<HTML>
<HEAD>
<TITLE>CHINA FINANCE ONLINE</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 20-F</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>(Mark One)</B>

</DIV>
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)&nbsp;OF THE
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the fiscal year ended </B><U><B>December&nbsp;31, 2005</B></U>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Date
of event requiring this shell company
report &#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from </B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission file number: </B><U><B>000-50975</B></U></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B><U>CHINA FINANCE ONLINE CO. LIMITED</U></B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">(Exact name of Registrant as specified in its charter)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><U><B>Not Applicable </B></U><BR>
(Translation of Registrant&#146;s name into English)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><U><B>Hong Kong</B></U><BR>
(Jurisdiction of incorporation or organization)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Room&nbsp;610B, 6/F, Ping&#146;an Mansion<BR>
No.&nbsp;23 Financial Street</B><BR>
<U><B>Beijing 100032, People&#146;s Republic of China</B></U><BR>
(Address of principal executive offices)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities registered or to be registered pursuant to Section&nbsp;12(b) of the Act.</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Title of each class
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name of each exchange on which registered</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>None</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>None</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities registered or to be registered pursuant to Section&nbsp;12(g) of the Act.</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>American Depositary Shares, each representing 5 ordinary shares,</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>par value HK$0.001 per share *</B></DIV>

<DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 55%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt">(Title of Class)</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">*Not for trading, but only in connection with the listing on the Nasdaq National Market of American
Depository Shares each representing 5 ordinary shares pursuant to the requirements of the
Securities and Exchange Commission
</DIV>
<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities for which there is a reporting obligation pursuant to Section&nbsp;15(d) of the Act.<BR>
<B>None</B></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate the number of outstanding shares of each of the issuer&#146;s classes of capital or common
stock as of the close of the period covered by the annual report: 101,329,933 ordinary shares, par
value HK$0.001 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule&nbsp;405 of
the Securities Act.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#111;</FONT> Yes
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#254;</FONT> No</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this report is an annual or transaction report, indicate by check mark if the registrant is not
required to file reports pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#111;</FONT> Yes
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#254;</FONT> No</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#254;</FONT> Yes
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#111;</FONT> No</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Large accelerated filer <FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelerated filer <FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-accelerated filer <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule&nbsp;12b-2 of the Exchange Act).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#111;</FONT> Yes
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><FONT face="Wingdings">&#254;</FONT> No</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark which financial statement item the registrant has elected to follow:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT> Item&nbsp;17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT> Item&nbsp;18
</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt">1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>TABLE OF CONTENTS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101"><B>INTRODUCTION</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">PART I</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Item&nbsp;1.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#103">Identity of Directors, Senior Management and Advisers</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Item&nbsp;2.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#104">Offer Statistics and Expected Timetable</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Item&nbsp;3.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#105">Key Information</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Item&nbsp;4.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#106">Information on the Company</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;5.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#107">Operating and Financial Review and Prospects</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;6.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#108">Directors, Senior Management and Employees</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;7.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#109">Major Shareholders and Related Party Transactions</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Item&nbsp;8.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#110">Financial Information</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;9.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#111">The Offer and Listing</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;10.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#112">Additional Information</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Item&nbsp;11.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#113">Quantitative and Qualitative Disclosures About Market Risk</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Item&nbsp;12.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#114">Description of Securities Other than Equity Securities</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">PART II</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Item&nbsp;13.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#116">Defaults, Dividend Arrearages and Delinquencies</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Item&nbsp;14.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#117">Material Modifications to the Rights of Security Holders and Use of Proceeds</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Item&nbsp;15.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#118">Controls and Procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Item&nbsp;16A.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#119">Audit Committee Financial Expert</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Item&nbsp;16B.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#120">Code of Ethics</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">Item&nbsp;16C.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#121">Principal Accountant Fees and Services</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">Item&nbsp;16D.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#122">Exemption from the Listing Standard for Audit Committees</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">Item&nbsp;16E.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#123">Purchases of Equity Securities by the Issuer and Affiliated Purchasers</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#124">PART III</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#125">Item&nbsp;17.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#125">Financial Statement</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#126">Item&nbsp;18.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#126">Financial Statements</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#127">Item&nbsp;19.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#127">Exhibits</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv4w15.txt">EX-4.15 SECURITIES INFORMATION OPERATION LICENSE CONTRACT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv4w16.txt">EX-4.16 CONTRACT FOR LICENSE OF PROPRIETARY INFORMATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv4w17.txt">EX-4.17 CONTRACT FOR FINANCIAL AND ECONOMIC DATABANK SERVICE, AS AMENDED</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv4w20.txt">EX-4.20 LEASE CONTRACT FOR HOUSING UNIT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv4w21.txt">EX-4.21 LEASE CONTRACT FOR HOUSING UNIT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv4w22.txt">EX-4.22 LEASE CONTRACT FOR HOUSING UNIT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv4w26.txt">EX-4.26 LABOR CONTRACT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv12w1.txt">EX-12.1 CEO CERTIFICATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv12w2.txt">EX-12.2 CFO CERTIFICATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv13w1.txt">EX-13.1 CEO CERTIFICATION PURSUANT TO SECTION 906</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00544exv13w2.txt">EX-13.2 CFO CERTIFICATION PURSUANT TO SECTION 906</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INTRODUCTION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Except where the context otherwise requires and for purposes of this annual report only:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;we,&#148; &#147;us,&#148; &#147;our company&#148; and &#147;our&#148; refer to China Finance Online Co. Limited, or CFO Hong Kong,
its subsidiaries, China Finance Online (Beijing) Co., Ltd., or CFO Beijing, and Fortune Software
(Beijing) Co., Ltd., or Fortune Software and, in the context of describing our operations, also
include our PRC-incorporated affiliate, Fuhua Innovation Technology Development Co., Ltd., or
Fuhua;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;shares&#148; and &#147;ordinary shares&#148; refer to our ordinary shares, &#147;preferred shares&#148; refers to our
preferred shares, all of which were converted into our ordinary shares upon the completion of
our initial public offering on October&nbsp;20, 2004, &#147;ADSs&#148; refers to our American depositary
shares, each of which represents five ordinary shares, and &#147;ADRs&#148; refers to the American
depositary receipts which evidence our ADSs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;China&#148; or &#147;PRC&#148; refers to the People&#146;s Republic of China, excluding Taiwan, Hong Kong and Macau;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;Hong Kong&#148; refers to the Hong Kong Special Administrative Region of the People&#146;s Republic of
China; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all references to &#147;Renminbi,&#148; &#147;RMB&#148; or &#147;yuan&#148; are to the legal currency of China, all references
to &#147;U.S. dollars,&#148; &#147;dollars,&#148; &#147;$&#148; or &#147;US$&#148; are to the legal currency of the United States and
all references to &#147;Hong Kong dollars&#148; or &#147;HK$&#148; are to the legal currency of Hong Kong. Any
discrepancies in any table between totals and sums of the amounts listed are due to rounding.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We and certain selling shareholders of our company completed the initial public offering of
6,200,000 American Depositary Shares, each representing five of our ordinary shares, par value
HK$0.001 per share on October&nbsp;20, 2004. On October&nbsp;15, 2004, we listed our ADSs on the Nasdaq
National Market, or Nasdaq, under the symbol &#147;JRJC.&#148;
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FORWARD-LOOKING INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This annual report on Form 20-F contains forward-looking statements that are based on our current
expectations, assumptions, estimates and projections about us and our industry. All statements
other than statements of historical fact in this annual report are forward-looking statements.
These forward-looking statements can be identified by words or phrases such as &#147;may,&#148; &#147;will,&#148;
&#147;expect,&#148; &#147;anticipate,&#148; &#147;estimate,&#148; &#147;plan,&#148; &#147;believe,&#148; &#147;is /are likely to&#148; or other and similar
expressions. The forward-looking statements included in this annual report relate to, among others:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our goals and strategies, including how we effect our goals and strategies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our future business developments, business prospects, financial condition and results of operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our future pricing strategies or policies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our plans to expand our service offerings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our plans to diversify our sources of revenues, including by expanding our online advertising business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competition in the PRC financial data and information services industry;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>performance of China&#146;s securities markets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the expected growth in the number of Internet users in China, growth of personal computer penetration
and developments in the ways most people in China access the Internet;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the future development of Internet consumers in China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PRC governmental policies relating to the Internet and Internet content providers; and</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PRC governmental policies relating to the distribution of content, especially the distribution of
financial content over the Internet, or to the provision of advertising services over the Internet,
including PRC governmental pronouncements concerning a proposal by the PRC government to extend the
provision of advertising services to foreign invested enterprises.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These forward-looking statements involve various risks, assumptions and uncertainties. Although we
believe that our expectations expressed in these forward-looking statements are reasonable, we
cannot assure you that our expectations will turn out to be correct. Our actual results could be
materially different from and worse than our expectations. Important risks and factors that could
cause our actual results to be materially different from our expectations are generally set forth
in Item&nbsp;3.D of this annual report, &#147;Key information &#151; Risk Factors&#148; and elsewhere in this annual
report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This annual report on Form 20-F also contains data related to the online financial data and
information services market and the Internet. This market data includes projections that are based
on a number of assumptions. The online financial data and information services market may not grow
at the rates projected by market data, or at all. The failure of these markets to grow at the
projected rates may have a material adverse effect on our business and the market price of our
ADSs. In addition, the relatively new and rapidly changing nature of the online financial data and
information services industry subjects any projections or estimates relating to the growth
prospects or future condition of our markets to significant uncertainties. Furthermore, if any one
or more of the assumptions underlying the market data turns out to be incorrect, actual results may
differ from the projections based on these assumptions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The forward-looking statements made in this annual report relate only to events or information as
of the date on which the statements are made in this annual report. You should not place undue
reliance on these forward-looking statements and you should read these statements in conjunction
with the risk factors disclosed in Item&nbsp;3.D of this annual report, &#147;Key Information &#151; Risk
Factors.&#148; We undertake no obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the occurrence of
unanticipated events.
</DIV>
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. KEY INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><U><B>Selected financial data</B></U><B>.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents the selected consolidated financial information for the Company. You
should read the following information in conjunction with Item&nbsp;5, &#147;Operating and Financial Review
and Prospects.&#148; The summary statement of operations data of the Company for the years ended
December&nbsp;31, 2003, 2004 and 2005 and the summary balance sheet data of the Company as of December
31, 2004 and 2005 set forth below are derived from, and are qualified in their entirety by
reference to, the audited consolidated financial statements of the Company, including the notes
thereto, which are included in this annual report beginning on page F-1 below. The summary
statement of operations data for the years ended December&nbsp;31, 2001 and 2002, and the summary
balance sheet data as of December&nbsp;31, 2001, 2002 and 2003 set forth below are derived from audited
consolidated financial statements of the Company not included herein. Our consolidated financial
statements are prepared and presented in accordance with accounting principles generally accepted
in the United States, or U.S. GAAP.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>(in thousands of U.S. dollars, except per share or per ADS data)(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated statement of operations:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross revenues(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,627</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(145</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">4

</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>(in thousands of U.S. dollars, except per share or per ADS data)(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(265</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(254</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(482</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross (loss)&nbsp;profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(168</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(258</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(253</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(727</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,740</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Product development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(185</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(157</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(173</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(236</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(275</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(284</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(801</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,795</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(571</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(685</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(833</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,701</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,771</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(738</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,229</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,486</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income
(loss)&nbsp;before income taxes benefit (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(644</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,081</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax
benefit (expense) - current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(457</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(644</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on preference shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(352</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;attributable to ordinary shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(644</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;per share-basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;per share-diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per ADS equivalent-basic(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.18</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per ADS equivalent-diluted(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.18</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends declared per ordinary share or preference shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>(in thousands of U.S. dollars)(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated balance sheet data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,168</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current working capital(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,859</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,282</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">68,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,831</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>For the results of operations for a specified period, all translations from Renminbi to U.S. dollars
were calculated at the average exchange rate for that period, calculated by using the average of the
exchange rates on the last day of each month during the period. For the years ended December&nbsp;31,
2001, 2002, 2003, 2004 and 2005, all translations from Renminbi to U.S. dollars were calculated at
RMB8.2770, RMB8.2770, RMB8.2770, RMB8.2768 and RMB8.1472 per US$1.00, respectively.
For consolidated balance sheet data, all translations from Renminbi to U.S. dollars were calculated
at the exchange rate at the end of that year. The exchange rates as at December&nbsp;31, 2001, 2002,
2003, 2004 and 2005 were RMB8.2766, RMB8.2800, RMB8.2769, RMB8.2765, and RMB8.0702 per US$1.00,
respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>We receive subscription fees at the beginning of the subscribers&#146; subscription periods. Revenues
from the subscription fees are deferred and recognized ratably over the twelve month subscription
period.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Each ADS represents five ordinary shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Current working capital is the difference between total current assets and total current liabilities.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exchange Rate Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have published our financial statements in U.S. dollars. Our business is primarily conducted in
China and denominated in Renminbi. Periodic reports will be made to shareholders and will be
expressed in U.S. dollars using the then-current exchange rates. The conversion of Renminbi into
U.S. dollars in this annual report is based on the noon buying rate in The City of New York for
cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New
York. Unless otherwise noted, all translations from Renminbi to U.S. dollars
</DIV>

<P align="center" style="font-size: 10pt">5

</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">in this annual report
were made at $1.00 to RMB8.0702, which was the prevailing rate on December&nbsp;31, 2005. The prevailing
rate on March&nbsp;31, 2006 was $1.00 to RMB8.0270. We make no representation that any Renminbi or U.S.
dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case
may be, at any particular rate, the rates stated below, or at all. The PRC government imposes
controls over its foreign currency reserves in part through direct regulation of the conversion of
Renminbi into foreign exchange and through restrictions on foreign trade.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The People&#146;s Bank of China sets and publishes daily a base exchange rate. Until July&nbsp;21, 2005, the
People&#146;s Bank of China set this rate with reference primarily to the supply and demand of Renminbi
against the U.S. dollar in the market during the prior day. Beginning on July&nbsp;21, 2005, the
People&#146;s Bank of China has set this rate with reference primarily to the supply and demand of
Renminbi against a basket of currencies in the market during the prior day. The People&#146;s Bank of
China also takes into account other factors such as the general conditions existing in the
international foreign exchange markets. Although governmental policies were introduced in the PRC
in 1996 to reduce restrictions on 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 for Foreign
Exchange and other relevant authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth various information concerning exchange rates between the Renminbi
and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience
and are not necessarily the exchange rates that we used in this annual report or will use in the
preparation of our periodic reports or any other information to be provided to you. The source of
these rates is the Federal Reserve Bank of New York.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Average(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Period-end</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><I>(RMB per U.S.$1.00)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2769</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2004</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.1472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0702</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>November</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0796</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>December</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0709</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2006
</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>
January</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0608</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>February</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0420</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>March</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>April</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0165</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>May (through May&nbsp;15)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.9982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.9982</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Annual averages are calculated from month-end rates. Monthly
averages are calculated using the average of the daily rates
during the relevant period.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><U><B>Capitalization and indebtedness.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><U><B>Reasons for the offer and use of proceeds.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. </B><U><B>Risk factors.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Risks relating to our business</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our business is substantially dependent on the level of trading activity in China&#146;s securities
markets. Volatility and the lack of hedging instruments in China&#146;s securities markets could dampen
investors&#146; interest in investing in China&#146;s securities markets and materially and adversely affect
our revenue and profitability.</I>
</DIV>

<P align="center" style="font-size: 10pt">6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our business is substantially dependent on user demand for market intelligence on China&#146;s
securities markets. Such demand has fluctuated with the level of trading activity in China&#146;s
securities markets. During the past several years, China&#146;s securities markets have experienced
significant volatility and decrease in value. The Shanghai Stock Exchange A-Share Index and the
Shenzhen Stock Exchange A-Share Index declined 38.8% and 51.8%, respectively, from January&nbsp;2, 2001
to March&nbsp;31, 2006. On June&nbsp;6, 2005, the Shanghai Stock Exchange Index reached its lowest level
since March&nbsp;1997. If China&#146;s securities markets weaken in the future, and investors&#146; interest in
China&#146;s securities markets declines, our business could be materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">China&#146;s securities market is further limited by a lack of hedging instruments that would assist
investors in hedging against market volatility. For example, investors are not permitted to sell
short in China&#146;s securities markets. Because our business is dependent on investors&#146; interest in
China&#146;s securities markets, our business could be materially and adversely affected if market
volatility and the lack of hedging instruments continue to affect China&#146;s securities markets and
dampen investors&#146; interest in China&#146;s securities markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Potential increases in inflation in China could dampen investors&#146; interest in investing in China&#146;s
securities markets and materially and adversely affect our revenue and profitability.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In recent years, China has not experienced significant inflation, and thus inflation has not had a
significant effect on our business historically. According to the National Bureau of Statistics of
China, China&#146;s average national inflation rate, as represented by the change in the general
Consumer Price Index in China, was 1.2%, 3.9% and 1.8% in 2003, 2004 and 2005, respectively. In
response to the increased inflation rate during 2004, the Chinese government announced measures to
restrict lending and investment in China in order to reduce inflationary pressure on China&#146;s
economy; the inflation rate reduced in 2005. If China experiences increased inflation in future,
the Chinese government may introduce further measures intended to reduce the inflation rate in
China. Any such measures adopted by the Chinese government may not be successful in reducing or
slowing the increase in China&#146;s inflation rate. Sustained or increased inflation in China may have
an adverse impact on China&#146;s economy, which could lead to weak performance of China&#146;s stock markets
and, as a result, dampen investors&#146; interest in investing in China&#146;s stock markets. Since our
business is substantially dependent on investors&#146; demand for market intelligence on China&#146;s
securities markets, lack of investors&#146; interest in China&#146;s securities markets may materially and
adversely affect our business and financial results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our revenues and profits could decline if we fail to attract sufficient numbers of subscribers to
our more comprehensive service packages or if we fail to retain our existing subscribers.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We depend on the sale of our more comprehensive service packages such as Grand Reference for a
significant portion of our total revenues. For the year ended December&nbsp;31, 2005, subscription fees
generated from sales of Grand Reference were $3.6&nbsp;million, representing 86% of our total
subscription fees during the same period. For the year ended December&nbsp;31, 2005, we had a total of
approximately 11,011 subscribers to Grand Reference, representing 70% of our total number of
subscribers during the same period. As our service packages become more comprehensive and higher
priced, we expect that our future revenues and revenue growth will increasingly depend on sales of
our more comprehensive service packages to a much greater extent than sales of our other service
packages. If we fail to attract a sufficient number of subscribers to our more comprehensive
service packages, our revenues and profits could decline. Moreover, our financial success depends
on our ability to retain our subscribers and migrate them to newer, more comprehensive and higher
priced service packages. We may not be able to continue to develop newer and more comprehensive
service packages that our subscribers will be willing to purchase. Moreover, from time to time we
may offer discounts and promotional rates. For example, we launched a promotional program in
December&nbsp;2005, in which, the existing subscribers can upgrade their services to Grand Reference V
at a promotion price. If we are unsuccessful at developing new service packages that are attractive
to our users, or if our users elect to renew existing service packages rather than purchase newer or
more comprehensive service offerings, our revenues and profits could decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>We have a limited operating history, which may make it difficult for you to evaluate our business.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our business was incorporated in November&nbsp;1998, and our current operations were established in
April&nbsp;2000. Our service offerings have only been commercially available since April&nbsp;2001. Our
senior management and employees have worked together at our company for only a relatively short
period of time. Accordingly, we have a limited operating history upon which you can evaluate our
business and prospects.
</DIV>

