic commerce through our portal network will be seriously impeded. In
addition, even if suitable payment methods are widely adopted in Asia, consumers
will have to be confident that adequate security measures are taken to protect
electronic sale transactions conducted over the Internet and prevent
fraud.
Our
entry
into the Chinese Internet market depends on the establishment of an adequate
telecommunications infrastructure in the PRC by the Chinese
government
Unlike
Taiwan and Hong Kong, where the telecommunications infrastructure is comparable
to U.S. standards where private companies compete as ISPs, the
telecommunications infrastructure in PRC is not as well developed. In addition,
access to the Internet in PRC is accomplished primarily by means of the
government’s backbone of separate national interconnecting networks that connect
with the international gateway to the Internet. This gateway is owned and
operated by the Chinese government, and is the only means of connection to
the
international Internet network. Although private sector ISPs exist in PRC,
almost all access to the Internet is accomplished through ChinaNet, PRC’s
primary commercial network, which is owned and operated by the Chinese
government. We will rely on this backbone enterprise and telecom companies
to
provide data communications capacity primarily through local telecommunications
lines. As a result, we will continue to depend on the Chinese government to
establish and maintain a reliable Internet infrastructure to reach a broader
Internet user base in PRC. We will have no means of accessing alternative
networks and services in PRC, on a timely basis or at all, in the event of
any
disruption or failure. The Internet infrastructure in PRC may not support the
demands associated with continued growth. If the necessary infrastructure
standards or protocols or complementary products, services or facilities are
not
developed by the Chinese government, our business could be materially and
adversely affected.
We
expect
to derive a substantial percentage of our revenues from the Greater China
market. Changes in political or economic conditions in the region are difficult
to predict and could adversely affect our operations or cause the Greater China
market to become less attractive to advertisers, which could reduce our
revenues. We intend to maintain a strong local identity and presence in each
of
the regions in the Greater China market, although we may not be able to maintain
effectively this local identity if political conditions were to change.
In
addition, economic reforms in the region could affect our business in ways
that
are difficult to predict. Since the late 1970s, the Chinese government has
been
reforming the Chinese economic system to emphasize enterprise autonomy and
the
utilization of market mechanisms. Although we believe that these reform measures
have had a positive effect on the economic development in PRC, they may not
be
effective or benefit our business.
There
are economic risks associated with doing business in Greater
China.
PRC
.
The
Chinese government has been reforming its economic system since the late 1970s.
The economy of PRC has historically been a planned economy, subject to
governmental plans and quotas and has, in certain aspects, been transitioning
to
a more market-oriented economy. Although we believe the economic reform and
the
macroeconomic measures adopted by the Chinese government have had a positive
effect on the economic reform and the macroeconomic measures adopted by the
Chinese government have had a positive effect on the economic development of
PRC, we cannot predict the future direction of these economic reforms or the
effects these measures may have on our business, financial position or results
of operations. In addition, the Chinese economy differs from the economies
of
most countries belonging to the Organization for Economic Cooperation and
Development, or OECD. These differences include:
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PRC
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OECD
|
Economic
structure:
|
|
Planned
economy, but in a slow process of transition to a market
economy
|
|
Market
economy
|
Level
of government involvement in the economy:
|
|
Very
high
|
|
Low
to moderate
|
Level
of economic development:
|
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Developing
country
|
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Developed
countries
|
Control
of foreign exchange:
|
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Government
controlled
|
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Market
driven
|
Methods
of allocation resources:
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|
Government
controlled, but in the slow process of transition to a market
economy
|
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Market
driven
|
As
a
result of these differences, our business may not develop in the same way or
at
the same rate as might be expected if the Chinese economy were similar to those
of the OECD member countries. Changes in the PRC’s political, economic and
social conditions, adjustments in policies of the Chinese government or changes
in the Chinese’s laws and regulations may adversely affect our results of
operations and financial condition. The Chinese economy has experienced
significant growth in the past decade, but this growth has been uneven across
geographic and economic sectors and has recently been slowing. Such growth
may
not continue and any slow-down may have a negative effect on our business.
The
international financial markets in which the securities of the Chinese
government, agencies and private entities are traded have experienced
significant price fluctuations upon speculation that the Chinese government
may
devalue the renminbi which could increase our costs relative to our Chinese
revenues.
Hong
Kong.
As part
of our expansion plan, a small part of our business will be generated from
Hong
Kong. Hong Kong is a Special Administrative Region of the PRC (“SAR”) with its
own government and legislature. Hong Kong enjoys a high degree of autonomy
from
PRC under the principle of one country, two systems, however, such autonomy
may
not continue. The Hong Kong dollar has remained relatively constant due to
the
U.S. dollar peg and currency board system that has been in effect in Hong Kong
since 1983. However, in early 1999, the Hong Kong dollar was subject to currency
speculation and the SAR government substantially supported the market for the
Hong Kong dollar, both directly and indirectly through the large-scale purchase
of securities listed on the Hong Kong Stock Exchange. The historical currency
peg of the Hong Kong dollar to the U.S. dollar may not be maintained, and
accordingly may adversely affect our business.
Taiwan.
A small
part of our future revenues may be derived from the Taiwan market. Taiwan has
a
unique international political status. The Chinese government asserts
sovereignty over Taiwan and does not recognize the legitimacy of the Taiwan
government. Although significant economic and cultural relations have been
established in recent years between Taiwan and PRC, PRC has refused to renounce
the possibility that it may at some point use force to gain control over Taiwan.
Relations between Taiwan and PRC have been strained since mid-1999 as a result
of then-President Lee Teng-Hui’s assertion that relations between the two sides
should be conducted on a special state-to-state basis. During the Macau handover
ceremony in 1999, President Jiang Zemin reiterated PRC position towards Taiwan,
stating that he was confident that Taiwan would soon be reunified with PRC
in
order to complete PRC’s plans for national reunification. The election of
pro-independence candidate Chen Shui-bian as the new President of Taiwan in
early 2000, and Taiwan’s recent request to purchase strategic arms and defense
technology from the United States have created additional uncertainty to the
already tenuous relationship between PRC and Taiwan. Strained relations between
Taiwan and PRC could adversely affect our business, results of operations or
financial condition. Between late 1997 and early 1999, the NT dollar, the
currency of Taiwan, experienced considerable volatility and depreciation as
a
result of the economic downturn in Asia. Continued volatility and depreciation
of the NT dollar could adversely affect our business, results of operations
and
financial condition. Taiwan has recently experienced a recession primarily
due
to a reduction in exports due to weakened demand for imported goods in many
Asian countries and a continued recession in Taiwan may materially affect our
business.
The
PRC
’
s
regulation of content distributed on the Internet may adversely affect our
business.
PRC
has
enacted regulations governing Internet access and the distribution of news
and
other information. The Ministry of Information Industry (the “MII”) has
published implementing regulations that subject online information providers
to
potential liability for content included on their portals and the actions of
subscribers and others using their systems, including liability for violation
of
Chinese laws prohibiting the distribution of content deemed to be socially
destabilizing. Because many Chinese laws, regulations and legal requirements
with regard to the Internet are relatively new and untested, their
interpretation and enforcement of what is deemed to be socially destabilizing
by
Chinese authorities may involve significant uncertainty. Under the PRC’s
regulations on telecommunications and Internet information services, Internet
information service providers are prohibited from producing, duplicating,
releasing or distributing any information which falls within one or more of
nine
stipulated categories of “undesirable content”. These categories cover any
information which:
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contravenes
the basic principles enshrined in the PRC
Constitution;
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·
|
endangers
the security or unity of the State;
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·
|
undermines
the State’s religious policies;
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·
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undermines
public order or social stability;
or
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|
contains
obscene, pornographic, violent or other illegal content or information
otherwise prohibited by law.
|
Internet
information service providers found to be disseminating information that falls
under any of these categories must cease immediately, keep a record of the
relevant information, and report to the appropriate government
authority.
In
addition, the Chinese legal system is a civil law system based on written
statutes. Unlike common law systems, it is a system in which decided legal
cases
have little precedential value. As a result, it is difficult to determine the
type of content that may result in liability. We cannot predict the effect
of
further developments in the Chinese legal system, particularly with regard
to
the Internet and the dissemination of news content, including the creation
of
new laws, changes to existing laws or the interpretation or enforcement thereof,
or the pre-emption of local regulations by national laws.
Periodically,
the Ministry of Public Security has stopped the distribution of information
over
the Internet which it believes to be socially destabilizing. The Ministry of
Public Security has the authority to cause any local ISP to block any website
maintained outside of PRC at our sole discretion. websites that are blocked
in
PRC include many major news-related websites such as www.cnn.com,
www.latimes.com, www.nytimes.com and ww.appledaily.com.hk
.
The
Chinese government has also expressed its intention to closely control possible
new areas of business presented by the Internet, such as Internet
telephony.
Violations
or perceived violations of Chinese laws arising from information displayed,
retrieved from or linked to our portals could result in significant penalties,
including a temporary or complete cessation of our business in PRC. Chinese
government agencies have recently announced restrictions on the transmission
of
state secrets through the Internet. State secrets have been broadly interpreted
by Chinese governmental authorities in the past. We may be liable under these
new pronouncements for content and materials posted or transmitted by users
on
our message boards, virtual communities, chat rooms or e-mails. If the Chinese
government were to take any action to limit or eliminate the distribution of
information through our portal network or to limit or regulate any current
or
future applications available to users on our portal network, this action could
have a material adverse effect on our business, financial condition and results
of operations.
We
may be adversely affected by Chinese government regulation of Internet
companies.
The
Chinese government heavily regulates the Internet sector including the legality
of foreign investment in the Chinese Internet sector, the existence and
enforcement of content restrictions on the Internet and the licensing and permit
requirements for companies in the Internet industry. Because these laws,
regulations and legal requirements with regard to the Internet are relatively
new, their interpretation and enforcement may involve significant uncertainty.
In addition, the Chinese legal system is a civil law system in which decided
legal cases have limited binding force as legal precedents. As a result, in
many
cases it is difficult to determine what actions or omissions may result in
liability.
Issues,
risks and uncertainties relating to the PRC government regulation of the Chinese
Internet sector include the following:
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·
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China
began its fourth year as a World Trade Organization (WTO) member
on
December 11, 2003 The problems that foreign telecom service providers
have
faced in accessing China's market should improve in year four as
foreign
companies will be permitted to establish joint venture operations
in
domestic or international data services without quantitative restrictions
in Beijing, Guangzhou, and Shanghai—though the foreign investment share
may not exceed 25 percent. Foreign companies will be able to invest
up to
49 percent. Although, PRC was officially admitted to the WTO, it
is still
not clear how this agreement may be changed in
future.
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The
numerous and often vague restrictions on acceptable content in the
PRC
subjects us to potential civil and criminal liability, temporary
blockage
of our website or complete cessation of our website. For example,
the
State Secrecy Bureau, which is directly responsible for the protection
of
state secrets of all Chinese government and Chinese Communist Party
organizations, is authorized to block any website it deems to be
leaking
state secrets or failing to meet the relevant regulations relating
to the
protection of state secrets in the distribution of online
information.
|
The
interpretation and application of existing Chinese laws and regulations, the
stated positions of the MII and possible new laws or regulations have created
substantial uncertainties regarding the legality of existing and future foreign
investments in, and the businesses and activities of, Chinese Internet
businesses, including our business.
If
we do not comply with Chinese regulations relating to our scope of permitted
business, Chinese regulators could cause us to discontinue our operations in
the
PRC.
The
Chinese government regulates access to the Internet by imposing strict licensing
requirements and requiring ISPs in PRC to use the international inbound and
outbound Internet backbones. The Chinese government may require that we obtain
a
license for Internet access in the future based on new legislation or otherwise.
We may not be able to obtain all necessary licenses required in the future,
and
any future changes in Chinese government policies may impose additional
regulatory requirements on us or our service providers, intensify competition
in
PRC information industry or otherwise have a material adverse effect on our
business, financial condition and results of operations.
We
are
uncertain as to whether the Chinese government will reclassify our business
as a
media or a retail company, due, among other things, to our acceptance of
Internet advertising and electronic commerce related services fees as sources
of
revenue. Any reclassification could subject us to penalties or fines or
significant restrictions on our business. We are also uncertain whether the
Chinese government will reclassify our business as a telecommunications
business, potentially resulting in significant restrictions on our
business.
If
we do not comply with Chinese government regulations relating to foreign
investment prohibitions, the Chinese government could
cause
us
to discontinue our operations in China
.
Chinese
government policy prohibits foreign investment in the telecommunications
services industry, which it has defined to include Internet-related businesses.
We may not be in compliance with current Chinese government policies and the
Chinese government may not view our intended business in the PRC as in
compliance with these policies or any policies that may be made in the future.
If we are not viewed as complying with these policies or any regulations that
may be created relating to foreign ownership of Internet- related businesses,
the Chinese government could block us from starting our development plan in
PRC
or take other actions that could harm our business.
Even
if we are in compliance with Chinese governmental regulations relating to
licensing and foreign investment prohibitions, the Chinese government may
prevent us from distributing, and we may be subject to liability for, content
that it believes is inappropriate.
The
PRC
has enacted regulations governing Internet access and the distribution of news
and other information. In the past, the Chinese government has stopped the
distribution of information over the Internet that it believes to violate
Chinese law, including content that it believes is obscene, incites violence,
endangers national security, is contrary to the national interest or is
defamatory. In addition, we may not publish certain news items, such as news
relating to national security, without permission from the Chinese government.
Furthermore, the Ministry of Public Security has the authority to cause any
local Internet service provider to block any website maintained outside PRC
at
our sole discretion. Even if we comply with Chinese governmental regulations
relating to licensing and foreign investment prohibitions, if the Chinese
government were to take any action to limit or prohibit the distribution of
information through our network or to limit or regulate any current or future
content or services available to users on our network, our business would be
harmed.
We
are
also subject to potential liability for content on our websites that is deemed
inappropriate and for any unlawful actions of our subscribers and other users
of
our systems under regulations promulgated by the MII. Furthermore, are required
to delete content that clearly violates the laws of PRC and report content
that
we suspect may violate Chinese law. It is difficult to determine the type of
content that may result in liability for us, and if we are wrong, we may be
prevented from operating our websites.
If
we do not comply with Chinese government regulations related to organizing
public business and investment seminars and conferences, the Chinese government
could cause us to discontinue our seminar services in
China.
We
typically work with local event organizers in China to help us establish
seminars and conferences who we depend on to obtain proper permits in China
for
these events. However, if the Chinese government found that we are not compliant
with their requirements to hold seminars and conferences in China, they may
prohibit us from holding future events which would result in a significant
restriction to our business and negatively impact our revenues.
Currency
fluctuations and restrictions on currency exchange may adversely
affect
our
business, including limiting our ability to convert Chinese renminbi into
foreign currencies and, if renminbi were to decline in value, reducing our
projected revenues in U.S. dollars
.
We
intend
to generate revenues and incur expenses and liabilities in Chinese renminbi,
Taiwan dollars, Hong Kong dollars, Canadian dollars and U.S. dollars. As a
result, we are subject to the effects of exchange rate fluctuations with respect
to any of these currencies. For example, the value of the renminbi depends
to a
large extent on PRC’s domestic and international economic and political
developments, as well as supply and demand in the local market. Since July
of
1995, the official exchange rate for the conversion of renminbi to U.S. dollars
has been free floating and the renminbi has appreciated slightly against the
U.S. dollar. So the renminbi may not continue to remain stable against the
U.S.
dollar or any other foreign currency. Our results of operations and financial
condition may be affected by changes in the value of renminbi and other
currencies in which our earnings and obligations are denominated. We have not
entered into agreements or purchased instruments to hedge our exchange rate
risks, although we may do so in the future.
Although
Chinese governmental policies were introduced in 1996 to allow the
convertibility of renminbi into foreign currency for current account items,
conversion of renminbi into foreign exchange for capital items, such as foreign
direct investment, loans or security, requires the approval of the State
Administration of Foreign Exchange, or SAFE, which is under the authority of
the
People’s Bank of China. These approvals, however, do not guarantee the
availability of foreign currency. We may not be able to obtain all required
conversion approvals for our operations, and Chinese regulatory authorities
may
impose greater restrictions on the convertibility of the renminbi in the future.
Because a significant amount of our future revenues may be in the form of
renminbi, our inability to obtain the requisite approvals or any future
restrictions on currency exchanges will limit our ability to utilize revenue
generated in renminbi to fund our business activities outside the
PRC.
Terrorist
activities and resulting military and other actions could adversely affect
our
business.
The
terrorist acts in New York, Washington, D.C. and Pennsylvania on September
11,
2001 have created an uncertain economic environment and we are unable to predict
the impact these events, or the responses thereto, will have on our business.
The continued threat of terrorism within the United States and abroad and
military action and heightened security measures in response to such threat
may
cause significant economic disruptions throughout the world. Our business,
results of operations and financial condition could be materially and adversely
affected to the extent such disruptions result in our inability to effectively
market and sell our services and software.