<P align="center" style="font-size: 10pt">7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We may not be able to successfully implement our growth strategies, which could materially and
adversely affect our business, financial condition and results of operations.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are pursuing a number of growth strategies, which will require us to expand our data and
information content and service offerings through internal development efforts and through
partnerships, joint ventures and acquisitions. Some of these strategies relate to new service
offerings for which there are no established markets in China, or relate to service offerings in
which we lack experience and expertise. We cannot assure you that we will be able to deliver new
service offerings on a commercially viable basis or in a timely manner, or at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to our subscription-based service offerings, we also intend to increase our online
advertising revenue from our website by increasing the number of sponsors for some of our website
content and by developing other forms of Internet advertisement. Our current online advertising
business has been limited and, to date, we do not have significant experience with selling
Internet-based advertising. Moreover, we would need to hire additional employees and incur costs
relating to any efforts to increase our advertising revenues, which could adversely affect our
financial condition and operating results. We cannot assure you that we will be able to efficiently
or effectively implement and grow our online advertising business, or that online advertising on
our website will not detract from our users&#146; experience and thereby adversely affect our brand name
or our subscription-based service offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we are unable to successfully implement our growth strategies, our revenue and profitability
will not grow as we expect, if at all, and our competitiveness may be materially and adversely
affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We rely principally on the acceptance of the Internet as a source of information and as a means to
perform investment research and analysis, and our success will depend on the continuation of this
trend.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Internet, as a source of information and as a means to perform investment research and
analysis, has only recently begun to be accepted by users and investors in China. Our future
revenues and profits are substantially dependent upon the growth in acceptance by users and
investors of our service offerings and the use of Internet-based information and investment
research tools. We cannot assure you that our service offerings or the Internet as a means to
perform investment research and analysis will continue to experience growth in user acceptance, if
at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our business could be materially and adversely affected if we fail to develop or introduce new
features and new research tools or if these new features and research tools are not accepted by
users.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We currently offer to our subscribers a small number of service packages with different features
and functionalities. If we introduce a new feature or a new research tool that is not favorably
received, our current subscribers may not continue to use our service as frequently as before. New
subscribers could also choose a competitive or different service offering over ours. We may also
experience difficulties that could delay or prevent us from introducing new research tools or
features. Furthermore, these research tools or features may contain errors that are discovered
after the services are introduced. We may need to significantly modify the design of these research
tools or features to correct these errors. Our business could be materially and adversely affected
if we experience difficulties or delays in introducing new features and research tools or if these
new features and research tools are not accepted by users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our business could be materially and adversely affected if our service package Tao of Wealth is not
accepted by middle class individuals and financial services professionals.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We launched Tao of Wealth, a new service package we developed to target middle class individuals
and financial service professionals such as financial advisers in China in August&nbsp;2005. We have
invested significant resources into developing Tao of Wealth and expect to continue our efforts in
developing new editions of Tao of Wealth. If Tao of Wealth is not favorably received by our target
customers, if other service offerings not offered by us are
preferred by our target customers over Tao of Wealth, or if we experience difficulties that could
delay or prevent us from introducing new editions of Tao of Wealth, we may not be able to grow our
business in the personal finance market as we have projected and our business could be materially
and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We face significant competition which could adversely affect our business, financial condition and
results of operations</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The online financial data and information services market in China is relatively new, has few
substantial barriers to entry and is competitive and rapidly changing. More broadly, the number of
financial news and information sources competing for consumers&#146; attention and spending has
increased since we commenced operations and we
</DIV>

<P align="center" style="font-size: 10pt">8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
Some of the sponsors with which we currently maintain sponsorship arrangements could also become
our competitors in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, a number of companies in China, including us, 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our business could be materially and adversely affected if the stock exchanges from which we
receive data and information fail to deliver us reliable data and price quotes or other trading
related information on a real-time basis, or if we cannot maintain our current business
relationships with our historical data providers on commercially reasonable terms.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We depend on two securities data providers associated with the Shanghai and Shenzhen Stock
Exchanges to provide us with real-time stock, bond and mutual fund quotes and other trading related
information. We primarily rely on contractual arrangements with Shanghai Stock Exchange Information
Network Co., Ltd., which is associated with the Shanghai Stock Exchange, and with Shenzhen
Securities Information Co., Ltd., which is associated with the Shenzhen Stock Exchange, pursuant to
which we pay fixed service fees in exchange for receiving real-time price quotes and other trading
related information through satellite communication. Our contract with Shanghai Stock Exchange
Information Network Co., Ltd. will expire on December&nbsp;31, 2006, and our contract with Shenzhen
Securities Information Co., Ltd. will expire on March&nbsp;1, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also depend on other data and information providers to supply us with historical data and
information on listed companies, bonds and mutual funds, in accordance with our specifications and
requirements. The contractual arrangement we have with our current primary data provider, Shenzhen
Securities Information Co., Ltd., will expire in April&nbsp;2007. The contractual arrangement we had
with our previous primary data provider, Shanghai Wind Information Co., Ltd., expired in September
2005. In addition, we have entered into raw data provision contracts with
Financial China Information &#038; Technology Co., Ltd. and Shanghai Gildata Service Co., Ltd,
respectively, as alternative sources of historical data and information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We cannot assure you that we will be able to enter into business arrangements with either of the
two securities data providers associated with the Shanghai and Shenzhen Stock Exchanges on
commercially reasonable terms, or at all, after our current contracts expire. We cannot assure you
that the two securities data providers will not charge us service fees substantially higher than
the service fees we are currently paying. Our business, financial condition and results of
operations could be materially and adversely affected if either of our two securities data
providers imposes on us service fees substantially higher than the service fees we are currently
paying. Even if we are able to
</DIV>

<P align="center" style="font-size: 10pt">9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">maintain our current business arrangements for data on commercially
reasonable terms, either of the two securities data providers may fail to deliver us reliable price
quotes or other trading related information on a real-time basis. In either case, it would be
difficult for us to receive reliable real-time price quotes and other trading related information
from a different source, which could materially and adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Additionally, we cannot assure you that we will be able to enter into or maintain our business
arrangements with our current primary and backup data providers on commercially reasonable terms or
at all. In this case, it could take time for us to locate alternative providers of comprehensive
historical data and information on commercially reasonable terms, which could cause disruptions to
our operations and adversely affect our business. Even if we are able to find alternative data
providers, they may fail to deliver to us reliable and comprehensive data and information in
accordance with our specifications and requirements, which could materially and adversely affect
our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We depend on establishing and maintaining sponsorship arrangements with high-traffic websites as
one of our primary means for attracting users. Our business could be adversely affected if we
cannot maintain these relationships or establish new relationships on commercially reasonable terms
or if these relationships do not result in increased use of our website.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We depend on establishing and maintaining sponsorship arrangements with high-traffic Internet
portals, search engines, online stock brokerage websites, and news and financial information
websites for a significant portion of our website traffic. We have established more than 72 such
sponsorship arrangements, whereby we place our website link on our sponsors&#146; financial web pages
or, in some cases, provide our content directly on their web pages. There is intense competition
for website link placements on many of these sites, and we may not be able to enter into or
maintain such relationships on commercially reasonable terms or at all. If any of our sponsors
determines to enter into direct competition against us, we may lose its sponsorship. Even if we
enter into or are able to maintain sponsorship arrangements with these websites, these arrangements
may not attract significant numbers of users to our website. Our business could be adversely
affected if these relationships do not result in increased use of our website. Moreover, we may
have to pay significant fees to establish or maintain these relationships. Our business could be
adversely affected if we do not establish and maintain these relationships on commercially
reasonable terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our business would be adversely affected if we do not continue to expand and maintain an effective
customer support force.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We market our service offerings through our website, as well as through our customer service
center, which as of March&nbsp;31, 2006 had 35 full-time and trained customer support personnel. We
depend on our customer support force to explain our service offerings to our existing and potential
subscribers and resolve our subscribers&#146; technical problems. Many of our customer support personnel
have only worked for us for a short period of time, and some of them may not have received
sufficient training or gained sufficient experience to effectively serve our customers. In
addition, we will need to further increase the size of our customer support force as our business
continues to grow. We may not be able to hire, retain, integrate or motivate additional customer
support personnel without any short-term disruptions of our operations. As a result, our business
could be adversely affected if we do not continue to expand and maintain an effective customer
support force.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We invested in a Chinese wireless technology and service company in December&nbsp;2005. The financial
condition and operating performance of the company we invested in may be disappointing that will
negatively affect our business. Moreover in the future we may face difficulties implementing our
acquisition strategy, including identifying suitable opportunities and integrating them with our
existing operations, which could have a material adverse effect on our business, financial
condition and results of operations.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As part of our business strategy, we intend to use partnerships and acquisitions to facilitate the
introduction of new service offerings as well as to add capabilities that we do not currently have.
For example, we invested in Moloon International, Inc., or Moloon, a Chinese wireless technology
and service provider, in December&nbsp;2005. We also entered into a strategic cooperation agreement with
Moloon in December&nbsp;2005, pursuant to which we will work with Moloon to co-develop wireless
financial service products for Chinese mobile users. However, the financial condition and operating
results of Moloon may be disappointing which could negatively affect our business and financial
condition. Moreover, our cooperation with Moloon may not generate meaningful revenue or any at all.
In the future, we may also consider acquiring or entering into partnerships with companies that
specialize in non-
</DIV>

<P align="center" style="font-size: 10pt">10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">exchange traded financial products in order to acquire their expertise in that
area which we believe are difficult to obtain otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our ability to implement this strategy will depend on the availability of suitable acquisition
candidates at an acceptable cost, our ability to compete effectively to attract and reach agreement
with acquisition candidates or joint venture partners on commercially reasonable terms, the
availability of financing to complete larger acquisitions or joint ventures, as well as our ability
to obtain any required governmental approvals. In addition, the benefits of a partnership,
acquisition or joint venture transaction may take considerable time to develop, and we cannot
assure you that any particular partnership, acquisition or joint venture will produce the intended
benefits. For example, we may experience difficulties in integrating acquisitions with our existing
operations and personnel. The identification and completion of these transactions may require
significant management time and resources. Moreover, the partnership, acquisition and joint venture
strategies we pursue could also cause earnings or ownership dilution to our shareholders&#146;
interests, which could result in losses to investors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our business could be materially and adversely affected if increased usage strains our server
systems or if we suffer from other system malfunctions.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the past, our website has experienced significant increases in traffic when there are
significant business developments or financial news and activities. In addition, the number of our
users has continued to increase over time and we are seeking to further increase our user base.
Therefore, our website must accommodate a high volume of traffic to meet peak user demand and
deliver frequently updated information. Our website has in the past experienced and may in the
future experience slower response time or login delays for a variety of reasons. It is essential to
our success that our website is able to accommodate our users in an efficient manner so that our
users&#146; experience with us is viewed favorably and without frequent delays.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also depend on other Internet content providers, such as other financial information websites,
to provide data and information to our website on a timely basis. Our website could experience
disruptions or interruptions in service due to the failure or delay in the transmission or receipt
of this information. In addition, our users depend on Internet service providers, online service
providers and other website operators for access to our website. Each of them has experienced
significant outages in the past, and could experience outages, delays and other difficulties due to
system failures unrelated to our systems. These types of occurrences could cause users to perceive
our website as not functioning properly and therefore cause them to use other methods to obtain the
financial data and information services they need.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>If we are not able to respond successfully to technological or industry developments, our business
may be materially and adversely affected.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We may be subject to, and may expend significant resources in defending against claims based on the
content and services we provide through our website and our research tools.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Due to the manner in which we obtain, collect, categorize and integrate content for our website,
and because our services, including our online bulletin boards and discussion forums, may be used
for the distribution of information and expression of opinions, claims may be filed against us for
defamation, subversion, negligence,
copyright or trademark infringement or other violations due to the nature and content of such
information. For example, our bulletin boards and online forums reflect the statements and views of
persons we do not control and we cannot be assured that such information is true and correct and is
not misleading. These persons may also have conflicts of interest in relation to their statements
or views regarding securities or other financial matters. Liability insurance for these types of
claims is not currently available in the PRC. While we do not take responsibility for statements or
views presented on our website, we may incur significant costs investigating and defending these
</DIV>

<P align="center" style="font-size: 10pt">11
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">types of claims even if they do not result in liability. Any such claim may also damage our
reputation if our users and subscribers do not view this content as reliable or accurate, which
could adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We may be subject to intellectual property infringement claims, which may force us to incur
substantial legal expenses and, if determined adversely against us, may materially disrupt our
business.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We cannot be certain that our website content, online services and our research 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 we are found to have
violated the intellectual property rights of others, we may be enjoined 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We regard our copyrights, trademarks, trade secret and other intellectual property as critical to
our success. Unauthorized use of the intellectual property used in our business may adversely
affect our business and reputation. We rely on trademark and copyright law, trade secret protection
and confidentiality agreements with our employees, customers, business partners and others to
protect our intellectual property rights. Despite our precautions, it may be possible for third
parties to obtain and use our intellectual property without authorization. The validity,
enforceability and scope of protection of intellectual property in Internet-related industries are
uncertain and still evolving. In particular, the laws and enforcement procedures in the PRC do not
protect intellectual property rights to the same extent as do the laws and enforcement procedures
in the United States. Moreover, litigation may be necessary in the future to enforce our
intellectual property rights. Future litigation could result in substantial costs and diversion of
our resources, and could disrupt our business, as well as have a material adverse effect on our
financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We depend on our key personnel and our business and growth prospects may be severely disrupted if
we lose their services.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our future success is dependent upon the continued service of our key executives and employees. We
rely on their expertise in our business operations. If one or more of our key executives were
unable or unwilling to continue in their present positions, or if they joined a competitor or
formed a competing company in violation of their employment agreements, we may not be able to
replace them easily. As a result, our business may be significantly disrupted and our financial
condition and results of operations may be materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Furthermore, since our industry is characterized by high demand and intense competition for talent,
we may need to offer higher compensation and other benefits in order to attract and retain key
personnel in the future. Our employees are required to enter into one-year employment agreements
with us. We seek to enter into employment and non-competition agreements with our senior executives
for longer terms. We cannot assure you that we will be able to attract or retain the key personnel
that we will need to achieve our business objectives. We do not maintain key-man life insurance for
any of our key personnel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Undetected programming errors or defects in our research tools could materially and adversely
affect our business, financial condition and results of operations.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our research tools may contain programming errors or other defects that our internal testing did
not detect, which are commonly referred to as programming bugs. The occurrence of undetected errors
or defects in our research tools could disrupt our operations, damage our reputation and detract
from the experience of our users. As a result,
such errors and defects could materially and adversely affect our business, financial condition and
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The discontinuation of any of the preferential tax treatments currently available to us in the PRC
could materially and adversely affect our business, financial condition and results of operations.</I>
</DIV>

<P align="center" style="font-size: 10pt">12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our PRC wholly-owned subsidiaries, CFO Beijing and Fortune Software, enjoy preferential tax
treatments, including reduced tax rates, tax holidays and tax refunds, provided by either the PRC
government or its local agencies or bureaus. For example, as a foreign invested software
development company, CFO Beijing was granted by the Beijing branch of the PRC tax bureau three tax
incentives that have the effect of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exempting the company from enterprise income tax for 2003 and 2004; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Providing the company a preferential enterprise income tax rate of 12%
from 2005 to 2007, 25.5% from 2008 to 2012 and 27% for taxable years
thereafter, the rate currently applicable to wholly foreign-owned
enterprises based in Beijing and not subject to other tax holidays.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Similarly, in December&nbsp;2004, we established our subsidiary Fortune Software in Beijing that was
classified by the Beijing local government as a foreign invested high-technology company. With the
classification of a foreign invested high-technology company, Fortune Software expects to receive
tax incentives provided to such companies from the Beijing branch of the PRC tax bureau that have
the effect of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exempting the company from enterprise income tax from 2005 to 2007; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Providing the company a preferential enterprise income tax rate of
7.5% from 2008 to 2010, and 15% for taxable years thereafter, the rate
currently applicable to companies classified as high-technology
companies based in Beijing and not subject to other tax holidays.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the absence of these incentives, CFO Beijing and Fortune Software would be subject to the
enterprise income tax rate of 33% applicable to domestic PRC companies generally. If CFO Beijing
and Fortune Software had not received these preferential tax treatments in 2004 and 2005 and was
required to pay enterprise income tax at the same rate as domestic PRC companies, our net incomes
for these two periods would have been $3.4&nbsp;million and $3.2&nbsp;million, respectively, representing
decreases of 27% and 31% from the reported amounts, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, with respect to revenue generated from the sale of certain approved software products,
including our service packages, CFO Beijing and Fortune Software both obtain value-added-tax, or
VAT, refunds to reduce their effective VAT rates from 17% to 3%. We cannot assure you that we will
continue to enjoy any of these preferential tax treatments in the future. The discontinuation of
any of these preferential tax treatments could materially and adversely affect our financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax
consequences to U.S. investors.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Depending upon the value of our shares and ADSs and the nature of our assets and income over time,
we could be classified as a passive foreign investment company, or PFIC, by the United States
Internal Revenue Service, or IRS, for U.S. federal income tax purposes. If we are classified as a
&#147;PFIC&#148; in any taxable year in which you hold our ADSs and you are a U.S. investor, you would
generally be taxed at higher ordinary income, rather than lower capital gain rates, if you dispose
of ADSs at a gain in a later year, even if we are not a PFIC in that year. In addition, a portion
of the tax imposed on your gain would be increased by an interest charge. Moreover, if we were
classified as a PFIC in any taxable year, you would not be able to benefit from any preferential
tax rate with respect to any dividend distribution that you may receive from us in that year or in
the following year. Finally, you would also be subject to special U.S. tax reporting requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that we were not a PFIC for the taxable year 2005. However, there can be no assurance
that we will not be a PFIC for the taxable year 2006 and/or later taxable years, as PFIC status is
re-tested each year and depends on the facts in such year. For example, we would be a PFIC for the
taxable year 2006 if the sum of our average market capitalization, which is our share price
multiplied by the total amount of our outstanding shares, and our liabilities over that taxable
year is not more than twice the value of our cash, cash equivalents, and other assets that are
readily converted into cash. In particular, the value of our ADSs have declined to $5.22 per ADS on
May&nbsp;5, 2005 from our initial public offering price of $13.00 per ADS. If the value of our
outstanding stock were to continue to decrease for an extended period of time in which we hold
substantial cash and cash equivalents, we would likely become a PFIC. We could also be a PFIC for
any taxable year if the gross income that we and our subsidiaries earn from investing the portion
of the cash raised in our initial public offering in 2004 that exceeds the immediate
</DIV>