Risks
Related to Our Common Shares and Shareholder Rights
We
do not intend to pay cash dividends, so any return on investment to an investor
must come from appreciation.
To
date,
we have not paid a dividend on our common shares and do not intend to do so
in
the foreseeable future, as we expect any excess funds will be reinvested in
implementing our business plan. As a result, any return on investment in our
common shares must come from increases in the fair market value and trading
price of our common stock.
Our
Common Shares became traded on the OTC Bulletin Board in October 2006 and it
is
considered a “penny stock” and a shareholder’s ability to buy and sell shares in
the secondary market may be limited.
On
September 25, 2006, we obtained the trading symbol of “CWNOF.OB” and began
trading on the OTC Bulletin Board in October 2006. The liquidity of our common
shares would continue to be limited, not only in the number of shares that
are
bought and sold, but also through delays in the timing of transactions, and
the
lack of coverage by security analysts and the news media of our company. In
addition, any shares quoted on the OTC Bulletin Board would be subject to
certain rules and regulations relating to “penny stock.” A “penny stock” is
generally defined as any equity security that has a price less than $5.00 per
share and that is not quoted on the Nasdaq Stock Market or a national securities
exchange. Being a penny stock generally would mean that any broker who wanted
to
trade in our shares (other than with established customers and certain
institutional investors) must comply with certain “sales practice requirements,”
including delivery to the prospective purchaser of the penny stock a risk
disclosure document describing the penny stock market and the risks associated
therewith. In addition, broker-dealers must take certain steps prior to selling
a “penny stock,” which steps include:
|
·
|
obtaining
financial and investment information from the
investor;
|
|
·
|
obtaining
a written suitability questionnaire and purchase agreement signed
by the
investor; and
|
|
·
|
providing
the investor a written identification of the shares being offered
and the
quantity of the shares.
|
If
these
penny stock rules are not followed by the broker-dealer, the investor has no
obligation to purchase the shares. The application of these comprehensive rules
could make it more difficult for broker-dealers to sell our common shares,
and
as a practical matter, these requirements may mean that brokers would be less
likely to make recommendations on our shares to its general
customers.
Shares
eligible for future sale may have a substantial depressing effect on the stock
price.
As
of
December 31
st
2007, we
have outstanding an aggregate of 10,700,000 shares of common stock, which
includes 2,870,000 shares were freely transferable without restriction under
the
securities Act (excluding any shares purchased in the offering by any person
who
is or thereby becomes an “affiliate” of us). There were a total of 7,830,000
common stock as “restricted securities”, the term is defined in Rule 144 under
the Securities Act.
We
are unable to predict the effect that sales of the shares offered hereby, or
sales under Rule 144 may have on the then prevailing market price of the shares,
but such sales may have a substantial depressing effect on such market
price.
All
of
our officers, directors and 5% or more stockholders have agreed not to, directly
or indirectly, issue, agree or offer publicly to sell, grant an option for
the
purchase or sale of, assign, transfer, pledge, hypothecate, distribute or
otherwise encumber or dispose of, any shares of the common stock or other equity
securities of ours or other securities convertible unto or exercisable for
such
shares of the common stock or other equity securities except pursuant to an
effective registration statement under the Act, or pursuant to an exemption
from
registration under the Act, the availability of which is to be established
to
the satisfaction of the Company.
The
absence of a prior public market for the shares may lead to high volatility
in
the stock price.
Prior
to
our approval for trading there has been no public market for our common stock
and there can be no assurance that an active public trading market for our
common stock will develop or be sustained. The absence of an active trading
market would adversely affect the liquidity of the shares and existing
shareholders might have difficulty in selling their shares. In addition, the
stock market is subject to price and volume fluctuations affecting the market
price for public companies generally, which fluctuations maybe unrelated to
the
operating results or other circumstances of a particular company. Such
fluctuations may adversely affect the liquidity of the shares, as well as the
price that holders may achieve for the securities upon any future
sale.
Our
shareholders may face difficulties in protecting their interests because we
are
incorporated under Cayman Islands law
Our
corporate affairs are governed by our memorandum and articles of association,
by
the
Company
Law
(1998
Revision) and the common law of the Cayman Islands. The rights of shareholders
to take action against our directors, actions by minority shareholders and
the
fiduciary responsibilities of our directors under Cayman Islands law are to
a
large extent governed by the common law of the Cayman Islands.
Under
the
common law of the Cayman Islands, the fiduciary relationship of a director
is to
us and a director therefore does not usually owe a fiduciary duty to individual
shareholders. As a result, it may be difficult for a shareholder to take action
against the directors for breach of fiduciary duty.
The
common law in the Cayman Islands is derived in part from comparatively limited
judicial precedent in the Cayman Islands and from English common law, the
decisions of whose courts are of persuasive authority but are not binding on
a
court in the Cayman Islands. Cayman Islands law in this area may conflict with
jurisdictions in the United States. As a result, our public shareholders may
face more difficulties in protecting their interests in the face of actions
against the management, directors or our controlling shareholders than would
shareholders of a corporation incorporated in a jurisdiction in the United
States.
There
is uncertainty as to our shareholders
’
ability to enforce civil liabilities in the Cayman Islands, Hong Kong, Taiwan
and
PRC.
We
are a
Cayman Islands company have no assets located in the United States. A
substantial portion of our current operations is conducted in Canada and we
expect to expand to Hong Kong, Taiwan and PRC. In addition, all of our directors
and officers are nationals and/or residents of countries other than the United
States. All or a substantial portion of the assets of these persons are located
outside the United States. As a result, it may be difficult for you to effect
service of process within the United States upon these persons. In addition,
there is uncertainty as to whether the courts of the Cayman Islands, Canada,
Hong Kong, Taiwan and, PRC and other jurisdictions would recognize or enforce
judgments of United States courts obtained against us or such persons predicated
upon the civil liability provisions of the securities laws of the United States
or any state thereof, or be competent to hear original actions brought in the
Cayman Islands, Canada, Hong Kong, Taiwan, PRC or other jurisdictions against
us
or such persons predicated upon the securities laws of the United States or
any
of our state.
ITEM
4.
INFORMATION
ON
THE
COMPANY
A.
History
and Development of CWN
ChineseWorldNet.Com
Inc. was incorporated on January 12, 2000 under the
Company
Law
(1998
revision) of the Cayman Islands and commenced business in 2000. We are
principally based in the Cayman Islands and our operations are primarily
conducted in North America and Asia. The address of our principal registered
and
executive head office is that of our agent, Appleby Spurling Hunter, being:
Clifton House, P.O. Box 1350GT, Grand Cayman, Cayman Islands, Telephone (345)
949-4900. Our North American office and principal place of business is located
at Suite 368- 1199 West Pender Street, Vancouver, British Columbia, Canada
V6E
2R1, Telephone (604) 488-8878.
There
are
currently no employees stationed in Toronto. In 2005, we discontinued our lease
of business center space in Toronto, which was used by our employees in
Vancouver when they travelled to Toronto. Starting February 2005, we began
renting a P.O. box at The Toronto Board of Trade at P.O. Box 60, 1 First
Canadian Place, Toronto, Ontario, M5X 1C1 which forwards our mail back to our
Vancouver office.
On
November 1, 2004, we also started operations in Hong Kong through our
subsidiary, CWNHK, at their office at Room 1101, St. George’s Building, 2 Ice
House Street Central, Hong Kong. CWNHK provides us with
a
local
operation base for CWN’s penetration and expansion plans in the Asian market.
There are currently no employees of CWN stationed permanently in Hong Kong.
As
of
December 31, 2006, we have updated our business model and currently consist
of
four principal business: (1) the Internet Financial Portal (“Portal”) business,
conducted under the ChineseWorldnet.com brand via “www.chineseworldnet.com”
website and (2) the Investor Relations / Public Relations (“IR/PR”) business
conducted through NAI via a number of media channels including the internet
“www.na-investor.com” website, as well as promotional services, (3)the
investment seminars/conferences (Conference”) business conducted via the brand
of Global Chinese Financial Forum, and (4) the “Online Platform” business
conducted through the Rong Zhi Tong Online brand via “
www.rzto.com
”
website. Our IR/PR business was the result of the acquisition of NAI-Interactive
Ltd, a Canadian company incorporated under the laws of British Columbia, on
January 15, 2000 from Ms. Tim Yee Lau, the wife of our President and Chief
Executive Officer, Mr. Joe Tai. The purchase price was 112,500 of our common
shares valued at $5,625. Our Conference business is the successful result of
and
had separated from our IR/PR business. Our Online Platform business was launched
as of October 2006 and primarily served as a financing engine that connects
professional service providers with small to medium size companies in greater
China regions.
Our
plan
was to first launch our Portal and IR/PR businesses in North America and then
to
expand all businesses into Hong Kong, the PRC and Taiwan. See “Corporate
Strategy and Strategic Business Plan” below for details. We have launched the
Portal and IR/PR businesses in North America. On October 26
th
2007, we
completed a non-brokered private placement of 2,250,000 common shares at a
price
of $1.08 per share for total proceeds of $2,070,000 with the purpose of
expanding all businesses into China in June of 2008, our plans of expanding
have
been met with the successful formation of the Chinese-Foreign Joint Venture
ChineseWorldNet.com (Shanghai) Limited ("Chinese JV") resulting from the signing
of a Definitive Joint-Venture Agreement between its subsidiary, ChineseWorldNet
(Hong Kong) Ltd. ("ChineseWorldNet") and Shanghai Compass Venture Capital
Investment Limited Company. The office of Chinese JV at PuDong in Shanghai
will
be open in the mid of 2008.
B.
Business
Overview
Internet
Financial Portal Business
Introduction
ChineseWorldNet.com,
via our “
www.chineseworldnet.com
”
website, is a financial web-based portal that provides up-to-date financial
information and financial management tools in Chinese to our target audience,
the Chinese community in North America. Our Portal provides financial news
and
information on North American blue chip and large cap S&P 500 public
companies listed or quoted on the New York Stock Exchange, the American
Exchange, NASDAQ and Toronto Stock Exchange, as well as Shanghai Stock Exchange
and Shenzhen Stock Exchange and Taiwanese companies and market news by an
in-house editorial team, with Hong Kong company and market news provided by
our
partners. When the Portal was in its development stage, all of the information
or services provided through our
www.chineseworldnet.com
website was free
of charge even though certain premium information and services such as premium
articles and market commentary were only accessible by registered subscribers,
who paid no subscription fee. After the official launch of the
www.chineseworldnet.com
website in October 2002, we introduced a new
level of subscribers called “Premium Subscribers,” who are required to be
registered as a subscriber and pay a fee to obtain certain premium and
personalized products and services.
We
generate direct revenues from a number of means through the
www.chineseworldnet.com
website including premium subscription fees and
on-line marketing services. See “Revenue Model of the Portal Business” below for
further details.
Current
Product / Service Offering
Services
The
following features are provided free of charge on the
www.chineseworldnet.com
website to all readers, other than the Premium
Services described below for which we charge a fee. Readers are not required
to
register as subscribers at this time although we may in the future require
registration before allowing access to the services described
below.
1.
Company
Profile
This
section features a variety of interactive investment tools that enable users
to
conduct their own financial research, including:
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·
|
Summary
company profiles;
|
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·
|
Analysts’
buy/sell ratings;
|
|
·
|
Insider
trading information;
|
|
·
|
Intraday
and Historical stock charts;
|
|
·
|
Financial
Statement Summary; and
|
|
·
|
Foreign
Exchange information.
|
2.
Markets
This
section, which features continuously updated market news stories from about
5
a.m. until 5 p.m. Pacific Standard Time each business day, covers the latest
movements of the major indices, the most active stocks, news from foreign
markets, earnings news, mergers and acquisitions news and other major market
events.
3.
Headlines
Throughout
the day, we provide headlines and brief news stories that cover the various
corporate announcements and news throughout the day.
4.
Commentary
This
section includes commentary prepared by employees or from outside contributors
who write about topics such as money management, technical analysis, currency
issues, industry analysis, macroeconomics, fundamental analysis, financial
planning, mutual funds, initial public offerings, technology and international
investing.
5.
Premium
Services
These
additional services are provided to Premium Subscribers, who currently pay
a
monthly subscription fee of $9.95. In addition to the monthly subscription
fee,
as of May 1, 2005, the annual subscription fee was implemented and is charged
at
$59.95 per annum. Please see “Corporate Strategy and Strategic Business Plan”
section below for details.
a.
Personalized Financial Services “MyCWN”
In
addition to the provision of financial news and corporate information on public
companies in North America and the Greater China region, our
www.chineseworldnet.com
website
also offers to our subscribers, through partnerships and affiliations,
additional personalized services such as online investment tools and
applications such as portfolio tracking. In October 2002, we launched a platform
called “MyCWN” on our
www.chineseworldnet.com
website
that enables members to create a personalized portal to manage their stock
portfolios. Registered users can customize their personal stock portfolio and
view financial news and information, which will be automatically updated.
b.
CWN
Research Reports
Subscribers
get access to weekly in-depth research reports written by our in-house editing
team on individual stocks, the over all market trend, industry, other topics
of
interest.
c.
Real-Time Stock Quotes
Starting
in October 2002, we offered real-time streaming stock quotes as an additional
premium service for registered users for which we charge a fee. This service
is
provided through a third-party supplier. The current fee is $30 per month per
user for Level 1 real time quotes and $40 per month per user for Level 2 real
time quotes as of May 1, 2005. Level 1 represents the basic real-time stock
price while Level 2 quotes include the market depth of the trading activity
also.
We
are in
the planning stage for other premium services, such as special investment tools
and premium research reports, for the web portal.
Revenue
Model for the Portal Business
1.
Subscription
Fees
Until
October 2002, all of the information or services provided through our
www.chineseworldnet.com website was offered free of charge even though certain
premium information and services such as premium articles and market commentary
were only accessible by registered subscribers, who were not required to pay
a
subscription fee. Since the official launch of the
www.chineseworldnet.com
website in October 2002, we introduced a new
level of subscribers called “Premium Subscribers”, who are required to be
registered as subscribers and to pay a subscription fee to obtain access to
certain premium and personalized products and services. Basic monthly
subscription fees were decreased from $14.95 per user per month to $9.95 per
user per month starting June 2005. The Company wanted to attract more
subscribers to our website and believed that the most effective way was opening
more free content to free subscribers and reducing the monthly fee to paying
subscribers. On May 1, 2005, the annual subscription fee was implemented and
is
charged at $59.95 per annum.
2.
Banner
Advertising
CWN
intends to derive revenue from selling banner advertising to companies on the
www.chineseworldnet.com
website. The fee for six-month banner advertising
ranges between $750 to $1,200 started year 2007 increased from $250 to $500
per
month based on an estimated number of times the banner advertising will be
seen
by readers of the www.chineseworldnet.com website. The fee adjustment was a
result of meeting the industry needs. We charge monthly flat fees for the
services we provide, and revenue generated from banner advertising is recognized
monthly, based on the terms committed by our customers. The amount of fees
charged depends on the size and the location of the banner advertisement on
our
website. There is no adjustment to the monthly fee if the actual clicks differ
from the estimated clicks.
3.
Marketing
Services for Financial Services
It
is our
intention that our members will be able to access information on various
financial products and service providers such as on-line brokerage, mutual
funds, insurance and bonds through logging onto independent on-line Internet
based trading platforms of our proposed partners. However, we will not be
involved in effecting transactions in securities for the account of others
such
as the solicitation, negotiation or execution of the transactions. All trading
transaction will be performed directly between the subscribers and the partner
companies. In order to do so, our members would have to independently register
with the on-line trading partner.
Our
Portal business has derived no revenue from this services offering. We will
not
receive transaction-based compensation either from our subscribers or the
partner companies. Instead, a flat marketing fee from partner companies will
be
paid to us based on the number of subscribers opening new accounts.
Investor
Relations / Public Relations (“IR/PR”) Business
Introduction
Our
IR/PR
business was the result of the acquisition of NAI. NAI operates our IR/PR
business currently focusing on providing IR/PR services for micro cap and small
cap public companies targeting to the Chinese investor community in North
America through various media such as the Internet (
www.na-investor.com
website), publications and investment seminars. Unlike the
www.chineseworldnet.com
business model, client companies instead of
individual investors pay a fee to NAI for the IR/PR services.
Current
Product / Service Offering
|
1.
|
Internet
website
(
www.na-investor.com
)
|
NAI
operates the www.na-investor.com website which provides IR/PR services to
fee-paying North American public company clients who are listed or quoted on
small and micro public markets in North America, such as the TSX Venture
Exchange, the NASD OTC Bulletin Board and the Toronto Stock Exchange. All
information on this website is in Chinese and the website also offers stock
quotes, company reviews, newsletters and guide to investing in small and
micro-cap companies to readers of the North American Chinese community.
Currently, there are over 45,000 registered members for the
www.na-investor.com
website and it attracts over 1,200,000 readers each
month.