<P align="center" style="font-size: 10pt">13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">capital needs
of our active online business is substantial in comparison with the gross income from our business
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">While we will continue to examine our results under the PFIC tests, we cannot assure you that we
will not be a PFIC for any future taxable year. For more information on the U.S. tax consequences
to you that would result from our classification as a PFIC please see &#147;Taxation &#151; United States
federal income taxation &#151; U.S. Holders &#151; Passive Foreign Investment Company.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Because there is limited business insurance coverage in China, any business disruption or
litigation we experience might result in our incurring substantial costs and the diversion of
resources.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The insurance industry in China is still at an early stage of development. Insurance companies in
China offer limited business insurance products and do not, to our knowledge, offer business
liability insurance. While business disruption insurance is available to a limited extent in China,
we have determined that the risks of disruption, cost of such insurance and the difficulties
associated with acquiring such insurance make having such insurance impractical for us. As a
result, except for directors and officers insurance we do not have any other business liability,
disruption or litigation insurance coverage for our operations in China. Any business disruption or
litigation might result in our incurring substantial costs and the diversion of resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks relating to our industry</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The Internet infrastructure in China, which is not as well developed as in the United States or
other more developed countries, may limit our growth.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Internet infrastructure in China is not as well developed as in the United States or other more
developed countries. In particular, we depend significantly on the PRC government and fixed line
telecommunications operators in China to establish and maintain a reliable Internet infrastructure
to reach a growing base of Internet users in China. We cannot assure you that the Internet
infrastructure in China will support the demands associated with the continued growth of the
Internet industry in China. If the necessary infrastructure standards or protocols, or
complementary products, services or facilities are not developed in China on a timely basis or at
all by these enterprises, our business, financial condition and results of operations could be
materially adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The limited use of personal computers in China and the relatively high cost of Internet access with
respect to per capita gross domestic product may limit the development of the Internet in China and
impede our growth.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Although the use of personal computers in China has increased in recent years, the penetration rate
for personal computers in China is much lower than in the United States. In addition, despite a
decrease in the cost of Internet access in China due to a decrease in the cost of personal
computers and the introduction and expansion of broadband access, the cost of Internet access
remains relatively high in comparison to the average per capita income in China. The limited use of
personal computers in China and the relatively high cost of Internet access may limit the growth of
our business. Furthermore, any Internet access or telecommunications fee increase could reduce the
number of users that use our online services. Any fee or tariff increase could further decrease our
user traffic and our ability to derive revenues from transactions over the Internet, which could
have a material adverse effect on our business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We depend largely on the infrastructure of the telecommunications operators in China, and any
interruption of their network infrastructure may result in severe disruptions to our business.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Although private Internet service providers exist in China, substantially all access to the
Internet in China is maintained through the telecommunications operators, under the administrative
control and regulatory supervision of the Ministry of Information Industry, or MII. In addition,
local networks connect to the Internet through a government-owned international gateway. We rely on
this infrastructure and to a lesser extent, certain other Internet data centers in China to provide
data communications capacity primarily through local
telecommunications lines. In the event of a large-scale infrastructure disruption or failure, we
may not have access to alternative networks and services, on a timely basis or at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may not be able to lease additional bandwidth from the telecommunications operators in China on
acceptable terms, on a timely basis or at all. In addition, we may not have means of getting access
to alternative networks and services on a timely basis or at all in the event of any disruption or
failure of the network.
</DIV>

<P align="center" style="font-size: 10pt">14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Unexpected network interruptions, security breaches or computer virus attacks could have a material
adverse effect on our business, financial condition and results of operations.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have limited backup systems and have previously experienced system failures, which have
disrupted our operations. Any failure to maintain the satisfactory performance, reliability,
security and availability of our network infrastructure may cause significant harm to our
reputation and our ability to attract and maintain users. Major risks involved in such network
infrastructure include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any break-downs or system failures resulting in a sustained shutdown
of all or a material portion of our servers, including failures which
may be attributable to sustained power shutdowns, or efforts to gain
unauthorized access to our systems causing loss or corruption of data
or malfunctions of software or hardware; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any disruption or failure in the national backbone network, which
would prevent our users from logging on to our website or accessing
our services.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our network systems are also vulnerable to damage from fire, flood, power loss, telecommunications
failures, computer virus, hackings and similar events. Any network interruption or inadequacy that
causes interruptions in the availability of our services or deterioration in the quality of access
to our services could reduce our user satisfaction and competitiveness. In addition, any security
breach caused by hackings, which involve efforts to gain unauthorized access to information or
systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or
other computer equipment, and the inadvertent transmission of computer viruses could cause our
users to question the safety or reliability of our website and our services and could have a
material adverse effect on our business, financial condition and results of operations. In
addition, unauthorized access by third parties to our network could result in theft of personal
user information, which could have an adverse effect on our reputation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Concerns about the security and confidentiality of information on the Internet may increase our
costs, reduce the use of our website and impede our growth.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A significant barrier to confidential communications over the Internet has been the need for
security. To date, there have been several well-publicized compromises of security as a result of
global virus outbreaks. We may incur significant costs to protect against the threat of security
breaches or to alleviate problems caused by these breaches. If unauthorized persons are able to
penetrate our network security, they could misappropriate proprietary information, including
personal information regarding our subscribers, or cause interruptions in our services. As a
result, we may be required to incur substantial costs and divert our other resources to protect
against or to alleviate these problems. Security breaches could have a material adverse effect on
our reputation, business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks relating to regulation of our business and to our structure</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We rely on contractual arrangements with Fuhua, our PRC-incorporated affiliate, and its
shareholders for our China operations, which may not be as effective in providing operational
control as direct ownership. If Fuhua fails to perform its obligations under these contractual
arrangements, we may have to legally enforce such arrangements and our business, financial
condition and results of operations may be materially and adversely affected if these arrangements
cannot be enforced.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We rely on
contractual arrangements with Fuhua, our PRC-incorporated affiliate, and its shareholders
for operating our website and conducting our advertising business. These contractual arrangements
may not be as effective in providing us with control over Fuhua as direct ownership.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we had direct ownership of Fuhua, we would be able to exercise our rights as shareholders to
effect changes in the board of directors, which in turn could effect changes, subject to any
applicable fiduciary obligations, at the management level. However, under the current contractual
arrangements, as a legal matter, if Fuhua fails to perform its obligations under these contractual
arrangements, we may have to (i)&nbsp;incur substantial costs and resources to enforce such
arrangements, and (ii)&nbsp;rely on legal remedies under PRC law, which we cannot be sure would be
effective.
</DIV>


<P align="center" style="font-size: 10pt">15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These contractual arrangements are governed by PRC law and provide for the resolution of disputes
through either arbitration or litigation in the PRC. Accordingly, these contracts would be
interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC
legal procedures. If Fuhua fails to perform its obligations under these contractual arrangements,
we may have to rely on legal remedies under PRC law, including seeking specific performance or
injunctive relief, and claiming damages, which we cannot be sure would be effective. In addition,
the legal environment in the PRC is not as developed as in other jurisdictions, such as the United
States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these
contractual arrangements. In the event that we are unable to enforce these contractual
arrangements, our business, financial condition and results of operations could be materially and
adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>If the PRC government finds that the financial data and information services we provide do not
comply with Chinese laws and regulations relating to the provision of securities investment
advisory services, we may suffer severe disruption to our business operations and lose
substantially all of our revenue.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC laws require entities providing securities investment advisory services to the public to obtain
a securities advisory business permit from the China Securities Regulatory Commission, or the CSRC.
On May&nbsp;30, 2002, we received a notice from the CSRC requesting that we stop promotional activities
of our service offerings involving investment advisory content and alter the relevant content of
our website and offerings so that we are no longer deemed to be providing investment advisory
related offerings. Promptly after receipt of such notice, we entered into a business cooperation
agreement with a securities advisory company licensed to provide securities advisory services,
pursuant to which we receive modeling advice and data processing advice for the development of all
of our research tools. We subsequently filed a written report with the CSRC on July&nbsp;18, 2002,
explaining our business arrangements with the securities advisory company. Since that time, we have
entered into similar business cooperation agreements with five other licensed securities advisory
companies. We have not received any further notices from the CSRC since the filing and have been
providing financial data and information services under this business framework since that time. We
cannot assure you that the CSRC will not revisit this issue and take a position contrary to our
interests.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we, CFO Beijing, Fortune Software or Fuhua are found to be in violation of Chinese laws and
regulations relating to the provision of securities investment advisory services, the relevant PRC
regulatory authorities would have broad discretion in dealing with such violations, including
imposing monetary penalties on us, ordering us to shut down our website or forcing us to pursue
alternative business objectives other than offering financial data and information services. We may
alternatively seek to apply for a securities advisory permit, but we cannot be sure that we will be
able to secure one. As a result of the possible penalties imposed on us, if the CSRC were to
conclude that we provide securities investment advisory services, we could suffer severe disruption
to our business operations and lose substantially all of our revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>If the PRC government finds that the agreements that establish the structure for operating our
China business do not comply with PRC government restrictions on foreign investment in the online
financial data and information service industry or the online advertising service industry, we
could be subject to severe penalties</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which include operating financial data and information services through the Internet, to
be no more than 50%. PRC regulations also limit foreign ownership of advertising agencies that
provide online advertising services to be no more than 70%. Accordingly, foreign and wholly
foreign-owned enterprises are currently not able to apply for the required licenses for operating
such services in China. We are a Hong Kong company. We conducted our operations in China solely
through CFO Beijing, our wholly owned subsidiary from April&nbsp;2000 to December&nbsp;2004. In December
2004, we established Fortune Software as a foreign invested high-technology company, and currently
conduct our operations in China through both CFO Beijing and Fortune Software. We are a foreign
enterprise and each of CFO Beijing and Fortune Software is a wholly foreign-owned enterprise under
PRC law, and accordingly, neither we, CFO Beijing nor Fortune Software is eligible to apply for
licenses to operate our website or to provide online advertising services. In order to comply with
foreign ownership restrictions, we operate our website in China through Fuhua, which holds the
licenses required to be an Internet information content provider and the licenses and approvals
required to provide online advertising services under the relevant PRC laws. Wu Chen, a financial
manager at International Data Group China, Ltd., a PRC company affiliated with IDG Technology
Venture Investment, Inc. and IDG Technology Venture Investments, LP, two of our principal
shareholders, and Jun Ning, our former chairman and Chief Executive Officer, hold 55% and 45% of
the equity interests in Fuhua, respectively. We have been and are expected to continue to be
dependent on Fuhua to host our website,
</DIV>

<P align="center" style="font-size: 10pt">16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>www.jrj.com</I>, and to provide online advertising services through our website. We have entered into
contractual arrangements with Fuhua, pursuant to which we provide operational support to Fuhua. In
addition, we have entered into agreements with Fuhua and Wu Chen and Jun Ning, the shareholders of
Fuhua, which provide us with the substantial ability to control Fuhua. Jun Ning is expected to
transfer his holdings in Fuhua to Zhiwei Zhao, our current Chief Executive Officer and a member of
our board of directors, later this year. When he receives Jun Ning&#146;s holdings in Fuhua, Zhiwei Zhao
is expected to replace Jun Ning as a party to all of the agreements we have entered into with Jun
Ning in connection with his holdings in Fuhua and the operation of Fuhua.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are, however, substantial uncertainties regarding the interpretation and application of
current or future PRC laws and regulations. Accordingly, we cannot assure you that the PRC
regulatory authorities will not ultimately take a view that our arrangements with Fuhua comply with
PRC law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we, CFO Beijing, Fortune Software or Fuhua are found to be in violation of any existing or
future PRC laws or regulations or fail to obtain or maintain any of the required permits or
approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such
violations, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revoking CFO Beijing&#146;s, Fortune Software&#146;s or Fuhua&#146;s business and operating licenses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Discontinuing or restricting our, CFO Beijing&#146;s, Fortune Software&#146;s or Fuhua&#146;s operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Imposing conditions or requirements with which we, CFO Beijing, Fortune Software or
Fuhua may not be able to comply;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Requiring us, CFO Beijing, Fortune Software or Fuhua to restructure the relevant
ownership structure or operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Restricting or prohibiting our use of the proceeds of our initial public offering in
2004 to finance our business and operations in China; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Taking other regulatory or enforcement actions, including levying fines, that could be
harmful to our business.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Any of these actions could cause our business, financial condition and results of operations to
suffer and the price of our ADSs to decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Our contractual arrangements with Fuhua may be subject to scrutiny by the PRC tax authorities and
create a potential double layer of taxation for our revenue-generating services conducted by Fuhua.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We could face material and adverse tax consequences if the PRC tax authorities determine that the
contracts between CFO Beijing and Fuhua were not entered into based on arm&#146;s-length negotiations.
Although we based these contractual arrangements on those of similar businesses, if the PRC tax
authorities determine that these contracts were not entered into on an arm&#146;s-length basis, they may
adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A
transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes,
of expense deductions recorded by CFO Beijing, which could adversely affect us by increasing the
tax liabilities of CFO Beijing without reducing the tax liabilities of Fuhua, because Fuhua
currently does not operate profitably. If we are successful in growing our online advertising
business, a transfer pricing adjustment could also result in a reduction, for PRC tax purposes, of
expense deductions recorded by Fuhua, which could adversely affect us by increasing the tax
liabilities of Fuhua as Fuhua derives increased revenue from advertising fees, without reducing the
tax liabilities of CFO Beijing. These increased tax liabilities could further result in late
payment fees and other penalties to CFO Beijing and Fuhua for under-paid taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Moreover, our corporate structure and arrangements with Fuhua result in a 5% PRC business tax being
levied on both Fuhua&#146;s revenues derived from online advertising and CFO Beijing and Fortune
Software&#146;s revenues derived from its contractual arrangements with Fuhua. As a result, if our
advertising business were to increase, we could be subject to double taxation on our revenues from
online advertising.
</DIV>

<P align="center" style="font-size: 10pt">17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We rely principally on dividends and other distributions on equity paid by our wholly-owned
operating subsidiaries to fund any cash and financing requirements we may have.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are a holding company, and we rely principally on dividends and other distributions on equity
paid by CFO Beijing or Fortune Software for our cash requirements, including the funds necessary to
service any debt we may incur. If CFO Beijing or Fortune Software incurs debt on its own behalf in
the future, the instruments governing the debt may restrict CFO Beijing&#146;s and Fortune Software&#146;s
ability to pay dividends or make other distributions to us. In addition, PRC tax authorities may
require us to amend the contractual arrangements CFO Beijing currently has in place with Fuhua in a
manner that would materially and adversely affect CFO Beijing&#146;s ability to pay dividends and other
distributions to us. Furthermore, PRC legal restrictions permit payments of dividends by CFO
Beijing or Fortune Software only out of their net income, if any, determined in accordance with PRC
accounting standards and regulations. Under PRC law, CFO Beijing and Fortune Software are also
required to set aside a portion of their net income each year to fund specified reserve funds.
These reserves are not distributable as cash dividends. Any limitation on the ability of CFO
Beijing or Fortune Software to make dividends to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay
dividends, or otherwise fund and conduct our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The PRC government may prevent us from distributing, and we may be subject to liability for,
content that it believes is inappropriate.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">China has enacted laws and regulations governing Internet access and the distribution of news,
information or other content, as well as products and services, through the Internet. In the past,
the PRC government has stopped the distribution of information through the Internet that it
believes violates PRC law. The Ministry of Information Industry, or MII, the State Press and
Publication Administration and the Ministry of Culture recently promulgated new regulations which
prohibit information from being distributed through the Internet if it contains content that is
found to, among other things, propagate obscenity, gambling or violence, instigate crimes,
undermine public morality or the cultural traditions of the PRC, or compromise State security or
secrets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, the MII has published regulations that subject website operators to potential
liability for content included on their websites and the actions of users and others using their
systems, including liability for violations of PRC laws prohibiting the distribution of content
deemed to be socially destabilizing. The PRC&#146;s Ministry of Public Security has the authority to
order any local Internet service provider, or ISP, to block any Internet website maintained outside
China at its sole discretion. Periodically, the Ministry of Public Security has stopped the
distribution over the Internet of information which it believes to be socially destabilizing. The
PRC&#146;s State Secrecy Bureau, which is directly responsible for the protection of State secrets of
the PRC government, is authorized to block any website it deems to be leaking State secrets or
failing to meet the relevant regulations relating to the protection of State secrets in the
distribution of online information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under applicable PRC regulation, we may be held liable for any content we offer or will offer
through our website, including information posted on bulletin boards and online forums which we
host and maintain on our website. Furthermore, we are required to delete any content we transmit
through our website if such content clearly violates PRC laws and regulations. Where any content is
considered suspicious, we are required to report such content to PRC governmental authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">It may be difficult to determine the type of content that may result in liability for us. If any
financial data and information services we offer or will offer through our website were deemed to
have violated any of such content restrictions, we would not be able to continue such offerings and
could be subject to penalties, including confiscation of income, fines, suspension of business and
revocation of licenses for operating online financial data and information services, which would
materially and adversely affect our business, financial condition and results of operations.
Moreover, if any information posted on our bulletin boards or online forums were deemed to have
violated any of the content restrictions, we could be subject to similar penalties that materially
and adversely affect our business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks relating to the People&#146;s Republic of China</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Substantially all of our assets are located in China and substantially all of our revenues are
derived from our operations in China. Accordingly, our business, financial condition, results of
operations and prospects are subject, to a significant extent, to economic, political and legal
developments in China.
</DIV>

<P align="center" style="font-size: 10pt">18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The PRC&#146;s economic, political and social conditions, as well as government policies, could affect
the financial markets in China and our business.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The PRC economy differs from the economies of most developed countries in many respects, including
the amount of government involvement, level of development, growth rate, control of foreign
exchange and allocation of resources. While the PRC economy has experienced significant growth in
the past twenty years, growth has been uneven, both geographically and among various sectors of the
economy. The PRC government has implemented various measures to encourage economic growth and guide
the allocation of resources. Some of these measures benefit the overall PRC economy, but may also
have a negative effect on us. For example, our financial condition and results of operations may be
adversely affected by government control over capital investments or changes in tax regulations
that are applicable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The PRC economy has been transitioning from a planned economy to a more market-oriented economy.
Although the PRC government has implemented measures since the late 1970s emphasizing the
utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the PRC government. In
addition, the PRC government continues to play a significant role in regulating industry
development by imposing industrial policies. The PRC government also exercises significant control
over China&#146;s economic growth through the allocation of resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy and providing preferential treatment to
particular industries or companies. These actions, as well as future actions and policies of the
PRC government, could materially affect the financial markets in China and our business and
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The PRC legal system embodies uncertainties which could limit the legal protections available to
you and us.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The PRC 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. In 1979, the PRC
government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general. The overall effect of legislation over the past 26&nbsp;years has significantly
enhanced the protections afforded to various forms of foreign investment in China. Our PRC
operating subsidiaries, CFO Beijing and Fortune Software, respectively, are wholly foreign-owned
enterprises, which are enterprises incorporated in China and wholly-owned by foreign investors. CFO
Beijing and Fortune Software are subject to laws and regulations applicable to foreign investment
in China in general and laws and regulations applicable to wholly foreign-owned enterprises in
particular. However, these laws, regulations and legal requirements are constantly changing, and
their interpretation and enforcement involve uncertainties. These uncertainties could limit the
legal protections available to us and other foreign investors, including you. In addition, we
cannot predict the effect of future developments in the PRC legal system, particularly with regard
to the Internet, including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement thereof, or the preemption of local regulations by national laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Restrictions on currency exchange may limit our ability to utilize our revenues effectively.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Substantially all of our revenues and operating expenses are denominated in Renminbi. Renminbi is
currently convertible under the &#147;current account,&#148; which includes dividends, trade and service
related foreign exchange transactions, but not under the &#147;capital account,&#148; which includes foreign
direct investment and loans. Currently, CFO Beijing and Fortune Software (Beijing) Co. Ltd, or
Fortune Software (our new wholly owned subsidiary in China), may purchase foreign exchange for
settlement of ''current account transactions,&#146;&#146; including payment of dividends to us and payment of
license fees and service fees to foreign licensors and service providers, without the approval of
the State Administration for Foreign Exchange. CFO Beijing and Fortune Software may also retain
foreign exchange in their current accounts to satisfy foreign exchange liabilities or to pay
dividends. However, we cannot assure you that the relevant PRC governmental authorities will not
limit or eliminate our ability to purchase and retain foreign currencies in the future. Since a
significant amount of our future revenues will be in the form of Renminbi, the existing and any
future restrictions on currency exchange may limit our ability to utilize revenues generated in
Renminbi to fund our business activities outside China, if any, or expenditures denominated in
foreign currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Fluctuations in exchange rates could result in foreign currency exchange losses.</I>
</DIV>



<P align="center" style="font-size: 10pt">19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Because our earnings and cash from operations are denominated in Renminbi, fluctuations in exchange
rates between U.S. dollars and Renminbi will affect our balance sheet and earnings per share in
U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to
the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations. The People&#146;s Bank of
China sets and publishes daily a base exchange rate. Until July&nbsp;21, 2005, the
People&#146;s Bank of China set this rate with reference primarily to the supply and demand of Renminbi
against the U.S. dollar in the market during the prior day; beginning on July&nbsp;21, 2005, the
People&#146;s Bank of China has set this rate with reference primarily to the supply and demand of
Renminbi against a basket of currencies in the market during the prior day, and the People&#146;s Bank
of China also takes into account other factors such as the general conditions existing in the
international foreign exchange markets. The PRC government may further adjust the exchange rate
between the Renminbi and the U.S. dollar and other foreign currencies, and may further amend its
policy of using a fixed-rate regime to govern foreign currency transactions, although the PRC
government has not committed itself to take any such action currently. Fluctuations in the exchange
rate will also affect the relative value of any dividend we issue which will be exchanged into U.S.
dollars, the value of any U.S. dollar denominated investments we make in the future and any
earnings on such investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Very limited hedging transactions are available in China to reduce our exposure to exchange rate
fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our
exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions
in the future, the availability and effectiveness of these hedges may be limited and we may not be
able to successfully hedge our exposure at all. In addition, our currency exchange losses may be
magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into
foreign currency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The recurrence of SARS in China, the potential outbreak of avian flue in China, or similar adverse
public health developments, and concerns over the spread of these diseases in China and elsewhere
may materially and adversely affect our business and operating results</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">From December&nbsp;2002 to June&nbsp;2003, China and certain other countries experienced an outbreak of a new
and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or
SARS. On July&nbsp;5, 2003, the World Health Organization declared that the SARS outbreak had been
contained. Since September&nbsp;2003, however, a number of isolated new cases of SARS have been
reported, most recently in central China in April&nbsp;2004. During May and June of 2003, many
businesses in China were closed by the PRC government to prevent transmission of SARS. Recently,
concerns have been raised with respect to the spread of avian flu in various regions in China. Any
recurrence of the SARS outbreak, outbreak of avian flu, or the development of a similar health
hazard in China, may adversely affect our business and operating results. For instance, a
recurrence of SARS, outbreak of avian flu or any other epidemic may reduce the level of economic
activity in affected areas and negatively impact China&#146;s stock markets, which may lead to dampened
investors&#146; interest in the stock markets and, as a result, have a material and adverse effect on
our business. In addition, health or other government regulations may require temporary closure of
our offices, or the offices of our advertisers, content providers or sponsors, which will severely
disrupt our business operations and have a material adverse effect on our financial condition and
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks relating to our shares and ADSs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Stock prices of Internet-related companies, particularly companies with business operations
primarily in China, have fluctuated widely in recent years, and the trading prices of our ADSs are
likely to be volatile, which could result in substantial losses to investors.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The trading prices of our ADSs have been volatile and could fluctuate widely in response to factors
beyond our control. Since the completion of our initial public offering in October&nbsp;2004, the
trading prices of our ADSs have ranged between a high of $15.99 per ADS to a low of $5.22 per ADS.
The market prices of the securities of Internet-related companies have generally been especially
volatile.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In particular, the performance and fluctuation of the market prices of other technology companies
with business operations mainly in China that have listed their securities in the U.S. may affect
the volatility in the price of and trading volumes for our ADSs. Recently, a number of PRC
companies have listed their securities, or are in the process of preparing for listing their
securities, on U.S. stock markets. Some of these companies have experienced significant volatility,
including significant price declines in connection with their initial public offerings. The
</DIV>

<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">trading
performances of these Chinese companies&#146; securities at the time of or after their offerings may
affect the overall investor sentiment towards PRC companies listed in the U.S. and consequently may
impact the trading performance of our ADSs. These broad market and industry factors may
significantly affect the market price and volatility of our ADSs, regardless of our actual
operating performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to market and industry factors, the price and trading volume for our ADSs may be highly
volatile for business specific reasons. Factors such as variations in our revenue, earnings and
cash flow, announcements of new investments, cooperation arrangements or acquisitions, and
fluctuations in market prices for our services could cause the market price for our ADSs to change
substantially. Any of these factors may result in large and sudden changes in the volume and price
at which our ADSs will trade. We cannot give any assurance that these factors will not occur in the
future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>If we grant employee share options and other share-based compensation in the future, our net income
could be materially and adversely affected.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We adopted the 2004 Stock Incentive Plan, or the Plan, in January&nbsp;2004, and amended the Plan in
September&nbsp;2004. As of March&nbsp;31, 2006, we had granted options under the Plan with the right to
purchase a total of 10,691,488 ordinary shares, of which 972,600 unvested options had been returned
to the pool of our ungranted options as a result of resignation from employment by a few former
employees. We had also granted share options to purchase up to 6,829,500 ordinary shares in January
2004, under option agreements that were independent of the Plan, to other consultants and business
advisors of the company. Until December&nbsp;31, 2005 we accounted for options granted to our directors
and employees in accordance with Accounting Principles Board Opinion No.&nbsp;25, &#147;Accounting for Stock
Issued to Employees,&#148; or APB 25, and its related interpretations, which require us to recognize
compensation expenses for share options we grant where the exercise price is less than the deemed
fair value of our ordinary shares on the date of the grant. However, the Financial Accounting
Standards Board, or the FASB, has issued Statement No.&nbsp;123 (Revised 2004), &#147;Share-Based Payments,&#148;
or SFAS 123(R), which requires all companies to recognize, as an expense, the fair value of share
options and other share-based compensation to employees at the beginning of the first annual or
interim period after June&nbsp;15, 2005. As a result, beginning on January&nbsp;1, 2006, we account for
compensation costs for all share options including share options granted to our directors and
employees using a fair-value based method and recognize expenses in our consolidated statement of
operations in accordance with the relevant rules under U.S. GAAP, which may have a material and
adverse effect on our reported earnings. Moreover, the additional expenses associated with
share-based compensation may reduce the attractiveness of such incentive plan to us. However, if we
reduce the scope of the Plan, we may not be able to attract and retain key personnel, as share
options are an important employee recruitment and retention tool. If we grant employee share
options or other share-based compensation in the future, our net income could be adversely
affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The sale or availability for sale of substantial amounts of our ADSs could adversely affect their
market price.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales of substantial amounts of our ADSs in the public market in the future, or the perception that
these sales could occur, could adversely affect the market price of our ADSs and could materially
impair our future ability to raise capital through offerings of our ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There were 104,329,933 of our ordinary shares and 12,078,734 ADSs (representing 60,393,670 of those
ordinary shares) outstanding as of March&nbsp;31, 2006. In addition, there are outstanding options to
purchase an additional 14,685,888 ordinary shares, including options to purchase 11,535,680
ordinary shares that are vested and immediately exercisable. Their ordinary shares, once issued,
are exchangeable for our ADSs for trading in the public market. The 82,837,921 ordinary shares that
were outstanding prior to our initial public offering are &#147;restricted securities&#148; as defined in
Rule&nbsp;144 and may not be sold in the absence of registration other than in accordance with Rule&nbsp;144
under the Securities Act or another exemption from registration. These &#147;restricted securities&#148; are
available for sale subject to volume and other restrictions as applicable under Rule&nbsp;144 of the
Securities Act. To the extent ordinary shares are sold to the market, the market price of our ADSs
could decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>A significant percentage of our outstanding ordinary shares is held by a small number of our
shareholders, and these shareholders may have significantly greater influence on us and our
corporate actions by nature of the size of their shareholdings relative to our public shareholders.</I>
</DIV>

<P align="center" style="font-size: 10pt">21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2006, five of our existing shareholders, including IDG Technology Venture
Investments, LP, IDG Technology Venture Investment, Inc., Vertex Technology Fund (III)&nbsp;Ltd., Ling
Zhang and Jianping Lu, beneficially owned, collectively, approximately 55.29% of our outstanding
ordinary shares. We believe that each of these five shareholders is currently an affiliate within
the meaning of the U.S. securities laws, due to the size of their respective shareholdings in us
after the initial public offering. As of March&nbsp;31, 2006, IDG Technology Venture Investments, LP and
IDG Technology Venture Investment, Inc. together have one board representative on our five-director
board, and beneficially own, collectively, approximately 26.17% of our outstanding ordinary
shares. Accordingly, these shareholders have had, and may continue to have, significant influence
in determining the outcome of any corporate transaction or other matter submitted to the
shareholders for approval, including mergers, consolidations and the sale of all or substantially
all of our assets, election of directors and other significant corporate actions. In addition,
without the consent of these shareholders, we could be prevented from entering into transactions
that could be beneficial to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Provisions in our charter documents and Hong Kong law, and change in control agreements we have
entered into with each of our chief executive officer and chief financial officer, may discourage
our acquisition by a third party, which could limit your opportunity to sell your shares at a
premium.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our constituent documents and Hong Kong law include provisions that could limit the ability of
others to acquire control of us, modify our structure or cause us to engage in change in control
transactions, including, among other things, the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our articles of association provide for a staggered board, which means that our
directors, excluding our chief executive officer, are divided into two classes, with half
of our board, excluding our chief executive officer, standing for election every two years.
Our chief executive officer will at all times serve as a director, and will not retire as a
director, so long as he remains our chief executive officer. This means that, with our
staggered board, at least two annual shareholders&#146; meetings, instead of one, are generally
required in order to effect a change in a majority of our directors. Our staggered board
can discourage proxy contests for the election of our directors and purchases of
substantial blocks of our shares by making it more difficult for a potential acquirer to
take control of our board in a relatively short period of time.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Hong Kong law permits shareholders of a company to remove directors by a shareholders&#146;
resolution. Our articles of association require any shareholder who wishes to remove a
director in this way to give us at least 120&nbsp;days&#146; notice of the resolution, making it more
difficult and time consuming for a potential acquirer who has accumulated a substantial
voting position to obtain control of our board by removing opposing directors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our articles of association provide that our board can have no less than five and no
more than nine directors. Our board currently has five directors. Any increase in the
maximum number of directors on our board beyond nine directors can only be accomplished by
amending our articles of association, which under Hong Kong law requires a shareholders&#146;
supermajority vote of 75% and at least 21&nbsp;days&#146; notice. These restrictions can make it
more difficult for a potential acquirer who has accumulated a majority of our shares to
take control of us by promptly increasing the size of our board and appointing new
directors that are its nominees.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Hong Kong does not have merger laws that permit Hong Kong companies to merge in the same
way as U.S. companies could in the U.S. However, the Hong Kong Companies Ordinance has
provisions that facilitate arrangements for the reconstruction and amalgamation of
companies. The arrangement must be approved by a majority in number of each class of
shareholders and creditors with whom the arrangement is to be made, representing
three-fourths in value of each such class of shareholders or creditors that are present and
voting either in person or by proxy at meetings convened by the High Court of Hong Kong.
The arrangements must be sanctioned by the High Court of Hong Kong after shareholders or
creditors approve it at the court-convened meeting.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our shareholders have authorized our board of directors, without any further action by
shareholders, to issue additional shares. Under Hong Kong law, the authority granted by our
shareholders will remain valid until the conclusion of our next annual general meeting, or
the time when our next annual general meeting is required to be held. For as long as this
approval remains effective, or is renewed, our board of directors will have the power to
issue additional ordinary shares (including ordinary shares represented by ADSs) and</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>preference shares without any further action by shareholders.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, our obligations under change in control agreements we entered into with each of our
chief executive officer and chief financial officer could discourage an acquisition by a third
party that you may consider favorable. Under the change in control agreements, if after a change in
control of our company has occurred, the executive is terminated without cause or resigns for good
reason, we are obligated to provide severance benefits to that executive. The current severance
benefits under the change in control agreements amount to approximately $6&nbsp;million, which could
discourage or limit the ability of potential third party acquirers to engage in change in control
transactions with us. Furthermore, in the event any of the severance payments would be deemed to
give rise to &#147;excess parachute payments&#148; under section 280G of the U.S. Internal Revenue Code for
any of our executives subject to U.S. tax, we would be required under the change in control
agreements to gross-up the payments to such executive to take account of any such excess parachute
payments. This gross-up payment obligation could further discourage potential third-party
acquirers. In addition, these executives may determine that their severance benefits provide better
economic alternatives than their continued employment with us and, as such, they may be
incentivized by these severance benefits to encourage the company to enter into transactions
involving a change in control of our company which may not be as favorable as other strategic
alternatives available to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These provisions and obligations could have the effect of depriving you of an opportunity to sell
your ADSs at a premium over prevailing market prices by discouraging third parties from seeking to
acquire control of us in a tender offer or similar transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>We are a Hong Kong company and because the legal and procedural protections afforded minority
shareholders under Hong Kong law differ from those under U.S. law, you may have difficulty
protecting your interests as our shareholder relative to shareholders of corporations organized in
the U.S.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are a Hong Kong company and are subject to the laws of Hong Kong. The fiduciary responsibilities
of our directors, and the ability of minority shareholders to take successful legal action in Hong
Kong against us or our directors, are governed by the laws and court procedures of Hong Kong.
Shareholders of a Hong Kong company would not be able to bring class action lawsuits against that
company or its directors in a Hong Kong court in the same way that shareholders of a U.S.
corporation might be able to bring such lawsuits in a U.S. court. In addition, professional conduct
rules applicable to Hong Kong lawyers generally prohibit Hong Kong lawyers from accepting
contingency fee arrangements, where a lawyer representing the plaintiffs is paid a fee only if the
lawsuit is successful. Without contingency fee arrangements or the ability to bring class action
lawsuits, our shareholders may find it more costly and difficult to take legal action against us or
our directors in the Hong Kong courts. The Hong Kong courts are also unlikely:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to recognize or enforce against us judgments of courts of the United
States based on the civil liability provisions of U.S. securities
laws; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to allow original actions brought in Hong Kong, based on the civil
liability provisions of U.S. securities laws that are penal in nature.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, there is no automatic statutory recognition in Hong Kong of judgments obtained in the
United States. Moreover, Hong Kong companies may not have standing to initiate a shareholder
derivative action in a federal court of the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of all of the above, minority public shareholders may have more difficulty in
protecting their interests in the face of actions taken by management, directors or controlling
shareholders than they would as minority public shareholders of a U.S. corporation. Moreover,
substantially all of our assets are located outside of the United States and all of our current
operations are conducted in the PRC. In addition, most of our directors and officers are nationals
and 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The voting rights of holders of ADSs must be exercised in accordance with the terms of the deposit
agreement, the American depositary receipts, and the procedures established by the depositary. The
process of voting through the depositary may involve delays that limit the time available to you to
consider proposed shareholders&#146; actions and also may restrict your ability to subsequently revise
your voting instructions.</I>
</DIV>

<P align="center" style="font-size: 10pt">23</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A holder of ADSs may exercise its voting rights with respect to the underlying ordinary shares only
in accordance with the provisions of the deposit agreement and the American depositary receipts. We
do not recognize holders of ADSs representing our ordinary shares as our shareholders, and instead
we recognize the ADS depositary as our shareholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">When the depositary receives from us notice of any shareholders meeting, it will distribute the
information in the meeting notice and any proxy solicitation materials to you. The depositary will
determine the record date for distributing these materials, and only ADS holders registered with
the depositary on that record data will, subject to applicable laws, be entitled to instruct the
depositary to vote the underlying ordinary shares. The depositary will also determine and inform
you of the manner for you to give your voting instructions, including instructions to give
discretionary proxies to a person designated by us. Upon receipt of voting instructions of a holder
of ADSs, the depositary will endeavor to vote the underlying ordinary shares in accordance with
these instructions. Although Hong Kong law requires us to call annual shareholders&#146; meetings by not
less than 21&nbsp;days&#146; notice in writing, and all other shareholders&#146; meeting by not less than 14&nbsp;days&#146;
notice in writing, these minimum notice requirements can be shortened or completely waived by the
consent of all holders of our ordinary shares entitled to attend and vote (in the case of annual
shareholders&#146; meetings) or a majority in number of the holders of our ordinary shares representing
at least 95% in nominal value of the shares giving the right to attend and vote (in the case of all
other shareholders&#146; meetings). If the minimum notice periods are shortened or waived, you may not
receive sufficient notice of a shareholders&#146; meeting for you to withdraw your ordinary shares and
cast your vote with respect to any proposed resolution, as a holder of our ordinary shares. In
addition, the depositary and its agents may not be able to send materials relating to the meeting
and voting instruction forms to you, or to carry out your voting instructions, in a timely manner.
We cannot assure you that you will receive the voting materials in time to ensure that you can
instruct the depositary to vote your shares. The additional time required for the depositary to
receive from us and distribute to you meeting notices and materials, and for you to give voting
instructions to the depositary with respect to the underlying ordinary shares, will result in your
having less time to consider meeting notices and materials than holders of ordinary shares who
receive such notices and materials directly from us and who vote their ordinary shares directly. If
you have given your voting instructions to the depositary and subsequently decide to change those
instructions, you may not be able to do so in time for the depositary to vote in accordance with
your revised instructions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The depositary and its agents will not be responsible for any failure to carry out any instructions
to vote, for the manner in which any vote is cast or for the effect of any such vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>You may not receive distributions on our ordinary shares or any value for them if such distribution
is illegal or if any required government approval cannot be obtained in order to make such
distribution available to you.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions
(which may include securities or rights distributions) it or the custodian for our ADSs receives on
our ordinary shares or other deposited securities after deducting its fees and expenses. You will
receive these distributions in proportion to the number of our ordinary shares your ADSs represent.
However, the depositary is not responsible to make a distribution available to any holders of ADSs
if it decides that it is unlawful to make such distribution. For example, it would be unlawful to
make a distribution to holder of ADSs if it consisted of securities that required registration
under the Securities Act but that were not properly registered or distributed pursuant to an
applicable exemption from registration. The depositary is not responsible for making a distribution
available to any holders of ADSs if any government approval or registration required for such
distribution cannot be obtained after reasonable efforts made by the depositary. We have no
obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights
or anything else to holders of our ADSs. This means that you may not receive the distributions we
make on our ordinary shares or any value for them if it is unlawful or unreasonable from a
regulatory perspective for us to make them available to you. These restrictions may have a material
adverse effect on the value of your ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>You may be subject to limitations on transfer of your ADSs.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Your ADSs represented by American Depositary Receipts are transferable on the books of the
depositary. However, the depositary may close its books at any time or from time to time when it
deems expedient in connection with the performance of its duties. The depositary may close its
books from time to time for a number of reasons, including in connection with corporate events such
as a rights offering, during which time the depositary needs to maintain an exact number of ADS
holders on its books for a specified period. The depositary may also close its books in
</DIV>