Unlike
www.chineseworldnet.com, www.na-investor.com is not a financial portal for
fee-paying members but an Internet based medium for the dissemination of
information from fee-paying companies that want to increase their exposure
in
the Chinese investor community. There is no fee being charged to individual
registered members of the
www.na-investor.com
website.
|
2.
|
Online
Marketing Service
|
This
service aims to increase the publicity and website traffic to targeted audiences
for clients companies’ websites. Services include creation of search criteria
for Internet based search engines to enable quick access to client companies’
websites, email messages to NAI members and other services like on-line
promotional events that can help increase Internet traffic to client companies’
websites. The launch of “Mining Search Engine” was created in November 2006 to
focus the promotion of client companies particularly from the mining sector.
This services aims to provide and promote companies’ information and news to
investors and increase publicity.
|
3.
|
Chinese
Webpage Design, Hosting and
Maintenance
|
NAI
can
assist client companies to create a Chinese web page for companies that have
existing websites in English and would like to have link to a version of their
websites in Chinese. These Chinese webpages will also be linked to the
www.na-investor.com website in the featured company section. NAI charges a
one-time set-up fee plus 12-month maintenance fee in total of $2,400 for this
service. Due to the various demand of clients’ needs and the customized services
that we provide to client companies; as of January 1, 2006 the fees for this
service had been changed to range from $2,000 to $5,000 based on the customized
services we arranged in contracts.
NAI
also
provides translation services for client companies who want to translate
promotional or financial materials from English into Chinese. NAI charges $100
per page for the translation service.
|
5.
|
Miscellaneous
IR/PR Services
|
NAI
also
provides other miscellaneous IR/PR services to client companies such as design
and printing of promotional materials and financial reports. This includes
translation services for client companies who want to translate promotional
or
financial materials from English into Chinese. NAI charges $100 per page for
the
translation service.
NAI
started to publish specialty investment publications in 2002. Its first
investment handbook was on the mining sector. Companies pay $2,000 each to
be
profiled in the Chinese language handbook. The handbook is sold through our
offices, on-line, and in selected bookstores for CDN$13.80 Canadian. In 2005,
we
published the Mining Investment Guide, Vol 3. and Chinese stock Investment
Guide, Vol 1. In 2006, we published the Mining Investment Guide, Vol 4., and
is
sold for CDN$29.50 Canadian due to the increased in content. In 2007, we
published the Mining Investnent Guide, Vol 5, and is sold for USD$29.95, and
Chinese Theme Stocks Investment Guide Vol 2 - A New Chapter of Success, and
is
sold for USD$29.95.
Future
Product / Service Offering
Currently,
our IR/PR services are focused on introducing and promoting North American
client companies to the Chinese investor community in North America. NAI plans
to adopt the same model and expand it to other market segments such as,
promoting client companies from Asia to the Chinese investor community of North
America and Asian and North American client companies to the Chinese investor
community in Asia. In year 2007, NAI had successfully established client base
in
the mining /recourses sector; and plans to diversify into other sectors such
as
life science, technology, and industrials. See “Corporate Strategy and Strategic
Business Plan.”
Revenue
Model of the IR/PR Business
The
IR/PR
business is marketed via the brand name of NAI. Sources of revenue for the
IR/PR business are from each of the current product/service offerings mentioned
above such as on-line marketing service, Chinese webpage design, hosting and
maintenance, translation services, and miscellaneous IR/PR services.
Conference
Business
Introduction
& History
Originally,
the conference organizing services establish by the company was an integrated
aspect of the products and services provided by our IR/PR business. However,
because of the success of the conference series in 2006, the conference
organizing services were made into a separate aspect of business model.
Beginning
in 2000, NAI has marketed and organized 2 to 4 Chinese investment seminars
a
year during which, private and public companies pay a sponsorship fee to NAI
in
order to make presentations about their companies to individual Chinese
investors who attend the seminars. While it is free for individual investors
to
attend the investment seminars, NAI charges a fee of $4,000 per presenting
company for organizing these seminars. Similarly, the attendees of the
Investment Seminar are notified that it is a client company-sponsored event.
Seminars have been held in Vancouver, Toronto, and San Francisco.
In
2003
and 2005, NAI organized several conferences. In 2003, the conferences were
named
Chinese Financial Forum and in 2004, the Global Chinese Financial Forum to
reflect the international nature of the event. In 2004, we filed for trademark
protection for the name Global Chinese Financial Forum in Canada. The investment
seminar and conference website is
www.gcff.ca.
As of year 2006, Global
Chinese Financial Forum (“GCFF”) had segregated from the IR/PR business. Revenue
generated through GCFF is recorded under the revenue model of NAI.
Current
Product / Service Offering
GCFF
aims
to be the largest series of bilingual (Chinese/English) financial functions
in
North America in the purpose of providing networking environment and
opportunities between client companies and participants. The format of GCFF
is
conducted through exhibition booths and presentation sessions. While client
companies can purchase a booth area to showcase and promote their companies,
they can also conduct corporate presentations in the industry related topics
determined beforehand.
General
sponsorship opportunities are available for all conferences. Sponsorship is
divided into several categories for interested parties to participate and
sponsor our conferences. These categories include Platinum, Gold, Silver,
Corporate, and Media. While media sponsorship are offered without any fee,
the
four levels of sponsorship fees are ranged from $4,000 to $10,000. Currently,
individual investor attendees are not charged for admission and registration
for
attending the conferences. However, when the conferences have reached an
appropriate scale, we may begin charging entrance fees to attendees.
Future
Product / Service Offering
Currently,
GCFF have been held in North American cities such as Vancouver, Toronto, and
San
Francisco, mainly servicing clientele from North America. In July 2007, GCFF
had
successfully launched the first China-focus conference at Shanghai, China and
provided a network for both service providers and China companies. GCFF plans
for the continued success on conference organize at cities in China. GCFF also
plans to improve the format and focus on institutional clients as well as
establish its own brand name in both North America and Asia. See “Corporate
Strategy and Strategic Business Plan.”
Revenue
Model for the Conference Business
NAI
initially charges $2,000 for a basic exhibition booth per company, as well
as
sponsorship fees range from $4,000 to $10,000. Starting second quarter of 2007,
prices for exhibition booths and sponsorships have increased to $2,500 per
exhibition booth and sponsorship fees range from $6,000 to $20,000.
Online
Platform Business
Introduction
Rong
Zhi
Tong Online (“RZTO”) is a platform serving the fast-growing number of private
Chinese companies seeking listing and access to capital in North American
markets. The official launch of RZTO during October 2006 has initially
undertaken our plan to enter the greater China market. RZTO is based on a
membership model where both Chinese companies and North American financial
service providers will register to connect, access new projects, share ideas
and
business opportunities.
Up
until
December 31, 2007, membership for RZTO was free of charge. Members type range
from private and public companies, investment bankers and research analysts,
investor relations and stockbrokers, lawyers and accountants, as well as
professionals from exchanges and other sectors. Each member is required to
provide their company information through a registration form and their company
profile is generated from their imputed data. Membership information including
name, location, and brief company descriptions is available to public; while
contact information, personnel, financial and detail business information are
keep confidential and only registered members have access to the
database.
Current
Product / Service Offering
The
platform offers search functions, news update, events announcement, and
knowledge exchange to help members network with each other and build an online
financing community. RZTO offer the following search functions free of charge
and in future might add on more valuable search engines for members.
|
(1)
|
Service
Providers - This section includes the search of financial service
firms
and financial service professionals, which classified under different
types as well as the location in either North America or Greater
China.
|
|
(2)
|
China
Companies - This section includes the search functions in “Search
Companies Seeking Financing”, “Search Investors”, and “Search Public
Companies”. While members can search companies from various industry
sectors listed in the search box for all three of the search functions;
they can also search through a number of criteria to narrow their
search.
These criteria includes: net assets, sales, financing scale, and
3-years
sales growth in percentage. We might increase the number of search
criteria or improve the search engine functions in the future.
|
|
(3)
|
Projects
- This section includes search functions divided into “Financing Projects”
and “Investment Projects”. Members not only can search through industry
sectors but also the kind of financing strategies as well as the
financing
or investing scale.
|
|
(4)
|
Professional
Candidates - This search function provides members an opportunity
to find
individual professionals members for human resources purpose. The
data for
individual professional candidates is generated from the registration
information required to be a member of RZTO, and we will not undertake
verification or investigation of any such
information.
|
|
(5)
|
News
- This section currently is under development.
|
|
(6)
|
Knowledge –
This section provides articles and links on industry knowledge. Member
companies mostly post articles in a non-regular basis and some articles
are posted by our in-house editing team.
|
Revenue
Model for the Platform Business
Started
from October 2006, all members registered with RZTO are on a trial basis and
is
free of charge. RZTO intends to derive revenue from the membership model, and
might arrange a membership fee schedule in the future.
ChineseWorldNet.com,
Inc overall revenues for the years ended December 31, 2007, 2006 and 2005 were
as follows. All our revenues from all businesses are recognized in our 100
%
owned operating subsidiary NAI Interactive Ltd, which is based in Vancouver,
BC
in Canada.
Revenues
|
|
Year ended
Dec 31, 2007
|
|
Year ended
Dec 31, 2006
|
|
Year ended
Dec.31, 2005
|
|
Banner Advertisement
|
|
$
|
26,436
|
|
$
|
17,514
|
|
$
|
18,457
|
|
Translation
Service
|
|
|
5,090
|
|
|
3,420
|
|
|
10,973
|
|
Chinese
Webpage Design, Hosting and Maintenance
|
|
|
169,097
|
|
|
71,052
|
|
|
89,937
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer
Consultation Service
|
|
|
0
|
|
|
0
|
|
|
0
|
|
CWN
Membership, Online Service
|
|
|
15,556
|
|
|
8,524
|
|
|
11,475
|
|
Online
Marketing Service
|
|
|
25,826
|
|
|
14,880
|
|
|
13,107
|
|
Miscellaneous
IR/PR Service
|
|
|
223,006
|
|
|
170,489
|
|
|
169,866
|
|
Investment
Guides
|
|
|
85,245
|
|
|
78,921
|
|
|
42,880
|
|
GCFF
Conference Service
|
|
|
775,738
|
|
|
251,735
|
|
|
174,881
|
|
Others
|
|
|
0
|
|
|
26,835
|
|
|
1,945
|
|
TOTAL
REVENUE
|
|
|
1,325,994
|
|
$
|
643,370
|
|
$
|
533,521
|
|
Corporate
Strategy and Strategic Business Plan
Our
goal
is to become a global leader in communication and information gateways between
investors and service providers worldwide. We offer the Internet-based financial
community by providing a diverse range of financial information and news on
public companies to Chinese investors in North America and Asia. Through our
infrastructure and reader base, we strive to be a partner for various providers
of financial products and services for marketing to Chinese investors in North
America and Asia. We believe that we have already built a strong foundation
with
our current and planned product and service offerings of both the Portal and
IR/PR business. However, we believe that the IR/PR business has limited
potential in Hong Kong and China because these markets are different than the
North American markets and are more competitive. Our conferencing business,
named Global Chinese Financial Forum, had evolved into a stand-alone business
started from 2006 and established forums in major cities at North America &
China. By providing a business to business networking environment to companies
and service providers, we connect them together by various services we offer.
We
strive to primarily penetrate the China market and gradually expand towards
other cities in Asia. The official launch of RZTO, a platform serving the fast
growing number of private companies in China in connection with North American
service providers, had initiated more products and services that our company
can
offer to clients. Together, all four businesses enable us to enter the next
phase of our strategic plan which is to expand the reach of our businesses
and
services to users in Asia with a focus on the Greater China region. We believe
that one of the biggest advantages of running an Internet-based business is
that
we can leverage our existing infrastructure to reach a broader ranger of target
customers without a significant capital requirement. Based on this principle,
we
intend to maintain the operation of our businesses from our Vancouver office
in
Canada. However, we may consider other expansion options such as partnering
with
local partners or establishing a direct presence in certain markets.
As
part
of our proposed expansion into Asia, we started to establish partnership with
local China companies in year 2008. We had entered into a joint venture
agreement with Shanghai Compass Venture Capital Investment Limited Company
on
February 1
st
,
2008,
which led to the successful formation of
a
Chinese-Foreign Joint Venture ChineseWorldNet.com (Shanghai) Limited (“Chinese
JV”). The Chinese JV has a physical office located at Eton Place, Pudong Avenue,
555 Suite 1005, Pudong District, Shanghai, P.R. China. The Chinese JV serves
three main purposes: (1) It helps building channels to capture the financial
information business. (2) It would
assist
in
organizing and coordinating regional marketing activities, such as our Global
Chinese Financial Forum (GCFF). China GCFF has been scheduled to be held in
Dalian, China from October 30
th
2008
to
November 1
st
2008.
(3) This joint-venture will seek other business opportunities including the
development of investor relations/public relations business and to create a
basis for potential acquisition opportunities and to further the digital
financial media business in the Greater China region.
Details
of our proposed expansion strategy of our services into other markets are as
follows:
Geographic
Market
|
|
Target Launch Date of the
|
|
Local Presence
|
|
|
Portal
Business
|
|
IR/PR
Business
|
|
Online
Platform Business
|
|
Conferencing
Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
and the United States
|
|
Launched
in October 2002
|
|
Launched
in 2001
|
|
Launched
in October 2006
|
|
Launched
in May 2003
|
|
The
main operation of both businesses is from the Vancouver office.
|
|
|
|
|
|
|
|
|
|
|
|
Hong
Kong
|
|
Launched
in 4
th
Quarter of 2004
|
|
Not
Available
|
|
Not
Available
|
|
Not
Available
|
|
We
have already established a local presence in Hong Kong by incorporating
ChineseWorldNet.com (Hong Kong) Limited on December 22, 1999.
ChineseWorldNet.com (Hong Kong) Limited is 99% owned by us with 1%
owned
by one of our directors. We established a new office in Hong Kong
on
November 1, 2004.
The
market for IR/PR business at Hong Kong has not reach a mature stage
and
yet difficult for market penetration.
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
2
nd
Quarter of 2005
|
|
Not
Available
|
|
3
rd
Quarter of 2007
|
|
3
rd
Quarter of 2007
|
|
We
may establish a direct presence or seek strategic partners locally
to
launch the services
The
market for IR/PR business at PRC has not reach a mature stage and
yet
difficult for market penetration.
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan
|
|
3rd
Quarter of 2005
|
|
Not
Available
|
|
Not
Available
|
|
Not
Available
|
|
We
may establish a direct presence or seek strategic partners locally
to
launch the services
We
seek to establish a strong foundation in PRC prior entrance into
other
markets
|
Internet
Content Partners:
Through
NAI, we have agreements in place with the following internet content
partners:
Company
Name
|
|
Services
Provided
|
ALPHATRADE.COM
|
|
ALPHATRADE.COM
provides our subscribers real-time streaming stock information for
a
monthly fee.
|
PR
Newswire
|
|
We
disseminate PR Newswire Chinese news releases for companies in North
America, China, Hong Kong, and Taiwan on our
www.chineseworldnet.com
website. This information is free for viewers.
|
Tanrich
Financial Group
|
|
Tanrich
provides information on the Hong Kong future market and stock market
to us
in exchange for our commentaries and news on the North American stock
markets.
|
Quote123.com
|
|
Quote123
will provide news and market commentaries in North America to our
website.
|
FMFOREX
|
|
FMFOREX
will provide foreign exchange data, news, and articles to our
website
|
There
were no significant developments with partners established in 2006. Our major
focus during this time was opening up 80% of our paid content to our free
subscribers which resulted in a dramatic increase to the traffic of our website
www.chineseworldnet.com
. Our agreements with PR Newswire and Tanrich
Financial Group are service-to service connections which do not directly
generate fees. We provide a news channel to PR Newswire for online news media
in
return for PR Newswire’s content and trademark to be posted on our website.
Similarly, Tanrich Financial Group provides Hong Kong market sector news to
us
for marketing purposes and in return we provide a link on our website to access
the Tanrich Financial website. In 2007, we established a new partnership with
FMFOREX in order to obtain foreign exchange data and news, while providing
complimentary ad space on our website. Our agreements with FMFOREX are
service-to-service connections which do not generate revenue for the
company.
Technology
None
of
our application technologies are proprietary to us. The technologies used by
us
are incorporated from different commercially available software programs. CWN’s
application technology includes a collaborative authoring environment to enable
different users such as CWN’s in-house programs to work together on creating and
managing content for our websites. It enables those who use CWN’s communication
applications and content management applications to work together on creating
and managing content to CWN’s websites. All users have their own accounts and
can belong to any number of sites.
We
have
two servers to serve our websites in North America.
If
one of
the servers malfunctions, all other traffic is re-directed to the other server.
Both servers synchronize with each other every 30 seconds.
Our
Primary Markets
The
Internet
The
number of Internet users in the Asia-Pacific region has continued to increase
at
an unprecedented rate and has reached nearly 510 million according to the data
published by Internet World Stats in March 2007. This figure already surpassed
the figures in the whole North America. The percentage of users in the region
was 39 percent of the population compared to 28 percent in the rest of the
world.
By
December 2007, China had 210 million Internet users, which would make China
the
nation with the second-largest number of Internet users, behind the North
America, which had about 238 million users (same data), and ahead of third
place
Japan with 87.5 million users. The growth of Internet users in China from
2000-2007 is 833.3% compared to 115.7% in United States.