<P align="center" style="font-size: 10pt">24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or
register
transfers of our ADSs generally when the books of the depositary are closed, or at any time if we
or the depositary thinks it is advisable to do so because of any requirement of law or any
government or governmental body, or under any provision of the deposit agreement, or for any other
reason.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may from time to time distribute rights to our shareholders, including rights to acquire our
securities. However, we cannot make rights available to our ADS holders in the United States unless
we register the rights and the securities to which the rights relate under the Securities Act or an
exemption from the registration requirements is available. In addition, the deposit agreement
provides that the depositary bank will not make rights available to you unless the distribution to
ADS holders of both the rights and any related securities are either registered under the
Securities Act or exempted from registration under the Securities Act. We are under no obligation
to file a registration statement with respect to any such rights or securities or to endeavor to
cause such a registration statement to be declared effective. Moreover, we may not be able to
establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be
unable to participate in our rights offerings and may experience dilution in their holdings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, if the depositary is unable to sell rights that are not exercised or not distributed
or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which
case you will receive no value for these rights.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 4. INFORMATION ON THE COMPANY</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><U><B>History and development of the company.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">China Finance Online Co., Ltd. was incorporated in Hong Kong in November&nbsp;1998. Prior to April&nbsp;2000,
we did not conduct any business operations. In April&nbsp;2000, we purchased all of the equity interests
of Fortune Software (Beijing) Limited and renamed it China Finance Online (Beijing) Co., Ltd., or
CFO Beijing, whereby we acquired our website, <I>www.jrj.com.cn, </I>and commenced our online financial
and listed company data and information operations. In October&nbsp;2004, we purchased another domain
name, <I>www.jrj.com, </I>and commenced operating our business under this domain name in March&nbsp;2005. We
maintain the same content under both domain names.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">From the
commercial launch of our service offerings in April&nbsp;2001 to
December 2004, we conducted substantially
all of our operations in China through our wholly-owned subsidiary, CFO Beijing.
In December&nbsp;2004, we incorporated a new wholly foreign-owned enterprise, Fortune Software (Beijing)
Co., Ltd., or Fortune Software. Since then, we have conducted substantially all of our operations
in China through those two wholly-owned subsidiaries. As wholly foreign-owned enterprises, CFO
Beijing and Fortune Software are not permitted under PRC law to provide Internet information
content, which requires special licenses from the Ministry of Information Industry or its local
branches. In order to comply with foreign ownership restrictions, we operate our website in China
through Beijing Fuhua Innovation Technology Co., Ltd., or Fuhua, which holds the licenses required
to be an Internet information content provider under the relevant PRC laws. Fuhua also holds the
licenses and approvals required to operate our online advertising service business. Wu Chen, a
financial manager of International Data Group China, Ltd., a PRC limited liability company
affiliated with IDG Technology Venture Investment, Inc. and IDG Technology Venture Investments, LP,
two of our principal shareholders, and Jun Ning, our former chairman and chief executive officer,
hold 55% and 45% of the equity interests in Fuhua, respectively. Jun Ning is expected to transfer
his holdings in Fuhua to Zhiwei Zhao, our current Chief Executive Officer and a member of our board
of directors, later this year. We have been and are expected to continue to be dependent on Fuhua
to host our website.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2004, we completed the initial public offering of our ADSs, each of which represents
five of our ordinary shares, and listed our ADSs on Nasdaq.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2005, we purchased a minority interest in Moloon International, Inc., or Moloon, for
$15&nbsp;million. Moloon is a provider of mobile stream media technology and services, including
technology permitting mobile phone users to receive live video broadcasts, located in Beijing,
China. We also entered into a strategic cooperation agreement with Moloon in December&nbsp;2005,
pursuant to which we will work with Moloon to develop financial
</DIV>

<P align="center" style="font-size: 10pt">25
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">services products to be available
to mobile phone users in China. In April&nbsp;2006 we redeemed a portion of our equity interest in
Moloon for $1.25&nbsp;million.
</div>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our principal executive offices are located at Room&nbsp;610B, 6/F, Ping&#146;an
Mansion, No.&nbsp;23 Financial Street, Xicheng District, Beijing 100032, People&#146;s Republic of China, and
our telephone number is (8610)&nbsp;6621-4728. Each of CFO Beijing, Fortune Software and Fuhua have
entered into lease contracts for premises at the 9<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Floor of Tower C, Corporate Square,
No.&nbsp;35 Financial Street, Xicheng District, Beijing 100032, China and we expect to move to new
principal executive offices in this premises later this year. Our telephone number at our new
principal executive offices will be changed and will be announced when we move to these new
principal executive offices. We have appointed CT Corporation System, 111 Eighth Avenue, New York,
NY 10011, as our agent for service of process in the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our principal capital expenditures for 2003, 2004 and 2005 consisted of primarily purchases of
servers, workstations, computers, computer software, and other items related to our network
infrastructure for a total of approximately $152,000, $200,000 and $235,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We spent approximately $53,000 from January&nbsp;1, 2006 to March&nbsp;31, 2006, principally on work stations
and computers. For the remainder of 2006, we plan to spend approximately $704,000 primarily on
expenses associated with furnishing and outfitting the new principal executive offices we will move
into later this year. Capital expenditures in 2006 have been funded through operating cash flows
and through our existing capital resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2005, our board of directors approved a stock repurchase program pursuant to which we
were authorized to repurchase up to US$10&nbsp;million worth of our American Depositary Shares, or
ADSs. In May and June of 2005 we repurchased a total of 1,659,442 ADSs, representing 8,297,210
ordinary shares, at an average cost of $5.98 per ADS for a total consideration of approximately
US$10&nbsp;million, including a brokerage commission of US$0.05 per ADS. In August&nbsp;2005, our board
of directors approved another stock repurchase program pursuant to which we were authorized to
repurchase up to an additional US$10&nbsp;million worth of our ADSs. In December&nbsp;2005, we repurchased
a total of 482,164 ADSs, representing 2,410,820 ordinary shares, at an average cost of US$6.60 per
ADS for a total consideration of approximately US$3.2&nbsp;million, including a brokerage commission of
US$0.05 per ADS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><U><B>Business overview.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are one of the leading companies that specialize in providing online financial and listed
company data and information in China. We offer subscription-based services based on a single
information platform that integrates data and information from multiple sources with features and
functions such as data and information search, retrieval, delivery, storage and analysis. We
deliver these features and functions using software tools we have developed, which we refer to as
research tools. Our research tools combine:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>financial analysis tools which permit users to calculate and analyze quantitatively financial data;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>current and historical financial data and information for China&#146;s listed company stocks, bonds and
mutual funds;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>categorized news and research reports; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Personal finance tools such as book keeping, financial report and payment alert with comprehensive
real time personal wealth management product information and news;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>online forums and bulletin boards,</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and, together with our screen layout and menu options, display them in a manner designed for ease
of use. The content and technology comprising our integrated information platform is also designed
to be adaptable so that as we develop new research tools and adopt new content and features, these
new research tools, content and features can be easily integrated with our existing platform.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our service offerings permit users to subscribe to one or more of the eleven service packages we
currently offer. Each service package contains one or more research tools. Our research tools
include a number of features and functions that, we believe, are innovative and are not widely
available in financial markets outside of China. Our service offerings can be accessed using our
research tools and through our website at <I>www.jrj.com </I>or <I>www.jrj.com.cn</I>. &#147;JRJ&#148; is the abbreviation
of &#147;Jin Rong Jie&#148;, which means financial industry in Chinese. As of
</DIV>

<P align="center" style="font-size: 10pt">26
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">March&nbsp;31, 2006, we had a total
of approximately 2.8&nbsp;million registered users, and during the twelve months ended March&nbsp;31, 2006,
we had approximately 7,992 new subscribers and 8,729 repeat subscribers. Our registered users
are Internet users who maintain a registered account with our website, and our subscribers are our
registered users who also subscribe to one of our subscription-based services for a fee. New
subscribers for a specified period are subscribers who subscribed to any of our service packages
during that period who were not subscribers at the beginning of that period. Repeat subscribers for
a specified period are subscribers who either have purchased more than one service package from us
during that period, or have purchased our service packages in the past and have purchased at least
one service package during that period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our service offerings to users are used by and targeted at a broad range of investors in China,
including individual investors managing their own money, professional investors such as
institutional investors managing large sums of money on behalf of their clients and high net worth
individuals, other financial professionals such as investment bankers, stock analysts and financial
reporters, and middle class individuals. In August&nbsp;2005, we launched a new subscription service
offering, Tao of Wealth. The package combines personal finance tools such as book keeping,
financial reports and payment alerts with comprehensive real time personal wealth management
product information and news. The new service offering is targeted at middle class individuals and
financial professionals such as financial advisors. All of our research tools are designed for and
tailored toward investors in China, allowing them to make informed investment decisions with
respect to all of China&#146;s listed company stocks, bonds and mutual funds according to specifications
and analyses determined by them. As a result of our efforts to develop and offer more comprehensive
service packages to our subscribers, we have created a customer base of high-end subscribers,
determined by us as subscribers who pay us an annual subscription fee of RMB2,400 (US$297) or more.
High-end subscribers tend to require our more comprehensive service packages and we have
increasingly focused our product development efforts at high-end subscribers&#146; complex needs. The
number of our high-end subscribers with active subscriptions decreased by approximately 56% from
approximately 5,700 for the twelve months ended March&nbsp;31, 2005 to approximately 2,500 for the
twelve months ended March&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our website users are not charged for visiting our website and obtaining basic financial
information such as real-time quotes and historical financial information for all of China&#146;s listed
company stocks, bonds and mutual funds, financial news and research reports. Our integrated
information platform, which allows users to select from a range of downloadable and web-based
research tools, is available only through subscription. We categorize, process and, through our
subscription-based research tools and our website content, present data and research results to our
subscribers, allowing them to make informed investment decisions. Our service offerings are
designed to enhance our users&#146; and subscribers&#146; experience based on a number of factors:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Comprehensive.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We offer a broad range of data and information regarding China&#146;s listed company stocks, bonds and
mutual funds. We offer more than basic financial data such as price and trading information and
provide our subscribers with breaking economic and financial news, detailed historical data and
information, financial analysis tools, market coverage and listed company analysis and online
forums that facilitate our subscribers&#146; own investment analysis efforts. We believe we have built a
comprehensive database of historical financial data and information on China&#146;s listed companies,
bonds and mutual funds with data and information dating back to December&nbsp;1990, when the Shanghai
and Shenzhen Stock Exchanges first opened for trading.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Integrated.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our information platform integrates data and information from multiple sources with features and
functions such as data and information search, retrieval, delivery, storage and analysis. Our
platform integrates all of the research tools, data and other information we have developed or
gathered and, together with our screen layout and menu options, displays them in a manner designed
for ease of use. The content and technology comprising our integrated information platform is also
designed to be adaptable so that as we develop new research tools, content and features, these new
research tools, content and features can be easily integrated with our existing platform. Depending
on the service package chosen by the subscriber, a subscriber can have different levels of access
privileges to financial analysis tools, real-time and historical data, news, research reports and
online forums.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Interactive.</I>
</DIV>


<P align="center" style="font-size: 10pt">27
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have established online bulletin boards and discussion forums where users can share with each
other views on stocks and trends in the financial markets in China. In addition, we have introduced
stock alert services that send messages to our users&#146; mobile phones alerting them of changes in
stock prices and other trading related
information of their interest, according to their pre-set query parameters, allowing them to extend
their experience with our services beyond the Internet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Timely.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We provide our subscribers and users access to real-time stock quotes, breaking news and updated
research reports to allow them to stay current with the latest market developments. We receive
real-time stock, bond and mutual fund quotes and other trading related information directly from
the Shanghai and Shenzhen Stock Exchanges. During an average trading day, we update our web pages
within five seconds of receipt of new data and information from the stock exchanges. We also
receive current news headlines from financial news websites and publishers and distributors of
traditional media. We also have provided our subscribers and users with up-to-date personal finance
news and wealth management products that we received from banks, trust companies, insurance
companies and other financial institutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Unbiased.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our website presents third-party content, analysis and commentary, and computer generated
quantitative analysis to provide our subscribers and users with a broad view of the financial
markets in China. We do not formulate or publish views on this content, analysis or commentary.
Because we are not motivated to convince them to buy or sell any securities or to invest in any
specific investments, we believe our subscribers and users view us as an unbiased provider of
financial information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Easy to use.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our research tools and our website are designed with a screen layout, menu options and displays
that we believe any user familiar with a computer will find easy to use. From our basic web page,
our users can choose a variety of financial data and information topics that interest them. Through
our research tools, our subscribers have access to a large pool of historical financial data and
information, which they can categorize and analyze as they determine. We have a product development
team directed at working closely with our customer support personnel to update and develop
information and presentation formats that our subscribers view as enhancing ease of use and
increasing the informative power of our research tools and our website. Our website is also
designed to accommodate low bandwidth access to the Internet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We attract our users and subscribers through establishing and maintaining sponsorship arrangements
with high-traffic Chinese Internet portals such as <I>sohu.com</I>, <I>netease.com, 21cn.com, tfol.com,
china.com </I>and <I>tom.com</I>, search engines such as <I>baidu.com </I>and <I>sogou.com</I>, online stock brokerage
websites and news and financial information websites. Through these sponsorship arrangements, we
place our website link on the financial web pages of our sponsors. In some cases, our website
content is directly presented on their web pages. When users click for additional information on
these financial web pages, they are redirected to our website. We believe that as we develop brand
awareness of our website and service offerings, we will be able to increasingly attract users
directly to our website.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To assist us in the delivery of comprehensive, timely and easy to use service offerings, we have
developed a technology platform that utilizes the capabilities of the Internet. Our technology
platform allows us to retrieve real-time stock quotes from both the Shanghai and Shenzhen Stock
Exchanges, historical financial data and information on listed companies, bonds and mutual funds
from data providers, research reports from 60 securities advisory companies, 38 futures companies
and 49 securities brokerage companies licensed to provide securities advisory services,
commentaries from approximately 340 licensed individual securities advisors and news feeds from 235
news publishers and media companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also maintain a personal finance database that includes wealth management products from 19
financial institutions including banks, trust companies and insurance companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our non-institutional subscribers pay us annual subscription fees ranging from RMB188 (US$23) for
our most basic service package to RMB14,900 (US$1,846) for our most comprehensive service package,
depending on the service package and features selected by the subscriber. Our subscription price
for each of the ten current service
</DIV>

<P align="center" style="font-size: 10pt">28</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">packages available to our non-institutional subscribers varies
between these amounts. In August&nbsp;2005, we launched our new subscription service offering, Tao of
Wealth, which has an annual subscription fee of RMB188(US$23).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A substantial portion of our revenue is derived from annual subscription fees for our service
offerings. We receive subscription fees at the beginning of the subscribers&#146; subscription periods.
Revenues from the subscription fees are deferred and recognized ratably over the twelve month
period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Growth Strategy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our goal is to become the leading provider of comprehensive financial data and information relating
to securities and other financial instruments traded on China&#146;s securities exchanges. We intend to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increase our subscriber base by expanding distribution channels such as banks, mutual
funds and brokerage firms;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>upgrade our existing service offerings and expand our present service offerings to
include data and information relating to other financial instruments such as
currencies, futures and commodities, and personal finance;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>continue to encourage our subscribers to migrate to newer, more comprehensive and
higher priced service offerings; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>utilize our brand name and website traffic to increase our online advertising revenues.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We collect, process and, through our research tools and our website content, provide to our
subscribers financial analysis tools, real-time and historical data, news, research reports and
online forums in one integrated information platform, allowing them to make informed investment
decisions with respect to all of China&#146;s listed company stocks, bonds and mutual funds according to
specifications and analyses determined by them. In August, 2005, we launched a new subscription
service offering, Tao of Wealth, which includes new personal finance tools such as book keeping,
financial report and payment alert with comprehensive real time personal wealth management product
information and news.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our features</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Through our integrated information platform, our subscribers have access to and can make use of
each of our main content features: financial analysis tools, real-time and historical data, news,
research reports and online forums.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Financial analysis tools.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our financial analysis tools are research tools that provide subscribers with the ability to
quantitatively calculate and analyze financial data, which include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>fundamental analysis tools, which are designed to enable investors to
analyze data based on company fundamentals; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>technical analysis tools, which are designed to enable investors to
analyze data based on trends formulated by historical trading data.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These tools allow our subscribers to perform fundamental and technical analysis on companies, bonds
and mutual funds listed on the Shanghai and Shenzhen Stock Exchanges, based on current and
historical financial data and information, trading volumes and other user specifications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Real-time and historical data.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our integrated information platform offers subscribers interactive charts, quotes, reports and
indicators on over 1,400 company stocks, bonds and mutual funds listed on China&#146;s Shanghai and
Shenzhen Stock Exchanges. Users can search by company name or ticker symbol for real-time stock
quotes of these securities. Trading data is
</DIV>

<P align="center" style="font-size: 10pt">29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">provided to us on a real-time basis by each of the
Shanghai and Shenzhen Stock Exchanges. We collect, categorize, organize and index trading data
provided to us to allow searches, sorting and analysis by user specification and allow our
subscribers to access and analyze the data, using our financial analysis tools and other research
tools.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also offer our subscribers detailed historical data and information on listed companies, mutual
funds and bonds. This information is available for our subscribers to download from our website and
is available on compact diskettes but are not accessible to general viewers. We have entered into
agreements with third parties to provide us with this historical data and information, according to
specifications and requirements set by us. For example, for each listed company, our historical
data and information providers provide us with the names of the principal shareholders and their
historical trading volume, as well as information such as biographical information of company
directors and the management team. We collect the data received from our historical data and
information providers, process this information and, through our research tools, allow our
subscribers to retrieve critical data and information they select.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>News.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our news feature allows users to search and view breaking economic and financial news and
information from China and around the world. We do not report news ourselves. We have a team of
editorial staff who compile on daily basis economic and financial news and information reported by
other public sources that are relevant to China&#146;s financial markets. Our editorial staff further
indexes them according to topics and categories for the convenience of our users. Through our
research tools and website content, our subscribers can access timely and customized financial
information and reports, categorized and integrated into topics and sub-topics that they select,
based on their investment and analysis needs. The financial data and information presented on our
website or through our research tools is gathered from other financial information content
providers and intermediaries with whom we have contractual arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Research reports.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Through our integrated information platform, our users can view financial news letters and
analytical reports from a number of China&#146;s prominent securities professionals. We draw market
research reports and commentaries from 60 securities advisory companies, 38 futures companies and
49 securities brokerage companies licensed to provide securities advisory services, commentaries
from approximately 340 licensed individual securities advisors. For our subscribers, we categorize
these reports and commentaries based on topics, industry sector and other customary
categorizations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Online forums.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We host several online bulletin boards on our website by which Chinese licensed securities advisors
offer their views on a variety of topics ranging from macroeconomic conditions to performance of
individual stocks, bonds and mutual funds. We do not support, comment on or advocate any views
presented by any such securities advisors. We also maintain several online forums on our website,
enabling our users to participate in the discussions on specific financial topics we believe will
be of interest to them. The online forums are moderated by third party moderators approved by us.
We believe the online bulletin boards and discussion forums enhance our users&#146; experience and,
through our active monitoring, allow us to better understand our users&#146; behavior and needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Personal portfolio tracking service.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also offer users a free personal portfolio tracking service that allows users to compile and
store personal financial information in their personal accounts maintained on our website. This
service allows our users to better manage their portfolio of investment securities through
systematic record keeping of portfolio composition and trading history, facilitating their trading
decisions. We do not provide any advice to individual customers as to the management of their
investment portfolio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our website</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our website content and our research tools are the key components of our information platform. Our
website has four primary functions:
</DIV>

<P align="center" style="font-size: 10pt">30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to attract visitors and market our subscription based service offerings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to store content and serve as an integral part of our information platform;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to serve as a download platform for our service offerings; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to display online advertisements.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to attract visitors to our website, we offer a significant portion of our website content
free of charge. This free content includes real-time stock quotes, trading volumes, pricing
indicators for listed companies in China and market news from the Shanghai and Shenzhen Stock
Exchanges. Through our website, users can also participate in online forum discussions and bulletin
boards. Our website also has an important marketing function for our subscription based service
offerings. We provide examples to our visitors on our website of the various premium content and
features they can access and receive by becoming a subscriber to our service offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our premium content and features are accessible through our research tools, some of which are
web-based and others are computer-based. Subscribers to our web-based research tools are required
to register and maintain personal accounts with our website. These subscribers can store important
information they viewed and analytical results they obtained in their personal accounts maintained
at our website, and later review that information and results using the same screen layouts and
menu options our website provides.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Subscribers to computer-based research tools can download from our website the packages they
selected to their computers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe our website is designed for ease of use and to accommodate low bandwidth access to the
Internet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As our website grows in popularity and the number of visitors to our website increases, our revenue
from advertising has increased from $544,000 in 2004 to $1,752,000 in 2005, a 222% growth. We
intend to further increase our online advertising revenue by hiring more sales persons and selling
more unobtrusive advertising space on our website. For example, we intend to increase the number of
website sponsors for some of our website content, co-branding arrangements we have with online
advertisers in China, and the number of banner advertising and direct-link arrangements we have
with mutual funds and securities brokerage companies in China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our research tools</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Subscribers to our service can elect to use a number of different research tools we have developed
to access and utilize our premium content and features. We currently offer eleven different service
packages incorporating some or all of our research tools to our users. Through our research tools,
our subscribers can access and analyze our content, including our real-time and historical data,
news and research reports, in one integrated platform, allowing our subscribers to make informed
investment decisions with respect to all of China&#146;s listed company stocks, bonds and mutual funds
according to specifications and analyses determined by them. Some of our research tools are
web-based and others require download from our website and are computer-based. Our subscribers pay
us a subscription fee for the use of our subscription services for a one-year period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We offer subscribers a variety of research tools designed to provide information and analysis,
including financial analysis, as well as the ability to search and sort out data and information,
based on subscribers&#146; needs and preferences. For example, we make available services that permit
subscribers to analyze our content using some or all of the following research tools:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Categorized macro information</I>. This feature allows subscribers to
search and sort up-to-date and comprehensive news and information
relating to the broader financial markets or a specific financial
topic or industry sector. We have a dedicated team of professional
editors who collect, organize, categorize and index macro-economic and
financial market information on a daily basis, according to user
feedback and classification methods that we believe are accepted
practice in securities markets in China.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Industry sector analysis</I>. Many investors in China seek to distinguish
between listed companies with investment potential and those prone to
financial trouble by analyzing listed companies&#146; financial data
published in their financial statements and comparing such data among
companies within the same industry sector. We collect and process
listed company financial data and information according to
classification </TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>methods set by relevant PRC regulatory authorities, and
allow subscribers to view the relative standings of listed companies
in the same industry sector or geographical locations based on market
accepted performance parameters such as price-to-earnings ratios and
profit margins.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Fundamental analysis</I>. Historical and real-time financial information
are important to investors because they provide insight into company
fundamentals. This research tool integrates the historical and
real-time trading information we maintain in our database, as well as
fundamental financial information such as earnings-per-share,
shareholdings and other related data and information. Our subscribers
can receive fundamental financial and trading information organized by
their specifications and display these results on a graphical
interface that we designed to be easy to visualize and navigate.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Mutual fund analysis</I>. Our mutual fund research tool focuses on
categorizing information relating to the portfolio holdings of mutual
funds. This feature allows subscribers to study the collective effect
of large market players on individual stocks. This feature also offers
information relating to the performance of individual mutual funds,
allowing subscribers to assess the risks and rewards of investing in
mutual funds.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Technical analysis</I>. This feature allows investors interested in trends
formulated by historical trading data to perform technical analysis on
listed companies. With over 60 market accepted technical indicators
and a complete database of historical data and information on all of
China&#146;s listed company stocks, our subscribers can perform extensive
chart analysis and pattern recognition on any stock listed on China&#146;s
stock exchanges.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In August&nbsp;2005, we launched a new personal finance research tool which provides an integrated
platform for the users to analyze, search and sort out data and information related to personal
finance and wealth management products. We expect to provide additional research tools as our
services expand. We expect that as we introduce data and information on commodities, we would
include a separate research tool for that purpose. We view the migration of existing subscribers
and the attraction of new subscribers to our service offerings with more comprehensive research
tools as one of our most important growth strategies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our securities service packages</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table outlines our securities service packages by research tools and access methods.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Categorized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Industry</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Fundamental</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Mutual</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Technical</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Macro</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>sector</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>analysis</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>fund</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>analysis</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Access</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Information</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>analysis</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>tools</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>analysis</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>tools</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>method</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CFO Pro</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>Computer-based</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Grand Reference V</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Computer-based</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Storm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Computer-based</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock Finder</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Computer-based</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Momentum Tracer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Computer-based</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock Radar</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left">Web-based</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sidekick X</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left">Web-based</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Analyst Scoreboard</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left">Web-based</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Arbitrager</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left">Web-based</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quick Winner</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT face="Wingdings">&#252;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left">Web-based</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
subscribers can select one or more of the eleven different securities service packages we
currently offer. Some of these service packages are available in different versions, which reflect
different levels of comprehensiveness:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>CFO Pro. </I>CFO Pro is the first service package we developed to target
sophisticated institutional investors. It is a single service platform
aggregating up-to-date financial news, market commentaries, industry
reports and comprehensive Chinese financial information and databases.
It also contains a database of macro-economic data, including industry
information and statistics such as changes in productivity levels,
foreign investment amounts, and costs of goods and services in China.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Grand Reference V. </I>Grand Reference V is an upgrade of our previous
Grand Reference packages and is the most comprehensive service package
we offer to our non-institutional subscribers, both in terms of
content </TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">32
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>and functionality. Grand Reference V includes all of our
current research tools. Content and functionality of other service
packages we offer to our non-institutional subscribers are derived
from Grand Reference V. Compared to the other Grand Reference
packages, Grand Reference V has a new interface that is, we believe,
more user-friendly and an upgraded database structure that allows
faster data transmission than the other Grand Reference packages. We
offer different versions of Grand Reference at different subscription
prices. Each version of Grand Reference includes all of our research
tools, but only Grand Reference V allows users to gain access to the
new interface and upgraded database structure.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Storm. </I>Storm is designed for Chinese investors who demand up-to-date
and comprehensive news and information relating to specific topics and
listed companies. Storm contains fundamental analysis tools but not
technical analysis tools.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Stock Finder. </I>Stock finder is designed for Chinese investors who favor
technical analysis tools as the primary methods to select stocks.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Momentum tracer. </I>Momentum tracer is a new analysis tool designed for
the active investors. It tracks and analyzes the most active stocks.
The users can see the results and updates real time if they log onto
our system.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Stock Radar. </I>Stock Radar is designed for Chinese investors that prefer
to conduct technical analysis as the basis for their investment
research. Stock Radar is a web-based, simplified version of Stock
Finder. Stock Radar&#146;s technical analysis tools are simpler to use than
the more advanced technical analysis tools offered by Stock Finder.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Sidekick X. </I>This package, which is an upgrade of our previous package
named China Securities Reference, is for subscribers who do not
necessarily have stock investment needs but want to receive up-to-date
and comprehensive news and information relating to a specific topic or
listed company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Analyst Scoreboard. </I>Analyst Scoreboard is designed for subscribers who
desire to research or track the performance of specific securities
firms. This package provides weekly, monthly and annual performance
rankings of securities firms based on the profits or losses of the
trades they recommend.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Arbitrager. </I>Arbitrager is designed for subscribers who desire to
review the investment returns selected by the top traders of the daily
best stock market performers. Arbitrager uses statistical analysis
tools to identify top performing stocks on a daily basis, and allows
subscribers to identify the top traders of these investments.
Subscribers may also examine other investments that have been traded
by such investors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Quick Winner. </I>Quick winner is designed for subscribers who prefer to
examine top performers by industry. Quick Winner identifies top
performing stocks, by industry, and allows subscribers to track the
top traders of these investments and the other investments made by
such traders.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Personal Finance package</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tao of Wealth is our new service package that is aimed at middle class individuals and financial
professionals such as financial advisors. It is a downloadable software platform that integrates
our comprehensive financial news, information with proprietary personal wealth management product
database and personal finance tools such as book keeping, financial reports and payment alert. The
package&#146;s functions and tools are modulized so that our users can customize and select specific
modules and functions for their services. We believe that Tao of Wealth is, to date, the leading
personal finance service package available in China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Pricing policy</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We price our service packages based on the research tools included and their level of
comprehensiveness, as well as on market demand. For example, Grand Reference V, which is the most
comprehensive service package in terms of features and functionality, is the most expensive of our
non-institutional subscriber service packages. Therefore, we focus on enhancing and upgrading the
available features and functions of our research tools and continue to introduce updated versions
of our service packages. We encourage all of our users to upgrade to newer versions of our service
packages or more comprehensive service packages.
</DIV>

<P align="center" style="font-size: 10pt">33
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may, from time to time, offer discounts or promotions, depending on our perceived need in
accordance with our pricing policy. Any of such discounts or promotions could apply to new or
repeat subscribers as we may
determine. For example, we launched a promotional program in December&nbsp;2005, where the existing
subscribers can upgrade their services to Grand Reference V at a promotion price or the active
subscribers of Grand Reference V can buy Quick Winner and Arbitrager at a discount package price
of RMB1,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our new service features</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We place significant emphasis on refining and upgrading our information platform, and on creating
new and innovative features to meet the changing needs of our customers and utilizing the latest in
technology and innovation. We believe that we are one of the few online financial information
service providers in China that have in-house software development capabilities. Our ability to
develop software internally allows us to broaden our service offerings, while keeping development
costs at a minimum. For example, our new personal finance package, Tao of Wealth, which is targeted
at Chinese middle class individuals and financial professionals such as financial advisors,
includes a new feature we developed that provides subscribers with comprehensive information about
personal finance news and wealth management products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Customer support</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our customer support center provides our subscribers real-time and personal support and is staffed
by a team of 35 trained full-time customer support personnel. Our customer support center currently
operates from 8:30 a.m. to 10:00&nbsp;p.m. on weekdays and 9:30 a.m. to 5:30 p.m. on weekends and
holidays. Our customer support personnel, in addition to their sales and marketing functions, help
our existing and prospective subscribers to resolve any technical problems they may have. We have
an in-house training program for our customer support personnel, which includes training courses on
China&#146;s securities markets, our service features and functionalities, technical problem solving
skills in respect of our research tools and general customer service guidelines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our content providers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We draw content from the Shanghai and Shenzhen Stock Exchanges, which provide us with real-time
stock, bond and mutual fund pricing and other information, and our data providers, which provide us
with historical financial data and information on listed companies, bonds and mutual funds,
according to our parameters, specifications and requirements. We also draw content from
approximately 60 securities advisory companies, 38 futures companies and 49 securities brokerage
companies each licensed to provide securities advisory services, approximately 340 licensed
individual securities advisors, and 235 news publishers and media companies, as well as 19
financial institutions, such as banks, trust companies and insurance companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Shanghai and Shenzhen Stock Exchanges</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We receive real-time stock, bond and mutual fund quotes and other trading related information
directly from the Shanghai and Shenzhen Stock Exchanges. We have entered into an information
service agreement with each of the stock exchanges pursuant to which we pay the stock exchanges
fixed service fees in exchange for receiving real-time price quotes and other trading related
information through satellite communication. We also have cable links to both exchanges to serve as
back-ups to satellite communication data feeds. During an average trading day, we update our web
pages within five seconds of receipt of new data and information from the stock exchanges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our agreement with Shanghai Stock Exchange Information Network Co., Ltd., which is associated with
the Shanghai Stock Exchange, will expire in December&nbsp;2006, and our agreement with Shenzhen
Securities Information Co., Ltd., which is associated with the Shenzhen Stock Exchange, will expire
in March&nbsp;2007. We aim to enter into a new agreement with each of these companies under
substantially the same terms prior to the expiration of the existing agreements. Under these
agreements, we may distribute the financial data and information we receive to our users, but not
to other vendors or distributors. Each of these two data providers can terminate its respective
agreement with us if we breach the terms of the agreement, such as a delay in our payment of fees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Data providers</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into agreements with third parties to provide us with historical data and
information on listed companies, bonds and mutual funds for input into our information platform.
These data providers send information to us in accordance with our parameters, specifications and
requirements. This information includes historical
</DIV>

<P align="center" style="font-size: 10pt">34
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">financial information for listed companies,
significant corporate events such as mergers and acquisitions and significant changes in the
shareholdings of listed companies, information concerning major shareholders of listed
companies, biographical information for directors and management of listed companies, as well as
financial news and other data and information. The updates provided by our data providers range
from several times a day to once a month depending on the type of information. The contractual
arrangement we had with our current primary data provider, Shenzhen Securities Information Co.,
Ltd., will expire in April&nbsp;2007. In addition, we entered into the raw data provision contract with
Financial China Information &#038; Technology Co., Ltd. and Shanghai Gildata Service Co., Ltd,
respectively, as alternative sources of historical data and information. The contractual
arrangement we had with our previous primary data provider, Shanghai Wind Information Co., Ltd.,
expired in September&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Securities advisors and stock brokers</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into cooperation arrangements with 60 securities advisory companies, 38 futures
companies and 49 securities brokerage companies, each licensed to provide securities advisory
services. Under these arrangements, we have the right to extract market commentary and research
notes taken from their websites, and to store, reproduce, market and deliver such information to
our customers by means of our information platforms. We upload financial content from these
websites on a regular basis. In addition, we have entered into cooperation arrangements with
approximately 340 licensed individual securities advisors to receive through email and other means
their published articles and commentaries covering a range of topics from macroeconomic conditions
to performance of individual stocks, bonds and mutual funds. Many of these individual securities
advisors have dedicated columns or bulletin boards maintained on our website for which they are
responsible for maintenance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Banks, insurance companies and trust companies</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into cooperation contracts with 19 financial institutions, including banks,
insurance and trust companies. According to these contracts, they will provide the personal finance
information and product updates directly to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>News and media conglomerates</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also draw content in the form of breaking headlines and other news information from publishers
and distributors of traditional media. We have entered into cooperation arrangements with 235
Chinese news publishers and media companies. We are permitted under these arrangements to extract
financial news, reports and information taken from their print publication channels, and to store,
reproduce, market and deliver such information to our users through our website. We rely on our
editorial staff to compile, for publication on our website, publicly available financial news,
reports and information received from these sources that are relevant to China&#146;s financial markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sales and marketing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We market our website through establishing and maintaining sponsorship arrangements with
high-traffic Internet portals such as <I>netease.com, sohu.com, 21cn.com, tfol.com, china.com </I>and
<I>tom.com</I>, search engines such as <I>baidu.com </I>and <I>sogou.com</I>, as well as websites of online stock
brokerages and news and financial information websites. We have more than 75 sponsorship
arrangements with such Internet portals, search engines and websites. Through these sponsorship
arrangements, we place our website link on the financial web pages of our sponsors, including some
of China&#146;s top Internet portals such as <I>netease.com, sohu.com, 21cn.com, tfol.com, china.com </I>and
<I>tom.com</I>. In some cases, our website content is directly presented on their web pages. When users
click for additional information on these financial web pages, they are redirected to our website.
We derive a significant portion of our website traffic from these sponsorships. We also derive a
portion of our website traffic through the word-of-mouth of the investing community.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We market our service offerings through our website, as well as through 35 customer support
personnel at our customer service center. Our website provides detailed descriptions of our service
offerings while our customer support personnel are available to explain to callers the various
features of our offerings and to resolve our subscribers&#146; technical problems. We also market our
service offerings through banks, mutual funds and stock brokerage firms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We charge our subscribers a subscription fee for the use of our service packages for a one-year
period. Our subscribers either pay us by cash, by money order via post, by online bank transfer or
by direct wiring of cash.
</DIV>

<P align="center" style="font-size: 10pt">35
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Upon receipt of cash payment, we promptly activate our subscribers&#146;
accounts with us. Since we accept cash as the
only payment method, we do not take any credit risk of our subscribers. We do not have a refund
policy and generally do not offer refunds to our subscribers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Online advertisement</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
website <U>www.jrj.com</U> is one of the most popular financial websites in China. The average number
of our daily user sessions increased by 44% to approximately 2.3&nbsp;million during the twelve month
period ended March&nbsp;31, 2006 from approximately 1.6&nbsp;million during the twelve month period ended
March&nbsp;31, 2005. We believe our internet community is an attractive demographic target for
advertisers because it represents an affluent, educated and technically sophisticated market. In
2005, we enhanced our effort to sell online advertisements and advertising related services. We
have a dedicated 3 person sales team that cooperates with 11 advertising agents. Our primary target
client base for advertisers consists of global and domestic corporations whose target customer base
is established middle class Chinese. Our online advertising revenue has increased from $544,000 in
2004 to $1,752,000 in 2005. The number of advertisers has increased from 12 in 2004 to 40 in 2005.
A partial list of our advertising clients includes: Nissan, China International Fund Management
Co., Ltd., Panasonic, Mercedes-Benz, Audi, Lenovo, E*trade and Industrial and Commercial Bank of
China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Product development</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our product development team of 27 personnel is responsible for the creation and upgrading of our
web pages and the design and enhancement of features contained in our service packages. Our product
development team works as an integral part of our overall service offering efforts. For example, we
require our product development team to conduct frequent meetings with our sales and marketing team
to discuss the feasibility of new service offerings and the progress of existing product
development efforts. Our product development team works closely with our customer support team to
develop features and content that are based on feedback we received from our subscribers and users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We expect product development to remain an important part of our business as the online financial
data and information services industry in China becomes increasingly sophisticated. In order to
remain competitive, we expect to continue to expand our product development efforts:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to increase the breadth of our service offerings through the addition of new features and
functions to our service packages;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to enhance our subscribers&#146; experience by improving the quality of our research tools and website;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to develop additional research tools, features and content specifically targeting the high-end
subscribers; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to design and build new financial instrument service products that fit our strategies.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As an example of our recent product development efforts that we believe will broaden our customer
base, in August&nbsp;2005 we launched our new service package, Tao of Wealth, which we specifically
target middle class individuals and financial professionals such as financial advisors. We have
also developed and recently launched other new service packages such as Momentum Tracer.
Furthermore, we continue to develop and add new features to our existing service packages.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Technology and infrastructure</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our internally developed technology infrastructure is designed to maximize the number of concurrent
users we can serve, while minimizing information retrieval time for our users. We deliver
electronically real-time and historical financial data and analysis tools to our users through our
internally developed technology platform, which is designed specifically for our web-based and
computer-based software services. Our technology platform, which consists of web server technology,
database technology and a data aggregation engine, enables us to enhance performance, reliability
and scalability in handling bursts of high-volume data requests during peak time, allowing users to
quickly retrieve the information that they search for even during periods of high concurrent use.
We own all of our servers. Our servers are capable of accommodating three times the number of
peak-hour concurrent users
</DIV>

<P align="center" style="font-size: 10pt">36
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and five times our required bandwidth as measured during peak hours for
the twelve months ended December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Web server technology.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our web server technology enables us to quickly develop and deploy information services
dynamically. Our web server technology includes features that are designed to optimize the
performance of our online services. For example, we developed a special feature that maximizes the
time during which client-server connections are kept open, based on current server load, thereby
increasing user navigation and website access speed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Database technology.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have developed database technology to address the specific requirements of our information
services. Our database design and search techniques allow for efficient data retrieval within the
unique operating parameters of the Internet. For example, our dynamic index traversal technology
utilizes users&#146; inputted search parameters to determine the appropriate database index (from among
multiple indices) in parallel, thereby efficiently locating the data requested. Further, we use an
index compression mechanism to achieve an efficient balance between disk space and
compression/decompression for various database activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Remote data aggregation engine.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our remote data aggregation engine allows us to retrieve, process and present data as a single
virtual database result from a variety of sources, either in real-time or at predetermined
intervals. We developed a template-driven profiling system that catalogs the data on each source
site. We also store data results internally in order to reduce network traffic and deliver the
results to our users as quickly as possible.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The online financial data and information service market in China is relatively new, has few
substantial barriers to entry and is competitive and rapidly changing. The number of online
financial news and information sources competing for users&#146; attention and spending has increased
since we commenced operations and we expect that competition will continue to intensify. More
broadly, we also compete, directly and indirectly, for users and subscribers with companies in the
business of providing financial data and information services, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>publishers and distributors of traditional media, including print, radio and television,
such as China Securities News, Shanghai Securities News, International Financial Times,
21st Century Economic Reports, as well as radio and television programs and news focused
on financial news and information;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Internet portals providing information on business, finance and investing, such as
sina.com.cn and sohu.com;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>financial information web pages offered by websites such as hexun.com and stockstar.com.cn;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>personal stock research software vendors, such as Shanghai Qian Long High Tech
Corporation, that develop and market stock research software through stock brokerage
companies; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>stock brokerage companies, especially stock brokerage companies with online trading
capabilities, such as Haitong Securities.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our ability to compete depends on many factors, including the comprehensiveness, timeliness and
trustworthiness of our content, the market acceptance, pricing and sophistication of our analytical
tools, the ease of use of our information platform and the effectiveness of our sales and marketing
efforts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 products and
services similar to or better 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
</DIV>