Hong
Kong
has a well educated, technologically savvy population. In December 2005,
Internet World Statistics reported that there were 4,878,713 Internet users
in
Hong Kong (representing 69.2% of the population), up from 4,661,589 in May
2004.
According to Nielsen/NetRatings, the active web usage in Hong Kong was 2,733,220
in July 2004, while the estimated active digital media universe is
4,878,713.
According
to the Internet Subscriber Survey conducted by the FIND team of the Advanced
Institute (ACI), Institute for Information Industry (III), under the support
of
Department of Industrial Technology (DOIT) and Ministry of Economic Affairs
(MOEA), it was estimated that there were 15.4 million Internet users in Taiwan
as of December 2007. The Internet penetration rate was 67.4%; compared to the
same time period in 2000, there was a significant increase and the growth rate
is 146%.
In
terms
of the Chinese market in North America, based upon the surveys described below,
we believe that the Chinese population has greater purchasing power than the
overall market. According to the independent survey done by ACNielsen at the
end
of year 2000 of residents in Vancouver, British Columbia, 46% of Chinese adults
age 18 and over own a single-detached home. Furthermore, 72% of Chinese
immigrants purchase new automobiles and 77% paid in cash for their new
automobiles. We believe that these statistics indicate the affluence of Chinese
immigrants to North America. Although the survey was only done in Vancouver,
we
believe this may indicate a trend throughout the major cities in North America.
We believe that one of the key statistics is that, as of 2000, 86% of the
Vancouver Chinese adults owned a home computer compared to only 50% of the
total
Canadian population. We believe this justifies the feasibility of a Chinese
internet market in North America and their level of disposable income. Another
significant market statistic is that of the top 10 media penetration in the
Vancouver Chinese population, only one of the media outlets is in the mainstream
English language market at 9
th
place.
This suggests that most Chinese immigrants focus more on media in their native
Chinese language.
Internet
Advertising Market
In
December 2002, eMarketer's "Media Spending Outlook 2003"
predicted
that in contrast to the steady decline seen in U.S. online advertising spending
in 2001 and 2002, 2003 online spending would rise slightly to $6.70 billion,
up
6.3% from $6.3 billion in 2002. This projected increase would likely be assisted
by the general easing of the economic recession. Also, eMarketer estimates
that
online advertising would make up 2.5% of total US media spending in 2002, rising
to 2.8% by 2005.
The
actual full year 2003 Internet advertising revenue in the United States was
just
under $7.3 billion, according to t
he
Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) in their
Internet Advertising Revenue Report released on April 21, 2004. This represented
an overall growth of approximately 21% from 2002.
The
Internet advertising market is expected to grow in the coming year. According
to
data released at the Jupiter/IAB Advertising forum in New York in October 2002,
the industry is predicted to grow to $14 billion by 2007. Factors that are
cited
as driving forces behind increased spending include: continual growth in
th
e
online
population, growing broadband adoption and smarter inventory control among
online publishers. Further, according to the Jupiter Research report, "Online
Advertising: Traditional Advertisers, Classifieds Pave Road to Recovery," in
2002, media represented 20% of online advertising spending, financial services
contributed 17% and computer hardware and software contributed 12%. For year
2006, eMarketer’s article had quoted data from Internet Advertising Bureau of
Canada’s (IAB’s) “2006-07 Canadian Internet Advertising Revenue Report”
indicated advertising revenues reached C$1.01 billion. Based on this data,
we
believe that our services and offerings are well positioned in a market that
is
continuing to grow.
Investor
Relations (“IR”) Market
For
the
other part of our business, the Investor Relations and Public Relations
business, we can refer to a membership survey done by the CIRI (Canadian
Investor Relations Institute) in 2000, which reported that the average annual
IR
budget for a company with a market capitalization below $99 million and between
$100 million to $499 million was $257,000 CDN and $485,000 CDN, respectively.
There are about 15,000 public companies in North America, and based on these
numbers, we estimate the total IR market in North American to be $2.5 billion
annually.
The
IR/PR
market in Greater China is not well-established yet. However, that means that
we
could become one of the industry leaders in this area due to our existing
infrastructure. A main problem of the Hong Kong Growth Enterprise Market
(“GEM”), the stock exchange for micro-small cap start-up companies, is that
there is very limited liquidity in terms of stock trading due to low market
awareness of companies listed in GEM. With the number of listed companies
increasing in the PRC and the existing well-established financial systems and
markets in Hong Kong and Taiwan, we believe that the IR/PR business potential
in
the Greater China region is favourable.
Conference
/ Seminar Market
Because
our conference business targets Chinese companies seeking to invest and
establish business connections with North American servicing firms, we believe
our market will grow substantially with the increasing number of Chinese outward
direct investments (ODI). For year 2005 figure by the Commerce Ministry, China’s
ODI rose 26% to US$6.9 billion, and the PRC’s policy on economic development had
attracted investment from North American firms.
According
to the annual survey that was done jointly by the Asia Pacific Foundation of
Canada (APF Canada) and the China Council for the Promotion of International
Trade (CCPIT) on December 2006, there have been an increasing number of
companies from China that involve ODI. In which over 40 percent of the surveyed
companies are intend to invest overseas within the next 3 to 5 years period.
The
survey result also indicated the existing ODI targets foreign markets, and
merging with and acquiring foreign firms is becoming one of the options for
Chinese companies’ ODI. In particular, the three most preferred method of future
Chinese ODI are establishing sales offices, setting up equity joint ventures
with local firms and merging and acquiring foreign assets or firms. With the
growing figures of overseas investment and the economic development between
North America and Asia, we believe the growth of our conference business will
be
substantial in both scale and scope.
Competition
The
Internet based financial services industry is very competitive. The Greater
China and Asian Internet markets have an increasing number of entrants because
Internet start-up costs are low. In addition, the Internet industry is
relatively new and subject to continuing definition. As a result, many of our
competitors may better position themselves to compete in the market as the
Internet market matures. We believe that, taken separately, each of our services
has competition from companies with longer operating histories in the Internet
market, greater name recognition, larger customer bases and databases and
significantly greater financial, technical and marketing resources. Any of
our
present or future competitors may provide products and services that provide
significant performance, price, creative or other advantages over those offered
by us. We may not be able to compete successfully against our current or future
competitors.
There
are
three primary competitors offering websites that contain financial services
in
Chinese (as well as other services) although neither is offering exactly the
same-targeted financial services.
·
Chineseinvestors.com
Inc. operates the
www.chinesefn.com
website, is a leading financial
portal that provides US stock market information and news. This company’s main
business model is the online advertising revenue from financial services
corporations such as Scottrade, E*Trade, Charles Schwab, Sutton Online or
internet related companies like AT&T and GYC Telecom. Chineseinvestors.com
does not have an established IR/PR business model that can generate on-going
revenues for the company.
·
Sina.com
is the most established Chinese news and media website, with over one million
registered users. Sina.com offers websites for Chinese in North America, Taiwan,
PRC and Hong Kong, as well as news, information on finance, life, shopping,
chat, e-mail, games, horoscope and a search engine.
·
China
Finance Online Inc., based in the PRC, serves investors in China by providing
news, research reports, commentaries, streaming data, quotes of the China’s
Stock Market. Their principal website is
www.jrj.com.cn
with over 1
Million paid subscribers.
Additionally,
our competition with respect to user traffic, ease of use and functionality
also
include Chinese language based web search and retrieval companies such as Yahoo!
China, Sina.com, Netease, Sohu, Shanghai Online, ChinaByte and Netvigator (which
is owned by PCCW). Our competition with respect to strategic expertise,
technical knowledge and problem solving skills for web design include, as well
as many unknown smaller companies who may offer this service, Internet
integrators and website design and development companies such as iXL Inc.,
Modem
Media, Proxicom, Inc., One to One Media Limited, Eureka Digital Limited, Dragon
Creative International and Core Solutions Limited.
Our
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to qualified
personnel, distribution partners, advertisers and content providers. Further,
ISP’s, web browsers and web content providers may be perceived by advertisers as
having more desirable websites for placement of advertisements. Additionally,
some or all of these competitors may develop web search and retrieval services
that are equal or superior to those we offer our users and may achieve greater
market acceptance than our offerings in the area of performance, ease of use
and
functionality.
Intellectual
Property, Government Approvals and Regulations
Our
application technology is not protected by any patents or copyrights nor do
we
intend to seek any such protection. Without patent or copyright protection,
we
may not be able to prevent duplication or use of our technology by competitors.
There are currently no material effects of government regulations on our
business.
C.
Organizational
Structure
ChineseWorldNet.Com
Inc was incorporated under the
Company
Law
(1998
revision) of the Cayman Islands on January 12, 2000. Our principal executive
and
registered office is located at Appleby Spurling Hunter Group, Clifton House,
P.O. Box 1350, Grand Cayman, Cayman Islands. Our North American office and
principal place of business is located at Suite 368 – 1199 West Pender
Street, Vancouver, British Columbia, Canada V6E 2R1.
CWN
is a
holding company which owns 100% of NAI Interactive Ltd. (“NAI”) and 99% of
Chineseworldnet.com (Hong Kong) Limited (“CWNHK”). 1% of CWNHK is owned by Mr.
Lui Chi Cheong, a director and major shareholder of CWN. Our portal business
is
operated under CWN with our associated brand, ChineseWorldNet.com and website
www.chineseworldnet.com
,
while
our IR/PR business is operated under NAI. In addition, NAI employees are engaged
to build the www.chineseworldnet.com website including our content for
CWN.
NAI
is a
British Columbia company incorporated on November 13, 1998. We acquired NAI
on
January 15, 2000 from Ms. Tim Yee Lau, the wife of our President and Chief
Executive Officer, Mr. Joe Tai, for a purchase price of 112,500 of our common
shares valued at $5,625. NAI’s head office is located at #368-1199 West Pender
Street, Vancouver, B.C., V6E 2R1.
(“CWNHK”)
is a Hong Kong company incorporated on December 22, 1999. CWNHK is 99% owned
by
us with 1% owned by one of our directors. Since June 2004, CWNHK’s office has
been located to Room 1101, St. George’s Building, 2 Ice House Street Central,
Hong Kong. CWNHK provides us with
a
local
operation base for CWN’s penetration and expansion plans in the Asian market.
At
December 31, 2007, we had a total of 18 employees, all full-time employees,
of
which 17 are employees of NAI. Our President and CEO is the only employee
directly hired by CWN. All employees are located in the Vancouver office in
Canada.
As
part
of our proposed expansion into Asia, on October 13, 2000, we purchased 100,000
common shares in the capital of Technology City Holdings Limited (“TCHL”), a
Hong Kong incorporated company, representing 4.167% of the then issued and
outstanding shares of TCHL, for US$100,000. TCHL is a multi-media,
Internet-based financial information provider focusing on listed securities
in
Hong Kong. The purpose of this investment was to provide content supply from
TCHL to the www.chineseworldnet.com website. This includes market and content
information focusing on public companies listed on the GEM in Hong Kong. On
December 31, 2002, we determined that the recovery of the investment in relation
to future projected cash flows from the investment in TCHL was doubtful and
there was no market available to liquidate the subscribed shares. We therefore
wrote down the value of our investment to a nominal value of $1.
On
November 2, 2000, we completed a private placement with certain individuals
who
purchased 2,000,000 of our common shares at a price of $0.40 per common share
for gross proceeds of $800,000. The proceeds from this private placement were
used for general working capital purposes. On May 31, 2004, we raised $150,000
through issuing 3 year, 5% convertible debentures.
On
October 29, 2004, we issued 200,000 new shares to acquire the remaining assets
of TCHL, which included HK$540,000 in cash and equipment, from Marrick
Investments Limited. Marrick Investments Limited nominated its sister company,
Datacom Venture Limited to be the record owner the shares. Datacom Venture
is a
majority shareholder of ChineseWorldNet.com. See Item 7 - Major Shareholders
and
Related Party Transactions.
On
September 25, 2006, we obtained the trading symbol of “CWNOF.OB” and our common
stock has been approved for trading on the OTC Bulletin Board. The company
contains 8,200,000 outstanding shares as at December 31, 2006, and 8,450,000
fully diluted shares in the share price of USD $1.00.
On
January 18, 2007, the 3 year 5% convertible debentures (2004) had been converted
into common shares. On March 1, 2007, we raised $250,000 through issuing 3
year,
6% convertible note with warrants. On October 11, 2007, we completed a private
placement with certain individuals and issued 2.25 million shares at $1.08
per
common share for the gross proceeds of $2.43 million.
D.
Property,
Plants and Equipment
We
do not
own any real property. As of December 31, 2007 we owned $14,235 (2006: $15,541
& 2005: $11,822) in computer equipment and computer software and $7,766
(2006: $7,136 & 2005: $4,945) in office furniture. We have a lease agreement
for the Vancouver office (Address: #368 - 1199 West Pender Street, Vancouver,
British Columbia, Canada V6E 2R1). There is no lease for the Toronto office
because we rent a mailbox facility at the Toronto Board of Trade.
ITEM
4A .
UNRESOLVED
STAFF COMMENTS
The
Company is not an accelerated filer, a large accelerated filer or a well-known
seasoned issuer and, as such there is no requirement to provide any information
under this item.
ITEM
5.
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
This
discussion and analysis is of our operating results and our financial position
for the fiscal years ended December 31, 2007, 2006 and 2005, and should be
read
in conjunction with the Consolidated Financial Statements and the related Notes
thereto provided at Item 17.
A.
Results
of Operations
Years
Ended December 31, 2007, 2006 and 2005
For
the
year ended December 31, 2007, net income was $54,133 on revenue of $1,325,994.
Overall, revenues in 2007 increased 106% from 2006 levels, while net income
was
$54,133 in 2007 as compared with net loss of $209,883 in 2006. For the year
ended December 31, 2006, net loss was $209,883 on revenue of $643,370. Overall,
revenues in 2006 increased from 2005 levels, while the net loss was further
increased from $78,030 in 2005 to $209,883.
Year
ended December 31, 2007 compared to year ended December 31, 2006
Revenues
The
increasing number of publicly listed companies from the mining industry sector,
and our business expansion towards conference business are the main factors
for
the increase in our overall revenues. Our core services includes:
Banner
Advertisements, Chinese Webpage Design and Hosting, Miscellaneous IR/PR Service,
and GCFF Conference Services, from which we derived most of our revenues and
revenue growth in 2007.
Revenue
Growth Trend
With
the
improvement of overall economic markets and increase in the revenues from our
core services, we expect our revenue will continue to grow as we focus on core
services expansion.
Primarily,
we intend to concentrate our resources on expanding our sales and marketing
force with respect to our Conference service in China and IR/PR services, which
we anticipate will produce most of the revenue growth for our
operations.
Banner
Advertisement
The
increase in revenue for Banner Advertisement from $17,514 for fiscal year 2006
to $26,436 for fiscal year 2007 is due to the increase in
advertising-related
business on
our
website.
Translation
Service
The
number of translation projects had slightly increased for the fiscal year of
2007, thus revenue incresed from $3,420 from year 2006 to $5,090 for year 2007.
Chinese
Webpage Design, Hosting and Maintenance
The
revenues for Chinese Webpage Design - Hosting and Maintenance increased
substantially from $71,052 in fiscal 2006 to $169,097 in fiscal
2007.
This is
primarily due to the significant increase of client companies involve in Chinese
micro-site development and hosting in 2007.
Computer
Consultation Services
Revenues
from Computer Consultation services were $0 in fiscal 2007, as we discontinued
this service in fiscal year of 2005.
CWN
Membership, Online Services
CWN
Membership & Online service revenues increased from $8,524 from fiscal 2006
to $15,556 in fiscal 2007.
This is
due to the increase in number of membership subscribers.
Miscellaneous
IR/PR services
Revenues
from IR/PR services increased from $170,489 in fiscal 2006 to $223,006 in fiscal
2007. The revenue growth is due to the increasing number of our feature
companies having subscribed to our premium services under the establishment
of
NAI Interactive Ltd. This group of high-profile clients was willing to spend
more in fees in order to market their companies to the Chinese market.
Investment
Guides
The
increase in revenue in our Investment Guides business from $78,921 in fiscal
2006 to $85,245 in fiscal 2007 is primarily due to the depreciation of US
currency in 2007. The business generated from sponsorship of investment guides
in 2007 has approximately same as last year.
GCFF
Conference Service
The
revenue generated from Conference business had significantly increased from
$251,735 in fiscal 2006 to $775,738 in fiscal 2007. This is due to the
significant success of our annual events that held in Shanghai. The GCFF
conference in China generated almost half of the total revenue from conferences.
While the number of conferences had remained the same, the number of client
companies and sponsors that exhibit at the conferences had increased
substantially. We anticipate the revenue generate from the conference service
will continue to rise as the scale and scope of the conference continues to
grow.
Other
Revenues
Other
revenue items, such as Online Marketing Services, were $25,826 in fiscal 2007
as
compared to $14,880 in fiscal 2006. The numbers of customers increase for our
online marketing services in the fiscal 2007 when compared to the fiscal 2006.