<P align="center" style="font-size: 10pt">37
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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
service packages, reduced margin or loss of market share, any of which could materially adversely
affect our business, results of operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Intellectual property</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our intellectual property is an essential element of our business operations. We rely on copyright,
trademark, trade secret and other intellectual property law, as well as non-competition,
confidentiality and license agreements with our employees, suppliers, business partners and others
to protect our intellectual property rights. Our employees are generally required to sign
agreements to acknowledge that all inventions, trade secrets, works of authorship, developments and
other processes generated by them on our behalf are our property, and to assign to us any ownership
rights that they may claim in those works. Despite our precautions, it may be possible for third
parties to obtain and use intellectual property that we own or license without consent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our PRC subsidiaries, CFO Beijing and Fortune Software, are the registered owners of 14 software
copyrights, each of which has been registered with the State Copyright Bureau of the PRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have also registered one domain name relating to our website, <I>www.jrj.com.cn</I>, with the China
Internet Network Information Center, a domain name registration service in the PRC. In October,
2004, we purchased another domain name relating to our website, <I>www.jrj.com</I>, from a U.S. company.
We have assigned Fuhua the right to use our website domain names to enable it to host our website
on our behalf.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We do not currently have any trademarks registered with the China Trademark Office, but we have
filed applications for trademark registration of &#147;Financial
Street Fuhua&#148; in Chinese and three
other Chinese variations of &#147;Financial Street Fuhua&#148; with the Trademark Bureau of the State
Administration for Industry and Commerce of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Regulation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We operate our business in China under a legal regime that consists of the State Council, which is
the highest authority of the executive branch of the PRC central government, and several ministries
and agencies under its leadership, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Ministry of Information Industry;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the China Securities Regulatory Commission;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Ministry of Culture;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the State Press and Publications Administration;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the State Copyright Bureau;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the State Administration of Industry and Commerce;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Ministry of Public Security; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Ministry of Commerce.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The State Council and these ministries and agencies have issued a series of rules that regulate a
number of different substantive areas of our business, which are discussed below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Foreign ownership restriction on Internet content provision businesses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC regulations currently limit foreign ownership of companies that provide Internet content
services, including our business of providing financial information and data to Internet users, to
50%. In order to comply with this foreign ownership restriction, we operate our website in China
through Fuhua, which is wholly owned by Wu Chen, a financial manager at International Data Group
China, Ltd., a PRC company affiliated with IDG Technology
</DIV>

<P align="center" style="font-size: 10pt">38
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Venture Investment, Inc. and IDG
Technology Venture Investments, LP, two of our principal shareholders, and Jun Ning, our former
chairman and chief executive officer, who are both PRC citizens. Jun Ning is expected to transfer
his holdings in Fuhua to Zhiwei Zhao, our current Chief Executive Officer and a member of our board
of directors, later this year. Under PRC law, we cannot hold the licenses and approvals necessary
to operate our website because those licenses and approvals can not be held by foreign entities or
majority foreign-owned entities. We, as a company incorporated in Hong Kong, SAR, are a foreign
entity for this purpose. CFO Beijing and Fortune Software cannot hold such licenses and approvals
because they are wholly foreign-owned enterprises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are, however, substantial uncertainties regarding the interpretation and application of
current or future PRC laws and regulations. Accordingly, we cannot assure you that the PRC
regulatory authorities will not ultimately take a view that is contrary to the opinion of our PRC
legal counsel. If the PRC government finds that the agreements that establish the structure of our
operations in China do not comply with PRC government restrictions on foreign investment in our
industry, we could be subject to severe penalties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Licenses and permits</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are a number of aspects of our business which require us to obtain licenses from a variety of
PRC regulatory authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to host our website, Fuhua is required to hold an Internet content provider, or ICP,
license issued by the Ministry of Information Industry or its local offices. Fuhua currently holds
an ICP license issued by Beijing Communications Administration, a local office of the Ministry of
Information Industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Each ICP license holder that engages in supply of analysis and research information relating to
stocks and other securities must obtain a securities advisory permit from China Securities
Regulatory Commission, or the CSRC. We currently do not hold a securities advisory permit. We
receive securities analysis and research information from licensed securities advisors that hold
securities advisory permits, and we have clearly stated on our websites and in our software the
source of such information as required by the CSRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A recent regulation issued by the Ministry of Information Industry requires short message, or SMS,
content providers to obtain an SMS license from the Ministry of Information Industry or its local
offices. We have obtained the required SMS license for the delivery of our financial short message
content.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Furthermore, the Ministry of Information Industry has promulgated rules requiring ICP license
holders that provide online bulletin board services to register with, or obtain an approval from,
the relevant telecommunications authorities. Fuhua has obtained such approval from Beijing
Communications Administration, the government agency in charge of this matter in Beijing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Regulation of Internet content</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The PRC government has promulgated measures relating to Internet content through a number of
ministries and agencies, including the Ministry of Information Industry, the Ministry of Culture
and the State Press and Publications Administration. These measures specifically prohibit Internet
activities, which include provision of financial information through the Internet, that result in
the publication of any content which is found to, among other things, propagate obscenity, gambling
or violence, instigate crimes, undermine public morality or the cultural traditions of the PRC, or
compromise State security or secretes. If an ICP license holder violates these measures, the PRC
government may revoke its ICP license and shut down its websites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Fuhua&#146;s ICP license expressly states that it is not allowed to publish news, among other things, in
relation to its Internet content provision. Specifically, the Press Office of Beijing People&#146;s
Government, the government authority regulating news publication, confirmed with us that so long as
we do not provide general news on politics, society or culture, or establish a &#147;news column,&#148; or
provide such information under express heading of &#147;news,&#148; we are not required to obtain a license
to publish financial or economic related news content. However, on September&nbsp;25, 2005, the Press
Office of the State Council and the Ministry of Information Industry jointly promulgated the
Provisions for the Administration of Internet News Information Services, in which the authorities
provided an applicable definition of internet news information services and require that internet
content providers that provide internet news information services within such definition must apply
for a license. Fuhua is now planning to procure such a license.
</DIV>

<P align="center" style="font-size: 10pt">39
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Regulation of information security</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Internet content in China is also regulated and restricted by the PRC government to protect State
security. The National People&#146;s Congress, China&#146;s national legislative body, has enacted a law that
may subject to criminal punishment in China any effort to: (1)&nbsp;gain improper entry into a computer
or system of strategic importance; (2)&nbsp;disseminate politically disruptive information; (3)&nbsp;leak
State secrets; (4)&nbsp;spread false commercial information; or (5)&nbsp;infringe intellectual property
rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Ministry of Public Security has promulgated measures that prohibit use of the Internet in ways
which, among other things, result in a leakage of State secrets or a spread of socially
destabilizing content. The Ministry of Public Security has supervision and inspection rights in
this regard, and we may be subject to the jurisdiction of the local security bureaus. If an ICP
license holder violates these measures, the PRC government may revoke its ICP license and shut down
its websites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Intellectual property rights</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The State Council and the State Copyright Bureau have promulgated various regulations and rules
relating to protection of software in China. Under these regulations and rules, software owners,
licensees and transferees should register their rights in software with the State Copyright Bureau
or its local offices and obtain software copyright registration certificates. Although such
registration is not mandatory under PRC law, software owners, licensees and transferees are
encouraged to go through the registration process and registered software rights may receive better
protections. We have registered all of our self-developed software with the State Copyright Bureau.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC law requires owners of Internet domain names to register their domain names with qualified
domain name registration agencies approved by the Ministry of Information Industry and obtain a
registration certificate from such registration agencies. A registered domain name owner has an
exclusive use right over its domain name.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Unregistered domain names may not receive proper legal protections and may be misappropriated by
unauthorized third parties. We have registered our primary domain name, <I>www.jrj.com.cn</I>, with CNNIC,
a domain name registration agency approved by the Ministry of Information Industry and obtained a
registration certificate for this domain name and have registered another domain name, <I>www.jrj.com</I>,
with the Internet Corporation for Assigned Names and Numbers, or ICANN, and obtained a certificate
for this domain name. ICANN is an internationally organized, non-profit corporation that has
responsibility for Internet Protocol (IP)&nbsp;address space allocation, protocol identifier assignment,
generic (gTLD) and country code (ccTLD) Top-Level Domain name system management, and root server
system management functions. These services were originally performed under U.S. Government
contract by the Internet Assigned Numbers Authority, or IANA, and other entities. ICANN now
performs the IANA function.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Website name</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC law requires entities and individuals operating commercial websites to register their website
names with the State Administration of Industry and Commerce, or the SAIC, or its local offices and
obtain a commercial website name registration certificate. If any entity or individual operates a
commercial website without obtaining such certificate, it may be charged a fine or imposed other
penalties by the SAIC or its local offices. We have registered our website name, &#147;JRJ Investment
and Finance Network,&#148; with, and received a commercial website name registration certificate from,
Beijing municipal SAIC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Privacy protection</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC law does not prohibit Internet content providers from collecting and analyzing personal
information from their users. We require our users to accept a user agreement whereby they agree to
provide certain personal information to us. PRC law prohibits Internet content providers from
disclosing to any third parties any information transmitted by users through their networks unless
otherwise permitted by law. If an Internet content provider violates these regulations, the
Ministry of Information Industry or its local offices may impose penalties and the Internet content
provider may be liable for damages caused to its users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Advertising regulation</I></B>
</DIV>


<P align="center" style="font-size: 10pt">40
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC law requires entities conducting advertising activities to obtain an advertising permit from
the SAIC&#146;s local offices. Entities conducting advertising activities without such permit may be
charged a fine or imposed other penalties by the SAIC&#146;s local offices. Currently, foreign investors
cannot own more than 70% equity interest in an
advertising agency in China. We hold our advertising permit through Fuhua, a PRC domestic company
wholly owned by Wu Chen and Jun Ning. Jun Ning is expected to transfer his holdings in Fuhua to
Zhiwei Zhao, our current Chief Executive Officer and a member of our board of directors, later this
year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><U><B>Organizational structure.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conduct substantially all of our business through our wholly owned subsidiaries in China, CFO
Beijing and Fortune Software. In addition, we are dependent on Fuhua to host our websites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth the details of our subsidiaries:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Country of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Ownership</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000"><B>Incorporation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 1px solid #000000"><B>Interest</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">China Finance Online (Beijing) Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left">China</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fortune Software (Beijing) Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="left">China</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following diagram illustrates our corporate and share ownership structure:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="h00544h0054401.gif" alt="(FLOW CHART)">
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Jun Ning is our former chairman and chief executive officer.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">41
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Wu Chen is a financial manager at International Data Group China,
Ltd., a PRC company affiliated with IDG Technology Venture Investment,
Inc. and IDG Technology Venture Investments, LP, two of our principal
shareholders.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC regulations currently limit foreign ownership of companies that provide Internet content
provider services, or ICP services, which include our business of providing financial information
and data to Internet users, to 50%. PRC regulations also limit foreign ownership of advertising
agencies that provide online advertising services to be no more than 70%. We are a Hong Kong
company and we conduct our operations solely in China through CFO Beijing and Fortune Software, our
wholly owned subsidiaries. We are a foreign enterprise and CFO Beijing and Fortune Software are
foreign invested enterprises under PRC law and accordingly, neither we, CFO Beijing or Fortune
Software is eligible for a license to operate ICP services or provide online advertising services.
In order to comply with foreign ownership restrictions, in December&nbsp;2000, we formed our affiliated
Chinese entity, Fuhua, with Wu Chen and Xinzheng Wang, who later transferred his holdings in Fuhua
to Jun Ning, our former chairman and chief executive officer. Both Wu Chen and Jun Ning are PRC
citizens and own 55% and 45% of the equity interests in Fuhua, respectively. Jun Ning has resigned
from his positions with us and is expected to transfer his holdings in Fuhua to Zhiwei Zhao, our
current Chief Executive Officer and a member of our board of directors, later this year. Fuhua
holds the licenses and approvals that are required to operate our website, CFO Beijing owns our
<I>www.jrj.com.cn </I>domain name, and we own our <I>www.jrj.com </I>domain name. Fuhua also holds the licenses
and approvals required to operate our online advertising business. We and CFO Beijing have entered
into a series of contractual arrangements with Fuhua and its shareholders, and Zhiwei Zhao is
expected to replace Jun Ning as a party to these contractual arrangements when he receives Jun
Ning&#146;s holdings in Fuhua later this year. As a result of these contractual arrangements, we are
considered the primary beneficiary of Fuhua and accordingly, we consolidate Fuhua&#146;s results of
operations in our financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to our contractual arrangements with Fuhua, we provide equipment, services and domain name
licenses to Fuhua in exchange for fees. The principal equipment lease, services and domain name
license agreements that we have entered into with Fuhua include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an equipment leasing agreement, pursuant to which Fuhua leases a
substantial majority of its operating assets from CFO Beijing;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a technical support agreement, pursuant to which CFO Beijing provides
technical support for Fuhua&#146;s operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an amended and restated strategic consulting agreement, pursuant to
which CFO Beijing provides strategic consulting services to Fuhua,
including consulting services in relation to Fuhua&#146;s online
advertising business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a domain name licensing agreement, pursuant to which CFO Beijing
licenses to Fuhua its domain name, <I>www.jrj.com.cn</I>; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a domain name licensing agreement, pursuant to which we license to
Fuhua our domain name, <I>www.jrj.com</I>.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We made a loan to each of the shareholders of Fuhua, Wu Chen and Jun Ning, solely for the purposes
of capitalizing Fuhua. Pursuant to the loan agreements, Wu Chen and Jun Ning can only repay the
loans by transferring all of their interests in Fuhua to us or a third party designated by us.
Zhiwei Zhao is expected to replace Jun Ning as a party to the loan agreements when he receives Jun
Ning&#146;s holdings in Fuhua later this year. While Hong Kong law limits the maximum interest payment
chargeable under a loan to 60% of the total principal amount per annum, we do not believe this
limitation will have a material adverse effect on our business and operations, or will result in a
material amount being paid to the shareholders of Fuhua if and when they are permitted to transfer
their interests in Fuhua to us. In addition, we have entered into agreements with Fuhua and its
shareholders that provide us with the substantial ability to control Fuhua. Pursuant to these
contractual arrangements:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the shareholders of Fuhua have granted us or individuals designated by
us an irrevocable proxy to exercise all their voting rights as
shareholders of Fuhua, including the right to appoint directors, the
general manager and other senior management of Fuhua;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fuhua will not enter into any transaction that may materially affect
its assets, liabilities, equity or operations </TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">42
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>without our prior
written consent;</TD>
</TR>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fuhua will not distribute any dividends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we may purchase the entire equity interest in, or all the assets of,
Fuhua when and if such purchase is permitted by PRC law or the current
shareholders of Fuhua cease to be directors or employees of Fuhua;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the shareholders of Fuhua have pledged their equity interest in Fuhua
to CFO Beijing to secure the payment obligations of Fuhua under the
equipment leasing agreement, the technical support agreement and the
amended and restated strategic consulting agreement between CFO
Beijing and Fuhua; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the shareholders of Fuhua will not transfer, sell, pledge, dispose of
or create any encumbrance on their equity interest in Fuhua without
the prior written consent of CFO Beijing.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Each of the contractual arrangement with Fuhua and its shareholders can only be amended with the
approval of our audit committee or another independent body of our board of directors. The
shareholders of Fuhua are not deriving any material personal benefits from these arrangements and
are not expected to receive any consideration, other than cancellation of the existing loans, upon
future transfer of their entire equity interests in, or all of the assets of, Fuhua to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. </B><U><B>Property, plants and equipment.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our principal executive offices, customer service center and principal sales, marketing and
development facilities are currently located at Room&nbsp;610B, 6/F, Ping&#146;an Mansion, No.&nbsp;23 Financial
Street, Beijing, People&#146;s Republic of China 100032, where our subsidiaries, CFO Beijing and Fortune
Software, as well as Fuhua, leases 971 square meters under a lease that expires on July&nbsp;3, 2006.
Fortune Software&#146;s registered offices are located at 12B11, Qingyun Dangdai Building, No.&nbsp;43 North
Third Ring Road West, Hai Dian District, Beijing, where Fortune Software leases 74.4 square meters
under a lease that expires on March&nbsp;31, 2007. We intend to seek additional office space as required
for our operations as needed on commercially reasonable terms. We believe that we will be able to
obtain adequate facilities, principally through the leasing of appropriate properties, to
accommodate our future expansion plans.
</DIV>
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>The following discussion of our financial condition and results of operations is based upon and
should be read in conjunction with our consolidated financial statements and their related notes
included in this annual report on </I><I>Form 20-F</I><I>. This report contains forward-looking statements within
the meaning of Section&nbsp;27A of the Securities Act of 1933 and Section&nbsp;21E of the Securities Exchange
Act of 1934, including, without limitation, statements regarding our expectations, beliefs,
intentions or future strategies that are signified by the words &#147;expect&#148;, &#147;anticipate&#148;, &#147;intend&#148;,
&#147;believe&#148;, or similar language. All forward-looking statements included in this annual report are
based on information available to us on the date hereof, and we assume no obligation to update any
such forward &#151; looking statements. Actual results could differ materially from those projected in
the forward &#151; looking statements. In evaluating our business, you should carefully consider the
information provided under the caption &#147;Risk Factors&#148; in this annual report on </I><I>Form 20-F</I><I>. We
caution you that our businesses and financial performance are subject to substantial risks and
uncertainties.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. </B><U><B>Operating Results</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are one of the leading companies that specialize in providing online financial and listed
company data and information in China. We offer subscription-based services based on a single
integrated information platform that combines financial analysis tools, real-time and historical
data, news, research reports and online forums. Our service offerings can be accessed using our
research tools and through our website at <I>www.jrj.com</I>. Our service offerings are used by and
targeted at a broad range of investors in China, including individual investors managing their own
money, professional investors such as institutional investors managing large sums of money on
behalf of their clients and high net worth individuals, other financial professionals such as
investment bankers, stock analysts and financial reporters, and middle class individuals. As a
result of our efforts to develop and offer more comprehensive service packages to our subscribers,
we have created a customer base of high-end subscribers, determined by us as subscribers who pay us
an annual subscription fee of RMB2,400 (US$297) or more. High-end subscribers tend to require our
more comprehensive service packages and we have increasingly focused our
</DIV>