Expenses
Total
expenses for fiscal 2007 were $1,269,431, up from $861,894 in fiscal 2006.
Expenses related to travel and entertainment and operating increased with
increasing revenue and activities.
The
substantial increase in our operating expenses is principally from an increase
in our advertising and promotion of our GCFF event fees, consulting fees, salary
fees and travel & entertainment fees, while our legal fees and bad provision
cost decreased. We expect our operating expenses will continue to increase
for
the foreseeable future, while the rate of increase will depend on our business
expansion in advertising and promotion, as well as our human resource
requirements. Since we intend to focus on expanding our sales and marketing
staff for our Conference business in Canada & China and our promotional
efforts for our IP/PR Services, we expect that it will be these specific
expenses which will have the largest increase.
Advertising
and Promotion
Our
advertising and promotional expenses increased greatly from $49,836 in fiscal
2006 to $286,439 in fiscal 2007 mainly due to the increased sales in GCFF China
event in 2007.
Accounting
and Legal
Our
accounting and legal fees decreased from $97,742 in fiscal 2006 to $58,022
in
fiscal 2007. The decrease resulted from the change of our auditor in fiscal
2006
from Ernst & Young LLP to Chang Lee LLP, and the decrease in professional
fees for legal services work performed for us in 2007. The decrease was also
resulted from drafting of the respond letters to the SEC regards to the 20
F
amendment in 2006.
Printing
Printing
expenses changed to $39,972 for fiscal 2007 from $40,152 for fiscal 2006
primarily associated with the printing of publication and promotional materials.
Our printing expenses mainly involve printing of Mining Investment Guide, as
well as the promotional materials for conference business expansion such as
brochures and pamphlets.
Rent
and Operating
The
office rental cost increased from $53,797 in fiscal 2006 to $72,427 fiscal
2007
due to the move to a larger office space from August 2006.
Salaries
and benefits
Salaries
and benefit expenses increased to $465,494 in fiscal 2007 from $347,990 in
fiscal 2006 primarily due to the increase in the number of staff and
compensation payments.
Travel
and entertainment
Travel
expenses increased to $136,344 in fiscal 2007 from $86,442 in fiscal 2006 due
to
business development activity expansion in Asia for the purpose of increasing
our business overseas, and management making numerous associated trips to Asia
and within North America.
Other
Expenses
Other
expenses, such as consulting fees, office and miscellaneous, and telephone
fees
increased from $83,559 in fiscal 2006 to $172,695 in fiscal 2007. This is mainly
due to the increased levels of business development activity and greater
expenditures on information technology. Another consulting agreement of yearly
fees of $60,000 is signed with Goldpac Investments Ltd. in 2007. The Company
incurred accretion expense of $13,755 from convertible debenture issued in
2007.
Stock options granted to directors and employees during 2007 also cost $22,222
under stock based compensation.
Other
Income (Loss)
Our
other
income (loss) line items primarily consist of interest and sundry income from
our liquid investments that are deposited with banks and other financial
institutions; as well as foreign exchange gain or loss derived from currency
exchange transactions. We generally deposit our excess cash in interest bearing
or mutual fund accounts. As a result, the other income in our income statement
decreased to $(2,430) in 2007 from $8,641 in fiscal 2006.
Year
ended December 31, 2006 compared to year ended December 31, 2005
Revenues
The
increasing number of publicly listed companies from the mining industry sector,
and our business expansion towards conference business are the main factors
for
the increase in our overall revenues. Our core services includes:
Banner
Advertisements, Chinese Webpage Design and Hosting, Miscellaneous IR/PR Service,
and GCFF Conference Services, from which we derived most of our revenues and
revenue growth in 2006.
Revenue
Growth Trend
With
the
improvement of overall economic markets and increase in the revenues from our
core services, we expect our revenue will continue to grow as we focus on core
services expansion.
Primarily,
we intend to concentrate our resources on expanding our sales and marketing
force with respect to our Conference service and IR/PR services, which we
anticipate will produce most of the revenue growth for our
operations.
Banner
Advertisement
The
slightly decrease in revenue for Banner Advertisement from $18,457 for fiscal
year 2005 to $17,514 for fiscal year 2006 is due to the insignificant decrease
in viewership of our website.
Translation
Service
The
number of translation projects had decreased substantially for the fiscal year
of 2006, thus revenue declined from $10,973 from year 2005 to $3,420 for year
2006.
Chinese
Webpage Design, Hosting and Maintenance
The
revenues for Chinese Webpage Design - Hosting and Maintenance decreased from
$89,937 in fiscal 2005 to $71,052 in fiscal 2006.
This is
primarily due to the slight decline of client companies involve in Chinese
micro-site development and hosting.
Computer
Consultation Services
Revenues
from Computer Consultation services were $0 in fiscal 2006, as we discontinued
this service in fiscal year of 2005.
CWN
Membership, Online Services
CWN
Membership & Online service revenues decreased from $11,475 from fiscal 2005
to $8,524 in fiscal 2006.
This is
due to the slight decrease in number of membership subscribers.
Subsequently
,
our
portal traffic
had
continues to remain consistent and
there
has
been no significant decrease in the use of the online services we provide to
subscribers.
Miscellaneous
IR/PR services
Revenues
from IR/PR services increased from $169,866 in fiscal 2005 to $170,489 in fiscal
2006. The revenue growth is due to the increasing number of our feature
companies having subscribed to our premium services under the establishment
of
NAI Interactive Ltd. This group of high-profile clients was willing to spend
more in fees in order to market their companies to the Chinese market.
Investment
Guides
The
revenue increase in our Investment Guides business from $42,880 in fiscal 2005
to $78,921 in fiscal 2006 is primarily due to the production of our year 2006
Mining Investment Guide. The Mining Investment Guide 2006 had not only doubled
in number of pages, as well as the number of copies published.
GCFF
Conference Service
The
revenue generated from Conference business had increased from $174,881 from
fiscal 2005 to $251,735 for fiscal 2006. This is due to the significant success
of our annual events that held in different cities worldwide. While the number
of conferences had remained the same, the number of client companies and
sponsors that exhibit at the conferences had increased substantially. We
anticipate the revenue generate from the conference service will continue to
rise as the scale and scope of the conference continues to grow.
Other
Revenues
Other
revenue items, such as Online Marketing Services, Interest and Others, were
$41,715 in fiscal 2006 as compared to $15,052 in fiscal 2005. The number of
customers remains approximately the same for our online marketing services
in
the fiscal 2006 when compared to the fiscal 2005. Starting from August 2006,
we
have provided corporate services to a private company including filing,
telephone and computer usage, as well as provide an office space. As this is
a
non-core service we had classified under the item of Interest & Others.
Expenses
Total
expenses for fiscal 2006 were $861,894, up from $617,886 in fiscal 2005.
Expenses related to travel and entertainment, rent and operating increased
with
increasing revenue and activities.
The
increase in our operating expenses is principally from an increase in our
accounting and legal fees and printing fees, while our advertising and promotion
cost decreased slightly. We expect our operating expenses will continue to
increase for the foreseeable future, while the rate of increase will depend
on
our business expansion in advertising and promotion, as well as our human
resource requirements. Since we intend to focus on expanding our sales and
marketing staff for our Conference business and our promotional efforts for
our
IP/PR Services, we expect that it will be these specific expenses which will
have the largest increase.
Advertising
and Promotion
Our
advertising and promotional expenses decreased from $50,813 in fiscal 2005
to
$49,836 in fiscal 2006 mainly due to the increased awareness of CWN in our
market and our reduced reliance on promotion to produce this awareness.
Accounting
and Legal
Our
accounting and legal fees increased from $56,504 in fiscal 2005 to $97,742
in
fiscal 2006. The increase resulted from the change of our legal consulting
firm
in fiscal 2006 from Hodgson Russ LLP to Baker & McKenzie LLP, and the
increase in professional fees for audit and legal services work performed for
us. The increase was also resulted from drafting of the respond letters to
the
SEC regards to the 20 F amendment for fiscal year of 2005.
Printing
Printing
expenses decreased to $40,152 for fiscal 2006 from $10,086 for fiscal 2005
primarily associated with the printing of publication and promotional materials.
Our printing expenses increase substantially due to the printing of Mining
Investment Guide 2006 had increased in both number of pages and copies, as
well
as the promotional materials for conference business expansion such as brochures
and pamphlets.
Rent
and Operating
The
office rental cost increased from $35,182 in fiscal 2005 to $53,797 fiscal
2006
due to the move to a larger office space from August 2006.
Salaries
and benefits
Salaries
and benefit expenses increased to $347,990 in fiscal 2006 from $292,930 in
fiscal 2005 primarily due to the increase in the number of staff and
compensation payments.
Travel
and entertainment
Travel
expenses increased to $86,442 in fiscal 2006 from $57,043 in fiscal 2005 due
to
business development activity expansion in Asia for the purpose of increasing
our business overseas, and management making numerous associated trips to Asia
and within North America.
Other
Expenses
Other
expenses, such as consulting fees, office and miscellaneous, and telephone
fees
increased from $67,143 in fiscal 2005 to $83,559 in fiscal 2006. This is due
to
the increased levels of business development activity and greater expenditures
on information technology.
Other
Income (Loss)
Our
other
income (loss) line items primarily consist of interest and sundry income from
our liquid investments that are deposited with banks and other financial
institutions; as well as foreign exchange gain derived from currency exchange
transactions. We generally deposit our excess cash in interest bearing or mutual
fund accounts. As a result, the other income line in our income statement
increased to $8,641 in 2006 from $6,335 in fiscal 2005.
|
|
For year ending December 31,
|
|
|
|
2007
|
|
2006
|
|
Revenues
|
|
|
|
|
|
|
|
Banner
Advertisement
|
|
$
|
26,436
|
|
$
|
17,514
|
|
Translation
Service
(Company
Review
,
Company Newsletter)
|
|
|
5,090
|
|
|
3,420
|
|
Chinese
Webpage Design, Hosting and Maintenance
|
|
|
169,097
|
|
|
71,052
|
|
Computer
Consultation Service
|
|
|
0
|
|
|
0
|
|
CWN
Membership, Online Service
|
|
|
15,556
|
|
|
8,524
|
|
Online
Marketing Service
|
|
|
25,826
|
|
|
14,880
|
|
Miscellaneous
IR/PR Service
|
|
|
223,006
|
|
|
170,489
|
|
GCFF
Conference Service
(Investment
Seminar in year 2005)
|
|
|
775,738
|
|
|
251,735
|
|
Investment
Guides
|
|
|
85,245
|
|
|
78,921
|
|
Interest
and others
|
|
|
|
|
|
26,835
|
|
TOTAL
REVENUE
|
|
|
1,325,994
|
|
$
|
643,370
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Advertising
and promotion
|
|
$
|
286,439
|
|
$
|
49,836
|
|
Accounting
and legal
|
|
|
58,022
|
|
|
97,742
|
|
Consulting
|
|
|
84,000
|
|
|
24,000
|
|
Depreciation
|
|
|
6,923
|
|
|
6,271
|
|
Accretion
on convertible debenture
|
|
|
13,755
|
|
|
|
|
Non-cash
compensation changes
|
|
|
|
|
|
|
|
Financial
charges – related parties
|
|
|
|
|
|
|
|
Interest
(imputed) – related parties
|
|
|
63
|
|
|
1,178
|
|
Interest
expense on long term debt
|
|
|
12,500
|
|
|
7,500
|
|
Office
and miscellaneous
|
|
|
69,622
|
|
|
44,298
|
|
Printing
|
|
|
39,972
|
|
|
40,152
|
|
Provision
(recovery) for Bad and doubtful debts
|
|
|
(17,425
|
)
|
|
87,427
|
|
Rent
and operating
|
|
|
72,427
|
|
|
53,797
|
|
Salaries
and benefits
|
|
|
465,494
|
|
|
347,990
|
|
Stock
Based Compensation
|
|
|
22,222
|
|
|
0
|
|
Telephone
|
|
|
19,073
|
|
|
15,261
|
|
Travel
and entertainment
|
|
|
136,344
|
|
|
86,442
|
|
TOTAL
OPERATING EXPENSES
|
|
$
|
1,269,431
|
|
$
|
861,894
|
|
Other
Income (Loss)
|
|
|
(2,430
|
)
|
|
8,641
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
|
$
|
54,133
|
|
$
|
(209,883
|
)
|
Deferred
income taxes recovery
|
|
|
54,221
|
|
|
-
|
|
NET
INCOME (LOSS) FOR THE YEAR
|
|
$
|
108,354
|
|
$
|
(209,883
|
)
|
Currency
We
maintain our accounting records in U.S. dollars. The reporting and functional
currency of NAI is the Canadian dollar and the current rate method of
translation was used. We translate our assets and liabilities at the exchange
rate prevailing as of the balance sheet date. Revenues and expenses are
translated at the average exchange rate for the year. Foreign exchange gains
and
losses are deferred and shown separately in shareholders’
equity.
Foreign
currency fluctuations may have an impact on our financial condition. However,
we
do not engage in any foreign currency hedge transactions.
Inflation
We
do not
believe that inflation will have a material adverse effect on our financial
condition. Traditionally, the PRC and Canada have not been countries that
experienced a substantial increase in inflation.
B.
Liquidity
and Capital Resources
As
of
December 31, 2007, we had cash and cash equivalents of $2,638,614. As of that
date, we did not have any outstanding debt or line of credit. We believe that
our current cash, cash equivalents, and cash flow are sufficient to satisfy
our
cash requirements to further expand our business and other future development
in
Asian for the next few years. Our primary cash requirements relate to our
operational expenses. Our principal sources of funding consist of advances
from
related parties in fiscal 2005 and fiscal 2003, and advances from non-related
parties in fiscal 2004. In fiscal 2007, we raise additional capital through
private placement offerings of common shares. The Company received net proceeds
of $2,070,000 in connection with the private placement. In March 2007, the
Company also issued a convertible debt in the amount of $250,000 at an interest
rate of 6%. In the meantime, we are less likely to seek debt financing from
lending institutions or other private lending. Our operational expenditures
have
been, and are expected to continue to be, funded through our operations and
existing capital financing resources. Our uses of cash include general overhead
and human resource costs, such as salaries, promotional expenses and rental
fees
related to our seminars and conferences and production costs of our
publications. There were no private placements or acquisitions completed in
the
year 2003, 2005 or 2006. In 2004, we completed a private placement financing
of
$150,000 by issuing three year 5% convertible debentures. The debentures were
fully converted into 250,000 common shares of the Company in January 2007.
C.
Research
and Development, Patents and Licenses
We
are
not engaged in research and development activities and have no
patents.
D.
Trend
Information
A
few
favourable industry and economic trends may in the future have a material impact
on our revenues including: the general financial market turnaround, which will
increase demand for financial information services and spending on investor
relations/public relations; increasing interest of Asian companies looking
to
enter North American financial markets; and the increased attention to corporate
governance and disclosure. We believe these trends may lead to an increase
in
demand for our services, which could lead to increase in sales of our services.
However, the investor relations/public relations area in Asia is still in its
development stage, which may affect the launch of our company’s investor
relations/public relations services in Asia. Continued growth in China and
interest in the Chinese markets is key to our future profitability and to
increasing revenues. There are no known trends with relation to the production
of our services.
E.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
F.
Tabular
Disclosure of Contractual Obligations
|
|
Payments due by period
|
|
Contractual Obligations
|
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5
years
|
|
Long-Term
Debt Obligations
|
|
|
250,000
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
Capital
(Finance) Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Lease Obligations
|
|
$
|
293,681
|
|
$
|
84,802
|
|
$
|
162,654
|
|
$
|
46,225
|
|
|
|
|
Purchase
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
543,681
|
|
$
|
84,802
|
|
$
|
412,654
|
|
$
|
46,225
|
|
$
|
0
|
|
ITEM
6.
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors
and Senior Management
The
following tables set forth all directors and executive officers of CWN and
our
subsidiary NAI as of December 31, 2007, with each position and office held
by
them in CWN. Each director’s term of office expires at the next annual general
meeting of shareholders.
CWN
– Directors
and Officers as of December 31, 2007
Name
|
|
Age
|
|
Office
Held Since
|
|
Position
with CWN
|
Joe
K.F. Tai
|
|
44
|
|
January
12, 2000
|
|
President,
Chief Executive Officer and Director
|
Kelvin
Szeto
(1)
|
|
47
|
|
June
1, 2006
|
|
Chief
Operating Officer & Chief Financial Officer
|
Chi
Cheong Liu
(2)
|
|
48
|
|
January
12, 2000
|
|
Treasurer
and Director
|
Chi
Kong Liu
(2)
|
|
47
|
|
January
12, 2000
|
|
Director
|
Andy
S.W. Lam
(3)
|
|
58
|
|
March
8, 2004
|
|
Director
|
Vivien
Leung
(4)
|
|
30
|
|
February
1, 2007
|
|
Corporate
Secretary
|
(1)
|
Kelvin
Szeto became acting Chief Operating Officer and acting Chief Financial
Officer of the Company on April 1, 2005. He was permanently appointed
to
the positions on June 1, 2006.
|
(2)
|
Two
of our Directors, Chi Cheong Liu and Chi Kong Liu are brothers. There
are
no other family relationships between our directors and
executives.
|
(3)
|
Andy
Siu Wing Lam was appointed as a Director in March
2004.
|
(4)
|
Vivien
Leung was appointed as a Corporate Secretary as of February 1, 2007
and
resigned in April 2008. In the meantime, Gilbert Chan is temporarily
responsible to this duty until we find the
replacement.
|
NAI
– Directors
and Officers as of December 31, 2007
Name
|
|
Age
|
|
Position
with NAI
|
Kelvin
Szeto
|
|
47
|
|
President,
Secretary and Director
|
Gilbert
Chan
|
|
32
|
|
Vice
President – Marketing and Project Development
|
Lixin
Yang
|
|
37
|
|
Vice
President - Editing
|
The
business background and principal occupations of CWN and NAI’s officers and
directors for the preceding five years are as follows:
ChineseWorldNet.com
Inc.
Joe
K. F. Tai
Mr.
Tai
has served as President, Chief Executive Officer and a director of CWN since
January 12, 2000. Mr. Tai has 15 years of experience in international business
and has also served as Managing Partner of Goldpac Investments Ltd., a venture
capital company. Mr. Tai was also involved with a start-up of an international
computer manufacturing company with our corporate office in Vancouver, British
Columbia, sales office in Calgary, Alberta, and manufacturing facilities in
Hong
Kong and PRC and annual sales exceeding Cdn$30 million. In addition, Mr. Tai
is
a director of Medifocus Inc. and China Goldcorp Ltd., both listed on the TSX
Venture Exchange.
Kelvin
Szeto
Mr.
Szeto
has served as Chief Operating Officer and Chief Financial Officer of CWN since
June 1, 2006. Between April 1, 2005 and June 1, 2006, Mr. Szeto was acting
Chief
Operating Officer and acting Chief Financial Officer of CWN. Mr. Szeto has
served as NAI’s President, Secretary and Director since November 13, 2001. Prior
to the appointment as the President of NAI, Mr. Szeto served as the Secretary,
Director and Vice President Operation since January 12, 2000. Mr. Szeto was
involved in the start up of an international computer manufacturing company
with
our corporate office in Vancouver, British Columbia, sales office in Calgary,
Alberta and manufacturing facilities in Hong Kong and PRC and annual sales
exceeding Cdn$30 million.
Chi
Cheong Liu
Mr.
Liu
has been a director of CWN since January 2000. Mr. Liu has served as President
of Chigo Engineering Company, a security engineering firm, for the last 17
years. In addition, Mr. Liu is also a venture capitalist specializing in
biotechnology and technology investments.
Chi
Kong Liu
Mr.
Liu
has been a director of CWN since January 2000. Mr. Liu served as President
and
owner of S & B Trading Company Limited, a diamond and jewellery wholesaler.
In addition, Mr. Liu is also a venture capitalist specializing in biotechnology
and technology investments.
Andy
S. W. Lam
Mr.
Lam
was appointed director of CWN on March 8, 2004. Mr. Lam is currently a director
of CWNHK. Mr. Lam is a Justice of the Peace appointed by the Hong Kong
Government. He is a successful businessman with over 19 years of experience
in
strategic investment and planning. Mr. Lam has sat on the board of a number
of
publicly listed companies on Hong Kong Stock Exchange and served on several
government committees and tribunals in Hong Kong. Mr. Lam is a CPA and holds
a
MBA degree from Oklahoma City University.
NAI
Interactive Ltd.
Kelvin
Szeto
Mr.
Szeto
has served as NAI’s President, Secretary and Director since November 13, 2001.
Prior to the appointment as the President of NAI, Mr. Szeto served as the
Secretary, Director and Vice President Operation since January 12, 2000. Mr.
Szeto was involved in the start up of an international computer manufacturing
company with our corporate office in Vancouver, British Columbia, sales office
in Calgary, Alberta and manufacturing facilities in Hong Kong and PRC and annual
sales exceeding Cdn$30 million. Mr. Szeto also serves as Chief Operating Officer
and Chief Financial Officer of CWN.
Gilbert
Chan
Mr.
Chan
has acted as the Vice President -Marketing and Project Development for NAI
since
June, 2000. Mr. Chan has extensive experience working as a project manager
for
different websites. Mr. Chan holds a Bachelor Degree in Applied Science from
University of British Columbia.
Lixin
Yang
Mr.
Yang
was promoted to the position of VP - Editing of NAI on March 1, 2004. Mr. Yang
has been part of the Editing Department since June 2002. He is responsible
for
content development and overseeing the Editing Department. Mr. Yang has over
ten
years working experience in commercial banking, investment banking and
investment consulting fields in China and holds a MBA from Vrije University
Brussels, Belgium.
B.
Compensation
The
following table provides information regarding the direct or indirect
remuneration paid during the 2007 fiscal year to the directors and officers
of
CWN, including our subsidiaries, in office as of December 31, 2007:
|
|
|
|
Annual
Compensation
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Other
Annual
Compensation
|
|
|
|
|
|
|
|
|
|
Joe
K. F. Tai
President,
Chief Executive Officer and Director
|
|
2007
|
|
Nil
(1)
(2)
|
|
Nil
|
|
Nil
|
Chi
Cheong Liu
(1)
(2
)
Treasurer
and Director
|
|
2007
|
|
Nil
(2)
|
|
Nil
|
|
Nil
|
Chi
Kong Liu
Director
|
|
2007
|
|
Nil
|
|
Nil
|
|
Nil
|
Andy
S.W. Lam
Director
|
|
2007
|
|
Nil
|
|
Nil
|
|
Nil
|
Kelvin
Szeto
Chief
Operating Officer and Chief Financial
Officer
of CWN;
(3)
President,
Secretary and Director of NAI
|
|
2007
|
|
$43,200
|
|
Nil
|
|
Nil
|
Gilbert
Chan
VP
Marketing and Project Development of NAI
|
|
2007
|
|
$43,200
|
|
Nil
|
|
Nil
|
Lixin
Yang
VP
Editing of NAI
|
|
2007
|
|
$31,277
|
|
Nil
|
|
Nil
|
(1)
|
We
have a consulting agreement with Goldpac Investment Partners Ltd.
for
2007, 2006 and 2005 for $24,000 per year. Goldpac Investment Partners
Ltd.
is a company owned by Chi Cheong Liu, one of our directors.
|
(2)
|
Joe
Tai and Chi Cheong Liu are shareholders and do not receive
salaries.
|
(3)
|
Kelvin
Szeto was appointed as Chief Operating Officer and Chief Financial
Officer
of CWN on June 1, 2006.
|
Pension
Plans
We
do not
provide retirement benefits for directors, senior management or
employees.
C.
Board
Practices
Directors
hold office for a term of one year or until the next annual meeting of
shareholders at which directors are elected. All of the current directors have
served since January 12, 2000, other than Andy S.W. Lam
who
was
appointed to the board in March 2004 following the resignation of Ken Cai in
January 2004. Our officers are appointed by the board and serve at the board’s
discretion.
We
have
not entered into service contracts with any of our directors. We have entered
into consulting agreements with Goldpac Investments Ltd and Goldpac Investment
Partners Ltd., which are partially owned and wholly owned respectively by Mr.
Chi Cheong Liu, one of our directors. Currently, we have one consulting
agreement with Goldpac Investment Partners Ltd. in force, and we extended the
terms of this consulting agreement to December 31, 2007. We have also one
consulting agreement entered with Goldpac Investments Ltd. in force, ending
December 31, 2007.
As
of
December 31, 2007, we did not have either an Audit Committee or a Compensation
Committee.
D.
Employees
As
of
December 31, 2007, we had a total of 18 employees, all full-time, of which
17
are employees of NAI. Our President and Chief Executive Officer is the only
employee hired by CWN. All 18 employees are located in our Vancouver office.
There had been as many as 3 employees based in Toronto; however, since the
end
of 2002, we no longer have employees there. There are currently no full-time
employees in Hong Kong.
E.
Share
Ownership of Directors and Senior Management
The
following table sets forth certain information regarding the ownership of our
common shares as of March 31, 2008 by each of the directors and members of
senior management in office as of March 31, 2008. The percentage owned is based
on 10,700,000 shares outstanding as of March 31, 2008.
As
at March 31, 2008
Name and Title
|
|
Share Ownership
|
|
% Share Ownership
|
|
Joe Tai
(1)
President,
CEO and Director
|
|
|
250,000
|
|
|
2.33
|
%
|
Chi
Cheong Liu
Director
|
|
|
1,896,667
|
|
|
17.73
|
%
|
Chi
Kong Liu
Director
|
|
|
570,000
|
|
|
5.33
|
%
|
Lixin
Yang
(3)
Vice
President, Editing of NAI
|
|
|
10,000
|
|
|
0.09
|
%
|
Kelvin
Szeto
Chief
Operating Officer and Chief Financial Officer of CWN;
(4)
President,
Secretary and Director of NAI
|
|
|
150,000
|
|
|
1.40
|
%
|
Gilbert
Chan
Vice
President, Marketing and Project Development of NAI
|
|
|
50,000
|
|
|
0.47
|
%
|
Andy
S.W. Lam
(5)
Director
|
|
|
0
|
|
|
—
|
|
All
Directors and Senior Management as a group
|
|
|
2,926,667
|
|
|
27.35
|
%
|
(1)
|
Includes
112,500 common shares held by Ms. Tim Yee Lau, spouse of Joe Tai,
which
was acquired in exchange for all issued and outstanding shares of
NAI
Interactive Ltd.
|
(2)
|
Mr.
Lixin Yang was appointed Vice President, Editing in March
2004.
|
(3)
|
Mr.
Kelvin Szeto was appointed Chief Operating Officer and Chief
Financial
Officer of CWN
on June 1, 2006.
|
(4)
|
Mr.
Andy S. W. Lam was appointed Director in March
2004.
|
Stock
Options
We
adopted the 2007 Stock Option Plan, or the Plan, on October 11,
2007,
under which we could issue share options with the right to purchase up to
550,000 ordinary shares to our directors, officers, and key employees. We did
not grant options to individual consultants and advisors.
As
at
December 31, 2007,we have a total number of 540,000 options that are unvested.
All of the options we granted on October 11, 2007 with an exercise price of
$1.08 per share and expire on
October
11, 2012
.
All of
the options granted under the Plan to our directors and officers have a vesting
period of
1
to
5
years.
A
copy of
our Stock Option Plan is filed as an exhibit to this Annual Report.
Key
Employees
|
|
Job
Title
|
|
Share
Granted
|
Joe
Tai
|
|
President
& CEO
|
|
180,000
|
Kelvin
Szeto
|
|
Senior
Vice president of Operations
|
|
100,000
|
Gilbert
Chan
|
|
Senior
Vice President of Marketing & Investors Relations
|
|
50,000
|
Board
of Directors
|
|
|
|
|
Joe
Tai
|
|
Director
|
|
25,000
|
Andy
Lam
|
|
Director
|
|
25,000
|
Liu
Chi Cheong
|
|
Director
|
|
25,000
|
Simon
Liu
|
|
Director
|
|
25,000
|
Employees
|
|
|
|
|
Frank
Feng Feng
|
|
Systems
Administrator
|
|
20,000
|
Mary
Weixin Zhang
|
|
Editor
|
|
10,000
|
Jin
Xu
|
|
Editor
|
|
10,000
|
Lixin
Yang
|
|
Vice-President
of Editing
|
|
15,000
|
Kai
Bei Yang
|
|
Business
Development & Analyst
|
|
15,000
|
Fornia
Wai Ting Lau
|
|
Business
Development Manager
|
|
20,000
|
Karl
Por So
|
|
Web
Developer
|
|
10,000
|
Vivien
Ka Ki Leung
|
|
Corporate
Secretary
|
|
10,000
(Forfeited)
|
Kwok
Keung Pang
|
|
Accounting
Officer
|
|
10,000
|
ITEM
7.
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major
shareholders
The
following table sets forth, as at March 31 2008, certain information with
respect to the beneficial ownership of our common shares by each shareholder
known by us to be the beneficial owner of more than 5% of our outstanding common
shares. The percentage ownership is based on 10,700,000 shares outstanding
as of
March 31 2008.
Unless
otherwise indicated by footnote, we believe that the beneficial owners of the
common shares listed below, based on information furnished by such owners,
have
sole investment and voting power with respect to such common shares, subject
to
community property laws where applicable. Beneficial ownership is determined
in
accordance with the rules of the United States Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities.
As
at March 31, 2008
Name
of Shareholder
|
|
Number of
Common Shares
|
|
Percentage of Shares
Beneficially Owned (%)
|
|
Chi
Cheong Liu
|
|
|
1,730,000
|
|
|
16.17
|
%
|
Vcanland
China Holdings Ltd.
|
|
|
1,500,000
|
|
|
14.02
|
%
|
Goldpac
Investment Partners Ltd.
|
|
|
1,166,667
|
|
|
10.90
|
%
|
Datacom
Venture Limited
(1)
|
|
|
600,000
|
|
|
5.61
|
%
|
Chi
Kong Liu
|
|
|
580,000
|
|
|
5.42
|
%
|
Monica
Law
|
|
|
570,000
|
|
|
5.33
|
%
|
(1)
200,000
shares were issued to Datacom Ventures, which is the nominee for Marrick
Investments, in connection with the purchase of the remaining assets of
Technology City Holdings Ltd.
Since
we
had private placements and conversion of common shares from debenture, there
had
been significant change in percentage ownership of the above major shareholders.
The shares they held had been diluted.
As
far as
is known to us, and except as disclosed herein, we are not directly or
indirectly owned or controlled by another corporation, by any foreign government
or any other person or entity.
The
shareholders, who own five percent or more of our common shares, do not have
voting rights which are different than our other shareholders who own our common
shares.
United
States Shareholders
As
of
December 31, 2007, we had three registered shareholders with addresses in the
United States, holding less than 0.25% of the outstanding common shares.
B.
Related
party transactions
In
2007,
we renewed our consulting agreement for the period January 1 – December 31,
2007 and paid $24,000 ($2,000 per month) in consulting fees to Goldpac
Investment Partners Ltd., a company owned by Chi Cheong Liu, one of our
directors and a holder of 16.2% of our outstanding shares. Goldpac Investment
Partners Ltd. is a holder of 10.9% of our outstanding shares. In 2007, we paid
$24,000 in consulting fees to Goldpac Investment Partners Ltd.
In
2007,
we signed a new consultant agreement for the period January 1 – December
31, 2007, and paid $60,000 ($5,000 per month) in consulting fees to Goldpac
Investments Ltd., a company partially own by Chi Cheong Liu, one of our
directors. Mr. Joe Tai is the Managing Partner of Goldpac Investments Ltd.
and
Mr. Joe Tai also is our President & CEO.
Goldpac
Investments Ltd. is a holder of 1.87% of our outstanding shares.
None
of
our directors or senior officers and no associates or affiliates of any of
them
is or has been indebted to us or our subsidiaries at any time.
C.
Interests
of Experts and Counsel
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
ITEM
8.
FINANCIAL
INFORMATION
A.
Financial
Statements
This
Annual Report on Form 20-F includes our audited consolidated financial
statements for the years ended December 31, 2007, 2006 and 2005, including
our
consolidated balance sheets as of December 31, 2007 and 2006, and the
consolidated statements of loss and deficit for the years ended December 31,
2007, 2006 and 2005, and the notes to those statements and the auditor’s reports
thereon.
B.
Significant
Changes
There
have been no significant changes in our business in the period from December
31,
2007 until the date of this document.
ITEM
9.
THE
OFFER AND LISTING
A.
Offer
and Listing Details
Shares
of
our common stock are currently quoted on the OTC Bulletin Board under the symbol
“CWNOF.OB.” For the periods indicated, the following table sets forth the high
and low bid prices per share of common stock, as reported by the OTC Bulletin
Board. These prices represent inter-dealer quotations without retail markup,
markdown, or commission and may not necessarily represent actual transactions.
On June 4, 2008, the closing bid price per share of our common stock was
$0.75.
Periods
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
|
|
|
|
Last
Quarter (October 2007 December 2007)
|
|
$
|
1.50
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2008
|
|
|
|
|
|
|
|
First
Quarter (January-March 2008)
|
|
$
|
1.30
|
|
$
|
1.20
|
|
Second
Quarter (April – June 4, 2008)
|
|
$
|
1.25
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
Period
from December 2007 through May 2008
|
|
|
|
|
|
|
|
December
2007
|
|
$
|
1.50
|
|
$
|
1.25
|
|
January
2008
|
|
$
|
1.30
|
|
$
|
1.30
|
|
February
2008
|
|
$
|
1.30
|
|
$
|
1.20
|
|
March
2008
|
|
$
|
1.25
|
|
$
|
1.25
|
|
April
2008
|
|
$
|
1.25
|
|
$
|
1.25
|
|
May
2008
|
|
$
|
1.00
|
|
$
|
0.50
|
|
B.
Plan
of Distribution
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
C.
Markets
Our
common shares are
quoted
on
the Over-the-Counter Bulletin Board of the National Association of Securities
Dealers, Inc. under the symbol “CWNOF.OB.”
D.
Selling
Shareholders
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
E.
Dilution
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
F.
Expenses
of the Issue
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
ITEM
10.
ADDITIONAL
INFORMATION
A.
Share
Capital
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
B.
Memorandum
and Articles of Association
There
have been no changes to the Memorandum or Articles of Association, or Cayman
Islands Law with respect to rights and powers of directors and shareholders
since our 20-F Registration Statement (SEC file no. 000-33051) was filed on
July
3,
2002. Such discussion is hereby incorporated by reference into this Annual
Report.
C.
Material
Contracts
On
June
06, 2006, we entered into a office lease agreement for our current offices
located at Suite 368 - 1199 West Pender Street, Vancouver, British Columbia,
Canada V6E 2R1. The term of the lease is for 5 years from August 2006. Monthly
payments are CAD$6,484.67 plus applicable taxes.
We
also
entered in an Exchange Agreement with Marrick Investments in April 2004 to
acquire the remaining assets of Technology City Holdings Ltd. Under the
agreement, we issued 200,000 new shares in October 2004 to Datacom Venture
Limited, nominee of Marrick Investments Ltd.
Please
see “Item 4 – Information on the Company” and the exhibits to this Annual
Report.
We
have
not entered into other materials contracts other than in the ordinary course
of
business during 2007.
D.
Exchange
Controls
Cayman
Islands
We
are
organized under the laws of the Cayman Islands. We do not believe there are
any
decrees or regulations under the laws of the Cayman Islands applicable to us
restricting the import or export of capital or affecting the remittance of
dividends or other payments to non-resident holders of our common stock. There
are no restrictions under CWN’s Articles of Incorporation or Memorandum of
Association or under Cayman Islands law as currently in effect that limit the
right of non-resident owners to hold or vote our common shares or to receive
dividends thereon. There is uncertainty as to whether the Courts of Cayman
Island would (i) enforce judgments of United States Courts obtained against
us
or our directors and officers predicated upon the civil liability provisions
of
the federal securities laws of the United States or (ii) entertain original
actions brought in Cayman Island Courts against us or such persons predicated
upon the federal securities laws of the United States. There is no treaty in
effect between the United States and Cayman Island providing for such
enforcement.
Canada
There
are
no governmental laws, decrees or regulations in Canada relating to restrictions
on the export or import of capital, or affecting the remittance of interest,
dividends or other payments to non-residents. Dividends paid to US residents,
however, are subject to a 15% withholding tax or a 5% withholding tax for
dividends if the shareholder is a corporation owning at least 10% of the
outstanding voting shares of the Company pursuant to Article X of the reciprocal
tax treaty between Canada and the US.
Except
as
provided in the
Investment
Canada Act
(the
"ICA"), which has provisions that restrict the holding of voting shares by
non-Canadians, there are no limitations specific to the rights of non-Canadians
to hold or vote the common shares under the laws of Canada, or in the charter
documents of the Company or its subsidiaries.
The
ICA
requires a person who is not a Canadian resident (a "non-Canadian") making
an
investment, which would result establish a new Canadian business or which would
result in the acquisition of control of a Canadian business (i.e. the gross
value of the assets of which exceed a certain monetary threshold), to identify,
notify, or file an application for review with the Investment Review Division
of
Industry Canada ("IRD"). The notification procedure involves a brief statement
of information about the investment on a prescribed form to be filed by the
investor within 30 days following implementation of the investment. Specific
investments are subject to review under the ICA. It is intention of the IRD
that
investments requiring only notification will proceed without government
intervention.
The
following investments by non-Canadians are subject to review under the
ICA:
1.
|
An
investment is reviewable if there is an acquisition of a Canadian
business
and the asset value of the Canadian business being acquired equals
or
exceeds the following thresholds:
|
|
|
|
|
|
(a)
|
For
non-World Trade Organization ("WTO") investors, the threshold is
$5
million for a direct acquisition and $50 million for an indirect
acquisition; the $5 million threshold will apply however for an indirect
acquisition if the asset value of the Canadian business being acquired
exceeds 50% of the asset value of the global
transaction;
|
|
|
|
|
|
(b)
|
Except
as specified in paragraph (c) below, a threshold is calculated annually
for reviewable direct acquisitions by or from WTO investors. The
threshold
for 2005 is $250 million. Pursuant to Canada's international commitments,
indirect acquisitions by or from WTO investors are not
reviewable;
|
|
|
|
|
|
(c)
|
The
limits set out in paragraph (a) apply to all investors for acquisitions
of
a Canadian business that:
|
|
|
|
|
|
|
(i)
|
engages
in the production of uranium and owns an interest in a producing
uranium
property in Canada;
|
|
|
|
|
|
|
(ii)
|
provides
any financial service;
|
|
|
|
|
|
|
(iii)
|
provides
any transportation services; or
|
|
|
|
|
|
|
(iv)
|
is
a cultural business.
|
|
|
|
|
2.
|
Notwithstanding
the above, any investment which is usually only notifiable, including
the
establishment of a new Canadian business, and which falls within
a
specific business activity, including the publication and distribution
of
books, magazines, newspapers, film or video recordings, audio or
video
music recordings, or music in print or machine-readable form may
be
reviewed if an Order-in-Council directing a review is made and a
notice is
sent to the Investor within 21 days following the receipt of a certified
complete notification.
|
With
reference to 1 (a) above, generally speaking, an acquisition is direct if it
involves the acquisition of control of the Canadian business or of its direct
or
indirect Canadian parent and an acquisition is indirect if it involves the
acquisition of control of a non-Canadian direct or indirect parent of an entity
carrying on the Canadian business. No change of voting control will be deemed
to
have occurred if an investor acquires less than one-third of the voting control
of a Canadian corporation.
With
reference to 1(a) above, a WTO investor, as defined in the ICA, includes an
individual who is a national of a member country of the WTO or who has the
right
of permanent residence in relation that WTO member, a government or government
agency of a WTO investor-controlled corporation, a limited partnership, trust
or
joint venture that is neither WTO-investor controlled or Canadian controlled
of
which two-thirds of its board of directors, general partners or trustees, as
the
case may be, are any combination of Canadians and WTO investors.
The
ICA
exempts certain transactions from notification and review, including, among
others,
1.
|
An
acquisition of voting shares if the acquisition were made in the
ordinary
course of that persons' business as a trader or dealer in securities;
|
2.
|
An
acquisition of control of the company in connection with the realization
of a security interest granted for a loan or other financial assistance
and not for any purpose related to the provisions of the
ICA;
|
|
|
3.
|
The
acquisition of voting interests by any person in the ordinary course
of a
business carried on by that person that consists of providing, in
Canada,
venture capital on terms and conditions not inconsistent with such
terms
and conditions as may be fixed by the Minister; and
|
|
|
4.
|
Acquisition
of control of the company by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the ultimate
direct or indirect control in fact of the company, through the ownership
of voting interests, remains
unchanged.
|
Currently
ninety percent of our operations are in Canadian dollars.
Chinese
Currency
The
Chinese currency is the Renminbi (“RMB”). It is not freely convertible although
the Chinese government has emphasized that full convertibility is the long-term
goal. Full convertibility, probably after some transitional period, will be
a
condition precedent to membership in the World Trade Organization, for which
PRC
has applied. The People’s Bank of China, PRC’s central banking authority,
publishes the Renmini exchange rate against the U.S. dollar every day based
on
the trading price between the two currencies of the previous day on the
Inter-Bank Foreign Exchange Market established in Shanghai in 1994. In addition,
the People’s Bank of China publishes the Renminbi exchange rates against other
major foreign currencies. Designated banks participate on the Inter-Bank Foreign
Exchange Market through a computer network connected with major cities in the
PRC.
Foreign
exchange is administered by the State Administration of Foreign Exchange
(“SAFE”), and its local branch offices, all of which are subject to the
supervision of the People’s Bank of China. SAFE has established regulations
relating to outward remittance by foreign investors of their share of net profit
or dividends and final repatriation of their investments, in foreign currency.
Subject to payment of applicable taxes, foreign investors may remit out of
PRC,
in foreign exchange, profit or dividends derived from a source within PRC.
Swap
centres have been established to assist foreign investment enterprises to
balance their foreign currency income and expenses by converting surplus local
currency earnings into foreign exchange and vice versa without their having
to
wait for central allocation. The central foreign exchange adjustment centre
is
in Beijing and other centres have been established in the coastal cities,
Special Economic Zones and other major cities, municipalities and autonomous
regions. Remittances by foreign investors of any other amounts (including,
for
instance, principal and interest on debt and proceeds of sale arising from
a
disposal by a foreign investor of any of our or his investments in PRC) out
of
PRC is subject to the approval of the SAFE.
E.
Taxation
Cayman
Island Income Tax Consequences
CWN
is
organized under the laws of Cayman Islands. At present, there is no Cayman
Islands profit tax, withholding tax, capital gains tax, capital transfer tax,
estate duty or inheritance tax payable by our United States shareholders, except
shareholders ordinarily resident in the Cayman Islands. There is currently
no
reciprocal tax treaty between Cayman Islands and the United States regarding
withholding taxes.
F.
Dividends
and Paying Agents
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
G.
Statement
by Experts
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
H.
Documents
on Display
Any
documents referred to in this Annual Report on Form 20-F may be inspected at
our
principal office located at Suite 368 – 1199 West Pender Street, Vancouver,
British Columbia, Canada V6E 2R1 during normal business hours.
The
Company's filings with the Securities and Exchange Commission, and the exhibits
thereto, are available for inspection and copying at the public reference
facilities maintained by the Securities and Exchange Commission in Judiciary
Plaza, Room 1024, 450 Fifth Street N.W., Washington, D.C., 20549. Copies of
these filings may be obtained from these offices after the payment of prescribed
fees. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for
further information on the public reference rooms. These filings are also
available on the Securities and Exchange Commission's website at
www.sec.gov.
I.
Subsidiary
Information
This
item
is not applicable.
ITEM
11.
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This
item
is not applicable.
ITEM
12.
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
This
Report on Form 20-F is being filed as an annual report under the Exchange Act
and, as such, there is no requirement to provide any information under this
item.
1.
NATURE OF OPERATIONS
The
Company was incorporated under the laws of Cayman Islands on January 12, 2000.
On January 15, 2000 the Company acquired 100% of the issued and outstanding
shares of NAI Interactive Ltd. (“NAI”), a company incorporated under the laws of
British Columbia, Canada. The Company also has a dormant wholly-owned subsidiary
ChineseWorldNet.com HK Limited (“CWN HK”) incorporated under the laws of Hong
Kong.
The
Company’s business is to provide online internet services through its Chinese
world-wide website. The online internet services comprise banner advertisements,
web page hosting and maintenance, on line promotion for customers, translation
services, investment seminars, investment handbooks, website contest events,
and
subscription fees. These services are considered as one segment based upon
the
Company’s organizational structure, the way in which these operations are
managed and evaluated by management, the availability of separate financial
results and materiality considerations.
These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities
and
commitments in the normal course of business. The Company has recurring losses
since its inception and requires additional funds to maintain and expand its
intended business operations. Management’s plans in this regard are to raise
debt or equity financing as required which the Company has been able to finance
the operations through a series of equity and debt financings. From August
to October 2007,
the
Company
received
net proceeds of $2,070,000 in connection with the private placement. In March
2007,
the
Company
issued a
convertible debt in the amount of $250,000 at an interest rate of 6%. However,
additional fund is still required to fund the Company’s anticipated business
expansion.
These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. These consolidated financial statements do not include any
adjustments that might result from this uncertainty.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis
of
c
onsolidation
These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its wholly owned subsidiaries. All
material inter-company accounts and transactions have been eliminated upon
consolidation.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Significant areas requiring the use of management
estimates relate to the determination of the net recoverable value of assets,
allowance for doubtful accounts, asset impairment and stock based compensation.
Management makes its best estimate of the ultimate outcome of these items based
on historical trends and other information available when the financial
statements are prepared. Actual amounts may ultimately differ from those
estimates.
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Equipment
Equipment
is recorded at cost, net of accumulated amortization.
Depreciation
on equipment is provided on a declining-balance basis over its expected useful
lives at the following annual rates:
Furniture
and fixtures
|
|
|
20
|
%
|
Computer
equipment
|
|
|
30
|
%
|
Cash
equivalents
Cash
equivalents usually consist of highly liquid investments which are readily
convertible into cash with maturity of three months or less when purchased.
As
at December 31, 2007, the Company held $2,574,291 [2006 - $134,234] in cash
equivalents.
Foreign
currency translations
The
Company, NAI and CWN HK maintain their accounting records in their functional
currencies of U.S. dollars, Canadian dollars and HK dollars, respectively.
However, the Company reports in U.S. dollars. Foreign currency transactions
in
the foreign subsidiaries are translated into their functional currency using
the
exchange rate in effect for the period end for assets and liabilities, and
revenues and expenses are translated using the exchange rate in effect at that
date. At the period end, monetary assets and liabilities are re-evaluated into
the functional currency by using the exchange rate in effect at that date.
The
resulting foreign exchange gains and losses are included in
operations.
Assets
and liabilities of the foreign subsidiaries are translated into the reporting
U.S. dollars at exchange rates in effect at the balance sheet date. Revenues
and
expenses are translated at the average exchange rates. Gain and losses from
such
translations are included in stockholders’ equity, as a component of other
comprehensive income.
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Advertising
expenses
The
Company expensed advertising costs as incurred. Advertising expenses for the
years ended December 31, 2007, 2006 and 2005 were $286,439, $49,836 and $50,813
respectively.
Income
taxes
The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 109,
Accounting
for Income Taxes
,
which
requires the Company to recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company’s financial statements or tax returns using the liability method. Under
this method, deferred tax liabilities and assets are determined based on the
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. The effect on deferred income tax assets
and liabilities of a change in income tax rates is included in the period that
includes the enactment date. Valuation allowances are established when necessary
to reduce deferred income tax assets to the amount expected to be
realized.
Comprehensive
income
The
Company accounts for comprehensive income under the provisions of Statement
of
Financial Accounting Standards No. 130 (SFAS 130),
Reporting
Comprehensive Income
,
which
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. The Company is disclosing this information
on its Statement of Stockholders’ Equity. The Company’s comprehensive income
(loss) consists of net earnings (loss) for the year, foreign currency
translation adjustments and unrealized gain (loss) on available-for-sale
securities.
Financial
instruments and concentration of risks
Fair
value of financial instruments is made at a specific point in time, based on
relevant information about financial markets and specific financial instruments.
As these estimates are subjective in nature, involving uncertainties and matters
of significant judgment, they cannot be determined with precision. Changes
in
assumptions can significantly affect estimated fair values.
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
The
carrying value of cash and cash equivalents, available for sale securities,
accounts receivable, accounts payable and accrued liabilities and due to related
parties approximates the fair value because of the short-term nature of these
instruments. Management is of the opinion that the Company is not exposed to
significant interest, risk arising from these financial
instruments.
The
Company has cash and cash equivalents with various financial institutions,
which
may exceed insured limits throughout the year. The Company is exposed to credit
loss for amounts in excess of insured limits in the event of non-performance
by
the institution. However, the Company does not anticipate non-performance.
As at
December 31, 2007, the Company had $2,237,142 (2006 - $nil) in a bank beyond
insured limits.
Concentration
of credit risk with respect to trade receivables are limited due to the
Company’s large number of diverse customers. The Company does not require
collateral or other security to support financial instruments subject to credit
risk.
The
Company operates and incurs significant expenditures outside of the United
States of America and is exposed to foreign currency risks due to the
fluctuation between the Canadian dollar and the U.S. dollar.
Available
for sale securities
Marketable
securities are classified as available for sale securities and are recorded
at
market value. Unrealized holding gains and losses on available for sale
securities are excluded from income and charged to
Accumulated
other comprehensive income
as a
separate component of stockholders’ equity until realized.
Non-monetary
transactions
The
Company entered into agreements for the supply of content for the Company’s
websites in exchange for advertising, consisting primarily of links to the
supplier’s websites. The Company accounted for these transactions in accordance
with Accounting Principles Board No. 29
“Accounting
for Nonmonetary Transactions”
(“APB
29”) and with Emerging Issues Task Force No. 99-17
“Accounting
for Advertising Barter Transactions”
(“EITF
99-17). No cash was exchanged between the parties in any of these transactions.
These transactions have been recorded at a zero value, being the carrying amount
of the content supplied.
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Revenue
recognition
Revenue
consists of two main sources:
|
1.
|
fees
from banner advertisement, web page hosting and maintenance, on-line
promotion and translation services, advertising and promotion fees
for
customers in the Company’s Chinese financial newspaper, sponsorship fees
from investment seminars and forums, all of which sales prices are
fixed
and determinable at the time the contracts are signed and there are
no
provisions for refunds contained in the contracts. These revenues
are
recognized when all significant contractual obligations have been
satisfied and collection of the resulting receivable is reasonably
assured.
|
|
2.
|
fees
from membership subscriptions. These revenues are recognized over
the term
of the subscription.
|
Fees
received in advance and require continuing performance obligation are deferred
and recognized as revenue systematically over the period of services provided
to
customers.
Long-lived
assets impairment
Long-term
assets of the Company are reviewed for impairment whenever events or changes
in
circumstances indicate that their carrying value has become impaired, in
accordance with the guidance established in Statement of Financial Accounting
Standards No. 144 (SFAS 144),
Accounting
for the Impairment or Disposal of Long-Lived Assets
.
An
impairment loss would be recognized when the carrying amount of an asset exceeds
the estimated undiscounted future cash flows expected to result from the use
of
the asset and its eventual disposition. The amount of the impairment loss to
be
recorded is calculated by the excess of the asset’s carrying value over its fair
value. Fair value is generally determined using a discounted cash flow
analysis.
Stock-based
compensation
The
Company has adopted the fair value method of accounting for stock-based
compensation as recommended by the Statement of Financial Accounting Standards
No. 123 (SFAS 123),
Accounting
for Stock-based Compensation.
The
Company has granted stock options to directors and certain employees for
services provided to the company under this method.
The
company
recognizes compensation expense for stock options awarded based on the fair
value of the options at the grant date using the Black-Scholes option pricing
model. The fair value of the options is amortized over the vesting period.
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Earning
(Loss) per share
Earning
(loss) per share is computed using the weighted average number of common shares
outstanding during the period. The Company has adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128),
Earnings
Per Share
.
Diluted
earning (loss) per share is equal to basic loss per share because there is
no
potential dilutive securities.
Accounts
receivable
Accounts
receivable are recorded at face value, less an allowance for doubtful accounts.
The allowance for doubtful accounts is an estimate calculated based on an
analysis of current business and economic risks, customer credit-worthiness,
specific identifiable risks such as bankruptcies, terminations or discontinued
customers, or other factors that may indicate a potential loss. The allowance
is
reviewed on a regular basis, at least annually, to ensure that it adequately
provides for all reasonably expected losses in the receivable balances. An
account may be determined to be uncollectible if all collection efforts have
been exhausted, the customer has filed for bankruptcy and all recourse against
the account is exhausted, or disputes are unresolved and negotiations to settle
are exhausted. This uncollectible amount is written off against the allowance.
For the fiscal year 2007, the Company incurred an (recovery) expense for bad
and
doubtful accounts receivable in the amount of $(17,425) (2006 - $87,427; 2005
-
$31,447) and recorded uncollectible accounts receivable written off and foreign
exchange difference of $ (2006 - $2,471; 2005 - $53,611).
New
accounting pronouncements
In
September 2006, FASB issued SFAS No. 157,
“
Fair
Value Measurements,
”
which
establishes
a framework for measuring fair value, and expands disclosures about fair value
measurements required under the accounting pronouncements, but does not change
existing guidance as to whether or not an instrument is carried at fair value.
Additionally, it establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for fiscal year, including financial statements for an interim period
within the fiscal year. The Company is currently evaluating the impact, if
any,
that SFAS No. 157 will have on its consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “
The
Fair Value Option for Financial Assets and Financial
Liabilities
”.
SFAS
No. 159 permits entities to choose to measure many financial instruments and
certain other items at fair value that are not currently required to be measured
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective for fiscal years beginning after November
15, 2007. The Company has not yet determined whether it will elect the fair
value option for any of its financial instruments.
In
December 2007, the FASB issued SFAS No. 141 (Revised) "Business Combinations".
SFAS 141 (Revised) replaces SFAS 141 "Business Combination" and establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The guidance will become effective for
the
fiscal year beginning after December 15, 2008. We do not expect that SFAS 141
(Revised) will have any impact on our historical financial statements upon
adoption.
In
December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in
Consolidated Financial Statements". SFAS 160 amends Accounting Research Bulletin
51, Consolidated Financial Statements, to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It also clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements.
SFAS
160 also changes the way the consolidated income statement is presented by
requiring consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest. It
also
requires disclosure, on the face of the consolidated statement of income, of
the
amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS 160 requires that a parent recognize a gain or
loss in net income when a subsidiary is deconsolidated and requires expanded
disclosures in the consolidated financial statements that clearly identify
and
distinguish between the interests of the parent owners and the interests of
the
noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods,
and interim periods within those fiscal years, beginning on or after December
15, 2008. We do not expect that SFAS 160 will have any impact on our historical
financial statements upon adoption.
In
March
2008, the FASB issued FASB Statement No. 161 ("SFAS 161"),
"Disclosures about Derivative Instruments and Hedging Activities". SFAS 161
requires companies with derivative instruments to disclose information that
should enable financial-statement users to understand how and why a company
uses
derivative instruments, how derivative instruments and related hedged items
are
accounted for under FASB Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and how derivative instruments and related
hedged items affect a company's financial position, financial performance and
cash flows. SFAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The
adoption of this statement is not expected to have a material effect on the
Company's future financial position or results of
operations.
3.
AVAILABLE FOR SALE SECURITIES
Available
for sale securities consist of marketable securities and are summarized as
follows:
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
unrealized
|
|
unrealized
|
|
Market
|
|
|
|
Cost
|
|
gains
|
|
losses
|
|
losses
|
|
value
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
1,009
|
|
|
—
|
|
|
(1,008
|
)
|
|
(1,008
|
)
|
|
1
|
|
Change
during the year
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
3
|
|
December
31, 2006
|
|
|
1,009
|
|
|
—
|
|
|
(1,005
|
)
|
|
(1,005
|
)
|
|
4
|
|
Change
during the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
December
31, 2007
|
|
|
1,009
|
|
|
-
|
|
|
(1,005
|
)
|
|
(1,005
|
)
|
|
4
|
|
During
the fiscal year 2007, the Company acquired marketable security of total $245,000
and disposed the said marketable securities for $243,331 which resulted a total
loss of $1,669.
4.
EQUIPMENT
|
|
|
|
Accumulated
|
|
Net
book
|
|
|
|
Cost
|
|
amortization
|
|
value
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
|
25,358
|
|
|
17,592
|
|
|
7,766
|
|
Computer
equipment
|
|
|
82,367
|
|
|
68,132
|
|
|
14,235
|
|
|
|
|
107,725
|
|
|
85,724
|
|
|
22,001
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
|
20,427
|
|
|
13,291
|
|
|
7,136
|
|
Computer
equipment
|
|
|
68,206
|
|
|
52,665
|
|
|
15,541
|
|
|
|
|
88,633
|
|
|
65,956
|
|
|
22,677
|
|
5.
CONVERTIBLE DEBENTURES
In
fiscal
year 2004, the convertible debentures were issued to an investor and a related
company owned by a director as a working capital credit facility of $50,000
and
$100,000 respectively with advances secured by two unregistered three-year
convertible debentures, which are due on May 31, 2007. Simple interest accrues
at 5% per annum on the amount of principal outstanding. The debentures are
convertible into common shares of the Company upon the Company completing its
registration statement with the relevant securities commission. The amount
of
the debenture remaining outstanding is convertible into one fully paid and
non-assessable common share of the Company at a price per share that is equal
to
the higher of: 1) the 30-day closing average price of its common shares on
its
principal market which shall initially be the OTC Bulletin Board discounted
at
20% calculated from the date the conversion notice is received by the Company,
or 2) US$0.60 per share, prior to maturity.
At
any
time during the term of the debenture, should the common shares of the Company
trade for a period of 30 consecutive trading days at an average closing price
exceeding $0.80 per common share, the Company shall have the option, exercisable
by providing the subscriber with written notice, of shortening the subscriber’s
right to convert the outstanding amount to a period of thirty (30) days from
the
date of such notice. If the subscriber does not exercise his right of
conversion, the debenture will no longer be convertible to common shares. The
entire $150,000 of convertible debenture has been classified as a
liability.
In
accordance with EITF No. 00-27,
Application
of Issue No. 98-5 to Certain Convertible Instruments,
no
beneficial conversion feature was calculated on the issuance of the convertible
debenture.
In
January 2007, the Company issued 250,000 common stocks of the Company for the
settlements of the above convertible debentures at $0.60 per share.
On
March
1, 2007, convertible debentures were issued to an investor as a working capital
of $250,000 with advances secured by an unregistered three-year convertible
debenture, which are due on February 28, 2010. Simple interest accrues at 6%
per
annum on the amount of principal outstanding. The debentures are convertible
into common shares of the Company upon the Company completing its registration
statement with the relevant securities commission. The principal amount of
this
note may be converted at a conversion price to US$1.00 per share, in whole
or in
part, by the Holder at any time until the note is repaid in full by the Company.
In connection with the issuance of the convertible debenture, the investor
also
received 75,000 warrants which are exercisable at any time between March 1,
2007
and February 28, 2010 at a price of $1.30 per share. Each warrant converts
into
one common stock.
In
accordance with EITF No. 00-27,
Application
of Issue No. 98-5 to Certain Convertible Instruments,
the
Company recorded $29,046, $29,047 and $191,907 to the share purchase warrants,
beneficial conversion feature and convertible debt, respectively.
During
the fiscal year 2007, $13,755 was accreted to the convertible debenture. A
summary of convertible debenture as follows:
|
|
December 31,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
Convertible
debentures - face value
|
|
|
|
|
|
Due
May 31, 2007 - unsecured and interest bearing at 5%
|
|
$
|
-
|
|
$
|
150,000
|
|
Due
February 28, 2010 - unsecured and interest bearing at 6%
|
|
|
250,000
|
|
|
-
|
|
|
|
|
250,000
|
|
|
150,000
|
|
Less
interest (effective interest rate: 2007 - 16.4%; 2006 -
5%)
|
|
|
(58,093
|
)
|
|
-
|
|
Accretion
|
|
|
13,755
|
|
|
-
|
|
Total
|
|
|
205,662
|
|
|
150,000
|
|
Less
current portion
|
|
|
-
|
|
|
(150,000
|
)
|
|
|
$
|
205,662
|
|
$
|
-
|
|
6.
INCOME TAXES
The
parent company is not subject to income taxes.
Income
tax expense varies from the amount that would be computed from applying the
combined federal and provincial income tax rate to loss before taxes as
follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
54,133
|
|
|
(209,883
|
)
|
|
(78,030
|
)
|
Statutory
Cayman Islands corporate tax rate
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Anticipated
tax recovery
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in tax rates resulting from:
|
|
|
|
|
|
|
|
|
|
|
Impact
of foreign exchange movement
|
|
|
12,238
|
|
|
1,273
|
|
|
(8,644
|
)
|
Impact
of BC rate change
|
|
|
-
|
|
|
(6,074
|
)
|
|
10,127
|
|
Foreign
tax rate differential
|
|
|
64,176
|
|
|
(46,700
|
)
|
|
(3,931
|
)
|
Others
|
|
|
4583
|
|
|
3,647
|
|
|
417
|
|
Recognition
of non- capital loss carryforwards
|
|
|
(82,686
|
)
|
|
|
|
|
|
|
Benefit
of losses not recognized
|
|
|
1,689
|
|
|
47,854
|
|
|
2,031
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The
significant components of the Company’s deferred tax assets are as
follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Non-capital
loss carryforwards
|
|
|
191,601
|
|
|
275,570
|
|
|
228,282
|
|
Equipment
and furniture
|
|
|
17,223
|
|
|
15,476
|
|
|
14,243
|
|
|
|
|
208,824
|
|
|
291,046
|
|
|
242,525
|
|
Valuation
allowance
|
|
|
(149,501
|
)
|
|
(291,046
|
)
|
|
(242,525
|
)
|
Net
deferred income tax assets
|
|
|
59,323
|
|
|
—
|
|
|
—
|
|
6.
INCOME TAXES (cont’d.)
The
Company has available non-capital losses for Canadian income tax purposes which
may be carried forward to reduce taxable income in future years. If not
utilized, the non-capital losses in the amount of $611,550 expire as
follows:
|
|
$
|
|
|
|
|
|
2009
|
|
|
317,052
|
|
2010
|
|
|
146,251
|
|
2014
|
|
|
15,473
|
|
2015
|
|
|
2,908
|
|
2026
|
|
|
129,866
|
|
|
|
|
611,550
|
|
7.
STOCKHOLDERS EQUITY
Common
Stocks
On
January 28, 2007, the Company issued 250,000 common stocks for the settlement
of
convertible debentures of $150,000.
On
October 26, 2007, 2,250,000 common stocks were issued in connection of a private
placement at a price of $1.08 for a total of $2,070,000.
Stock
Options
On
October 11, 2007, the Company granted key officers and directors 550,000 stock
options , which expire on October 11, 2012 with each stock option entitling
its
holder to purchase one common share at $.1.08.
As
at
December 31, 2007, the Company has 540,000 stock options
outstanding:
|
|
Number of Options
|
|
Weighted
Average Exercise
Price
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
$
|
-
|
|
Granted
|
|
|
550,000
|
|
|
1.08
|
|
Forfeited
|
|
|
(10,000
|
)
|
|
1.08
|
|
Balance,
December 31, 2007
|
|
|
540,000
|
|
$
|
1.08
|
|
Exercise price
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (years)
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.08
|
|
|
540,000
|
|
$
|
1.08
|
|
|
4.78
|
|
|
-
|
|
$
|
1.08
|
|
|
|
|
|
540,000
|
|
$
|
1.08
|
|
|
4.78
|
|
|
-
|
|
$
|
1.08
|
|
7.
STOCKHOLDERS EQUITY (cont’d.)
Stock
options (cont’d.)
During
the fiscal year 2007, the weighted average fair value of stock options granted
in the year was $0.93 and compensation expense of $22,222 was recognized for
options granted during the year and vesting over time using the Black-scholes
option pricing model. The fair value of each option granted is estimated on
the
date of grant using the Black-Schole option pricing model with weighted average
assumptions for grants as follows:
|
|
2007
|
|
2006
|
|
Risk-free
interest rate
|
|
|
4.36
|
%
|
|
-
|
|
Expected
life of options
|
|
|
5
years
|
|
|
-
|
|
Annualized
volatility
|
|
|
90.6
|
%
|
|
-
|
|
Dividend
rate
|
|
|
0
|
%
|
|
-
|
|
Share
purchase warrants
A
summary
of share purchase warrants is as follows:
Expiry
|
|
Exercise Price
|
|
Number
|
|
February
28, 2010
|
|
$
|
1.30
|
|
|
75,000
|
|
8.
RELATED PARTY TRANSACTIONS
[a]
|
In
2007, the Company incurred $84,000 [2006 - $24,000, 2005 - $24,000]
in
consulting fees to two companies related to a director of the Company,
of
which $39,000 was payable as at December 31,
2007.
|
[b]
In
2007, the Company paid $86,400 [2006 - $68,600, 2005 - $nil] salary to senior
officers of the Company.
[c]
|
As
at December 31, 2007, the Company has non-interest bearing advances
from a
stockholder and director of $29,802 [2006 - $76,910]. In 2007, the
Company
recorded imputed interest of $63 [2006 - $1,178, 2005 - $1,154] at
an
interest rate of 4% per annum on these
advances.
|
[d]
|
Included
in accounts payable, $30,233 [2006 - $14,187] was payable to a director
and a senior officer of the
Company.
|
[e]
As at
December 31, 2007, the Company provided an advance of $2,562 (2006 - $nil)
to a
director as a prepaid expenses.
All
related party transactions were entered into in the normal course of business
and are recorded at the exchange amount established and agreed to between the
related parties.
9.
COMMITMENTS
The
Company has entered into operating leases for automobile and office space.
Minimum future rental payments under these leases are as follows:
|
|
$
|
|
2008
|
|
|
84,802
|
|
2009
|
|
|
83,412
|
|
2010
|
|
|
79,242
|
|
2011
|
|
|
46,225
|
|
|
|
|
|
|
|
|
|
293,681
|
|
10.
SUBSEQUENT EVENTS
[a]
|
Subsequent
to the year end,, ChineseWorldNet (Hong Kong) Ltd. the Company’s
subsidiary, signed a Definitive Joint-Venture Agreement with Shanghai
Compass Venture Capital Investment Limited Company. The Chinese JV
had
successfully obtained its business license in April 2008 with a physical
office located at Shanghai, P.R. China. The initial capitalization
of
Chinese JV was set at RMB
5,000,000.
|
[b]
|
Subsequent
to the year end, .the Company entered a new consulting agreement
with
Silver Lake Investment Partners, Limited controlled by a director
of the
Company. The Company will be charged $2,000 per month for the consulting
fee from January 1 to December 31, 2008.
|
[c]
|
Subsequent
to the year end, the Company entered a new consulting agreement with
Goldpac Investments Ltd. controlled by a director of the Company.
The
Company will be charged $5,000 per month for the consulting fee from
January 1, 2008 to December 31, 2008.
|
11.
COMPARATIVE FIGURES
Certain
of comparative figures have been reclassified to conform with the presentation
adopted in the current period.