<P align="center" style="font-size: 10pt">43
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">product development
efforts at high-end subscribers&#146; complex needs. The number of our high-end subscribers with active
subscriptions decreased by approximately 56% from approximately 5,700 for the twelve months ended
March&nbsp;31, 2005 to approximately 2,500 for the twelve months ended March&nbsp;31, 2006. We believe this
decrease was primarily due to the significant volatility and the decline in value experienced by
Chinese stock markets during the past several years, which have dampened the individual investors&#146;
interests in investing in the Chinese stock markets, resulting in reduced user demand for stock
market intelligence services including our service offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our net revenues increased by 24.4% to $7.5&nbsp;million in 2005 from $6.0&nbsp;million in 2004. Our net
income increased by 0.5% to $4.62&nbsp;million in 2005 from $4.60&nbsp;million in 2004. We receive
subscription fees at the beginning of the subscribers&#146; subscription periods. Revenues from the
subscription fees are deferred and recognized ratably over the twelve month period. Our deferred
revenues were $1.9&nbsp;million as of December&nbsp;31, 2005, representing a 46.7% decrease from our deferred
revenues of $3.5&nbsp;million as of December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Key factors affecting our operating results and financial condition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Some of the key factors affecting our operating results and financial condition include the
following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>performance of China&#146;s securities markets, and user demand for market intelligence on China&#146;s securities
markets, as well as the overall performance of China&#146;s economy;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>contribution of alternative revenue resources such as revenues from online advertising;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>seasonality associated with the level of activity of our users and subscribers and the trading activities
of China&#146;s securities markets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>tax refund from the PRC tax authorities for value-added-taxes we are required to pay on the sale of
subscriptions to our service packages;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other tax incentives we receive from PRC tax authorities resulting from CFO Beijing being a foreign
invested software development company and Fortune Software being a foreign invested high-technology
company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our cost structure, including, in particular, our cost for raw data; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the desirability of our service packages relative to other products and offerings available in the market.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We derive revenues primarily from annual subscription fees from subscribers to our financial data
and information services. Our subscription service is substantially dependent on user demand for
market intelligence on China&#146;s securities markets. Such demand has fluctuated with the level of
trading activity in China&#146;s securities markets. During the past several years, China&#146;s securities
markets have experienced volatility and decrease in value. The Shanghai Stock Exchange A-Share
Index and the Shenzhen Stock Exchange A-Share Index declined 38.8% and 51.8%, respectively, from
January&nbsp;2, 2001 to March&nbsp;31, 2006. On June&nbsp;6, 2005, the Shanghai Stock Exchange Index reached its
lowest level since March&nbsp;1997. If China&#146;s securities markets weaken in the future, and if
investors&#146; interest in China&#146;s securities markets declines, our business could be materially and
adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To a lesser extent, we also derive revenues through advertisement sales on our website, which
contributed $1.8&nbsp;million in 2005, representing a 222% increase from the $544,000
contributed in 2004. Revenues from advertising accounted for 23% of our gross revenues in 2005. We
plan to enhance our ability to place unobtrusive advertisements on our website in order to increase
our revenues from online advertisement sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our gross revenues also include the benefit of a refund from the PRC tax authorities for
value-added-taxes, or VAT, we are required to pay on the sale of subscriptions to our service
packages. We receive these refunds from the PRC tax authorities as part of the PRC government&#146;s
policy of encouraging software development in the PRC. There is generally a one-month lapse between
the time we complete a sale and pay the VAT on that sale and the time we receive the refund. We
recognized approximately $709,000 in revenue for VAT refunds in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Gross revenues</B>
</DIV>


<P align="center" style="font-size: 10pt">44
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We generate subscription fee revenues mostly from the sales of the service packages we currently
offer, which are comprised of downloadable and web-based research tools. Depending on the research
tools and premium features selected by our subscribers, our subscribers pay us a subscription fee
ranging from RMB188 (US$23) for the most
basic service we offer to as much as RMB14,900 (US$1,846) for our most comprehensive service
package we offer to our non-institutional subscribers. Our subscription price for each of these ten
service packages varies between these amounts, depending on the package. A subscription permits the
subscriber to use the selected service package for a one-year period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The most significant factors that affect our subscription revenues are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the number of registered users to our website;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the number of new subscribers purchasing our subscription services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the number of our repeat subscribers; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the service packages selected by our subscribers.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Although users of our website are not charged for visiting our website and obtaining basic
financial information, such as real-time stock quotes and historical financial information for all
of China&#146;s listed company stocks, bonds and mutual funds, financial news and research reports,
these users are our primary source of existing and potential subscribers. As users frequent our
website and rely on our offerings, we expect that a number of them will opt to purchase our
subscription services. A substantial portion of our revenues are currently derived from our
subscription services. New subscribers for a specified period are subscribers who subscribed to any
of our service packages during that period who were not subscribers at the beginning of that
period. The number of new subscribers in a period is a measure of our revenue growth in that period
attributable to the expansion of our customer base. Repeat subscribers for a specified period are
subscribers who either have purchased more than one service package from us during that period, or
have purchased our service packages in the past and have purchased at least one service package
during that period. We view increases in repeat subscribers as a measure of market acceptance and
customer loyalty to our service offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We generally encourage our subscribers to migrate to newer, more comprehensive and higher priced
service offerings. Because we charge more for our newer and more comprehensive service packages, as
the number of subscribers for a given period selecting one of our more comprehensive service
packages increases, our average subscription fee per subscriber, or ASF, would be expected to
increase for that period. We price our service packages based on the research tools included and
their level of comprehensiveness, as well as on market demand. From time to time, we may offer
discounts to and promotional rates for our service packages, which may be offered to new
subscribers or repeat subscribers. For example, we launched a promotional program in December&nbsp;2005,
where our existing subscribers can upgrade their services to Grand Reference V at a promotion price
or the active subscribers of Grand Reference V can buy Quick Winner and Arbitrager at a discount
package price of RMB1,000. If the number of repeat subscribers in a period electing to subscribe to
one of our more comprehensive service packages at discount or promotional rates increases, ASF for
that period would be expected to decrease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Net revenues</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our net revenues reflect a deduction from our gross revenues for business taxes and related
surcharges incurred in connection with our China operations. Because CFO Beijing, Fortune Software
and Fuhua operate in China, their gross revenues from sales that are not subject to VAT are subject
to a business tax at a rate of 5%. We expect to pay business tax in the PRC on online advertising
revenues we expect to generate in the future. Accordingly, we expect our business tax payments to
increase in line with the increase in our advertising revenues in future periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Revenue recognition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We charge our subscribers a subscription fee for the right to use our service packages for a
one-year period. Since we accept cash as the only payment method, our subscription fee is paid in
full prior to the delivery of our service packages. Therefore, we do not take any credit risk with
respect to our subscribers. Upon receipt of payment in full, we activate our subscriber&#146;s account,
marking the start of the one-year subscription period, and promptly provide the subscriber with
that account&#146;s access code. We begin to recognize subscription fees as revenue upon activation of
the subscriber&#146;s account and then ratably over the twelve month period corresponding with the
subscriber&#146;s
</DIV>

<P align="center" style="font-size: 10pt">45
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">subscription period. Subscription fees that have been paid but not yet recognized are
accounted for as deferred revenue on our balance sheets. Deferred revenue is reduced
proportionately as revenue is recognized ratably over the twelve month service period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We derive advertising fees from advertising sales on our website principally for fixed periods of
time, which are generally less than one year. We recognize advertising fees ratably over the
periods during which the advertisements are displayed on our website.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Cost of revenues</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our cost of revenues consists of expenses directly related to the offering of our software
subscription services. Our cost of revenues primarily consists of cost of data, cost of bandwidth,
salary and compensation, depreciation and rent. Cost of revenues accounted for 13%, 7% and 6% of
our net revenues in 2003, 2004 and 2005, respectively. We believe our relatively low ratio of cost
of revenues to net revenues is primarily due to competitive labor expenses in China and, to a less
extent, the efficiency of our web content and database personnel. We expect our cost of revenues
will increase both in absolute amount and as a percentage of our net revenues in 2006. We believe
this increase will partly be attributable to contribution from stock-based compensation incurred in
2006 as a result of our adoption of SFAS 123(R), which requires us to recognize all share-based
payments to employees including grants of employee stock options based on the grant-date fair
values commencing January&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Cost of data. </I>Our cost of data consists of bandwidth fees, which we pay to Internet Data
Center (IDC) and fees we pay to the stock exchanges and our other data providers pursuant to our
commercial agreements with those parties. These contracts are typically for a fixed rate, without
regard to the level of use, for a term, typically between one and three years, depending on the
provider. Our cost of data is the largest component of our cost of revenues, constituting 52% of
our cost of revenues in 2005, and is likely to be our most variable element of cost of revenues.
Our cost of data is expected to increase (1)&nbsp;if we enter into additional commercial agreements for
purchasing data from new sources or if we obtain different or additional data from existing sources
or (2)&nbsp;due to rate increases we may experience in the future upon renewal of our existing
agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Salary and compensation. </I>Salary and compensation expenses include wages, bonuses and other
benefits, including welfare benefits. Salary and compensation included in our cost of revenues
relate to our web content and database personnel. We expect that our salary and compensation
expenses will increase in the future as we intend to increase our customer service performance as
our business further grows and expands.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Rent. </I>Rent attributable to cost of revenues reflects that portion of our rent expense that we
believe is directly used in the provision of our web content and database services. We allocate
rent to cost of revenues to the extent the space is occupied by our web content and database
personnel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Depreciation. </I>Depreciation consists of depreciation of property and equipment, primarily our
network and servers. We include depreciation within cost of revenues when the relevant assets are
directly related to the provision of our web content and database services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Operating expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our operating expenses consist of general and administrative expenses, product development
expenses, sales and marketing expenses and stock-based compensation expenses. Our operating
expenses have increased as a percentage of net revenues for 2005 due to the expansion of our
advertising business and the increase in the cost of professional services and other related costs
associated with our being publicly listed in the U.S. The most significant factors affecting our
operating expenses are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>advertising expenses relating to our sponsorship arrangements with portals, search engines and
other websites;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>salary and benefits for our employees, particularly our sales and marketing personnel and our
management team; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Professional services and other related costs associated with being publicly listed in the U.S.</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">46
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We expect our operating expenses will continue to increase for the foreseeable future, but the
rate of such increase will depend primarily on our personnel needs, our advertising needs and our
computer, network and server capacity, including efforts we may undertake to expand our online
advertising business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>General and administrative expenses. </I>General and administrative expenses primarily consist of
salary and compensation for our general management, finance and administrative personnel, rent,
professional expenses and other expenses, including travel and other general business expenses,
office supplies and general office furniture and equipment. We expect our general and
administrative expenses to increase in 2006 and for the foreseeable future as we adopt SFAS 123(R)
to recognize all share-based payments to employees including grants of employee stock options in
our income statement based on the grant-date fair values commencing January&nbsp;1, 2006. Among some of
the general administrative expenses we expect to incur are expenses incurred in connection with our
compliance with the Sarbanes-Oxley Act of 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Product development expenses. </I>Our product development expenses primarily consist of salary and
compensation expenses of personnel engaged in the research, development and implementation of our
new service offerings, rent and depreciation of equipment attributable to our product development
efforts. We expect that our product development expenditures will remain relatively flat for at
least the next twelve months, which we believe will be sufficient to meet our expected product
development needs during that period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Sales and marketing expenses. </I>Our sales and marketing expenses primarily consist of salary and
compensation for our sales and marketing personnel and advertising expenses that we pay to portals,
search engines and other websites that we view as important for attracting users for our services.
Growth in our sales and marketing expenses will depend on the ability of our advertising department
to reach agreements with additional portals and websites and the rate such third parties will
charge us to advertise on their websites. We expect to continue to increase our sales and marketing
efforts in the foreseeable future, including our plan to hire up to ten additional sales and
marketing personnel to focus on online advertising sales for our website.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Stock-based compensation expenses.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2004, the Financial Accounting Standards Board (&#147;FASB&#148; or the &#147;Board&#148;) issued Statement
of Accounting Standards (&#147;SFAS&#148;) No.&nbsp;123(R), &#147;Share-Based Payment&#148;. SFAS No.&nbsp;123(R) is a revision
of SFAS No.&nbsp;123, and supersedes Accounting Principal Board Opinion No.&nbsp;25 (&#147;APB 25&#148;). Among other
items, SFAS 123(R) eliminates the use of APB 25 and the intrinsic value method of accounting, and
requires companies to recognize in the financial statements the cost of employee services received
in exchange for awards of equity instruments, including stock option grants, based on the grant
date fair value of those awards on the grant date. We were required to adopt SFAS No.&nbsp;123(R)
effective January&nbsp;1, 2006. We expect that the adoption of SFAS 123(R) will result in additional
amortization of stock based compensation expense and a reduction of our operating income for 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Stock option plan and option agreements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We adopted the 2004 Stock Incentive Plan, or the Plan, in January&nbsp;2004, under which we could issue
share options with the right to purchase up to 5,688,488 ordinary shares to our directors,
officers, employees, individual consultants and advisors. We amended the Plan in September&nbsp;2004 to
permit the issuance of options to purchase up to an additional 5,000,000 ordinary shares. We
granted options under the Plan with the right to purchase a total of 5,688,488 ordinary shares
(including 90,000 options to eligible individual consultants and advisors) in 2004. As of March&nbsp;31,
2006, 449,000 of these options granted in 2004 but unvested options were returned to the pool of
our ungranted options as a result of resignation from employment by a few former employees. In
2005, we granted additional options under the Plan with the right to purchase a total of 5,003,000
ordinary shares to selected directors, officers, employees, individual consultants and advisors. As
of March&nbsp;31, 2006, 523,600 of these options granted in 2005 but unvested options were returned to
the pool of our ungranted options as a result of resignation from employment by a few former
employees. As a result, we may in the future grant options to purchase up to an additional 969,600
ordinary shares under the Plan. We also granted share options to purchase up to 6,829,500 ordinary
shares in January&nbsp;2004, under option agreements that were independent of the Plan, to other
consultants and business advisors of the company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We had a
total number of 11,695,680 options that are vested and immediately exercisable for
ordinary shares as of March&nbsp;31, 2006. All of the options we granted in January&nbsp;2004 have an
exercise price of $0.16 per share and expire on March&nbsp;5, 2009, the options we granted in June&nbsp;2004
have an exercise price of $1.04 per share and expire
</DIV>

<P align="center" style="font-size: 10pt">47
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">on March&nbsp;5, 2009, the options we granted in February&nbsp;2005 have an exercise price of $1.31 per share
and expire on February&nbsp;18, 2015 and the 400,000 and 200,000 options we granted in November&nbsp;2005
have per share exercise prices of $1.12 and $1.16, respectively, and they expire on November&nbsp;15,
2015. All of the options granted under the Plan to our directors and managers have a vesting period
of one to four years, while options granted under the Plan to our other employees vest over a
period of three to five years. The options we granted to consultants and advisers vested
immediately upon grant or from two to three years after grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical accounting policies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We prepare our financial statements in conformity with U.S. GAAP, which requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities on the date of the financial statements and the reported amounts
of revenues and expenses during the financial reporting period. We continually evaluate these
estimates and assumptions based on the most recently available information, our own historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our accounting policies require
higher degrees of judgment than others in their application. We consider the policies discussed
below to be critical to an understanding of our financial statements as their application places
the most significant demands on our management&#146;s judgment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Income taxes. </I>We record a valuation allowance to reduce our deferred tax assets to the amount that
we believe is more likely than not to be realized. In the event we were to determine that we would
be able to realize our deferred tax assets in the future in excess of their recorded amount, an
adjustment to our deferred tax assets would increase income in the period such determination was
made. Likewise, should we determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to
income in the period such determination was made.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Stock-based
compensation. </I>Prior to 2006, we issued stock option grants to our employees, and
recorded a compensation charge for the excess of the fair value of the stock at the grant date or
any other measurement date over the amount an employee must pay to acquire the stock, under APB 25.
The compensation expense is recognized over the applicable service period, which is usually the
vesting period. We account for stock-based awards to non-employees by recording a charge for the
services rendered by the non-employees using the Black-Scholes option pricing model.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Commencing
January&nbsp;1, 2006 we will adopt SFAS&nbsp;123(R) to recognize all
stock-based payments to employees, including grants of employee stock
options, in our income statement based on the grant-date fair value.
We will estimate the fair value of stock options granted using the
Black-Scholes Merton option pricing formula and a single option
award approach. The fair value is then amortized on a straight-line basis
over the requisite service periods of the awards, which is generally
the vesting period. This option-pricing model requires the input of
highly subjective assumptions, including the option&#146;s expected life,
estimated forfeitures and the price volatility of the underlying
stock.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth certain information relating to our results of operations, and our
consolidated statements of operations as a percentage of net revenues, for the periods indicated:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>(in thousands of U.S. dollars, except as % of net revenues)(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated
statement of operations data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross revenues(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">103.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">101.9</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(482</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(727</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,740</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Product development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(173</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(236</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(284</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(801</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,795</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(833</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,701</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,771</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(50.5</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">48
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>(in thousands of U.S. dollars, except as % of net revenues)(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange gain (net)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(457</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">52.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">76.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">61.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>For the results of operations for a specified period, all
translations from Renminbi to U.S. dollars were calculated at the
average exchange rate for that period. For the years ended
December&nbsp;31, 2003, 2004 and 2005, all translations from Renminbi
to U.S. dollars were calculated at RMB8.2770, RMB8.2768 and
RMB8.1472 per US$1.00, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>We receive subscription fees at the beginning of
the subscribers&#146; subscription periods. Revenues
from the subscription fees are deferred and
recognized ratably over the twelve month
subscription period.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Year ended December&nbsp;31, 2005 compared to year ended December&nbsp;31, 2004</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Revenues</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our gross revenues increased by 25.8% from $6.1&nbsp;million in 2004 to $7.6&nbsp;million in 2005. Our new
subscribers decreased by 66% to 9,100 new subscribers for the twelve months ended December&nbsp;31, 2005
from 26,800 new subscribers during the same period in 2004, and our average subscription fee per
subscriber, or ASF, for new subscribers increased by 3% to $182 for the twelve months ended
December&nbsp;31, 2005 from $177 for the same period in 2004. Our repeat subscribers decreased by 24% to
9,400 for the twelve months ended December&nbsp;31, 2005 from 12,400 for the same period in 2004, and
our ASF for repeat subscribers increased by 11% to $270 for the twelve months ended December&nbsp;31,
2005 from $243 for the same period in 2004. We believe the decrease in our new subscribers and our
repeat subscribers was primarily due to the significant volatility and the decline in value
experienced by Chinese stock markets during the twelve months ended December&nbsp;31, 2005, which have
dampened the individual investors&#146; interest in investing in the Chinese stock markets, resulting in
reduced user demand for stock market intelligence services including our service offerings. The
increase in our ASF for both new and repeat subscribers reflects price increases associated with
our continued efforts to provide more comprehensive and higher priced service offerings. The
increase in our ASF for repeat subscribers reflects the successful migration of a number of repeat
subscribers to our more comprehensive and higher priced service offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenues derived from online advertising sales increased to $1.8&nbsp;million in 2005 from $544,000
in 2004. This increase is primarily due to our increased efforts in 2005 to market our advertising
services to online advertisers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our business taxes attributable to our gross revenues increased from $48,000 in 2004 to $145,000 in
2005, primarily due to increase in business taxes associated with our increase in advertising and
related businesses. After taking into account business taxes attributable to our gross revenues,
our net revenues increased by 24.4% to $7.5&nbsp;million in 2005 from $6.0&nbsp;million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cost of revenues</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our cost of revenues in 2005 increased by 22.4% to $482,000 from $394,000 in 2004 primarily because
our cost of data increased by 32.1% to $251,000 in 2005 from $190,000 in 2004, as we increased the
number of our content and data providers to increase the amount of data and information available
to our subscribers and users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Gross profit</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the foregoing, our gross profit increased by 24.5% to $7.0&nbsp;million in 2005 from $5.6
million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Operating expenses</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our operating expenses increased by 121.6% to $3.8&nbsp;million in 2005 from $1.7&nbsp;million in 2004. The
increase in our operating expenses was primarily the result of an increase in our sales and marketing expenses, an increase in
</DIV>

<P align="center" style="font-size: 10pt">49
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">our general and administrative expenses and, to a lesser extent,
increases in our product development expenses. Operating expenses as a percentage of net revenues
increased to 50.4% in 2005 from 28.3% in 2004 because our operating expenses grew at a faster rate
than the rate of increase in our net revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>General and administrative. </I>Our general and administrative expenses increased by 139.2% to $1.7
million in 2005 from $727,000 in 2004 due primarily to an increase in our employee headcount, which
resulted in an increase in salary expenses of $161,000, professional service and other related
costs associated with being a public company in U.S. with the amount of $492,000, an increase in
stock-based compensation of $80,000, as well as an increase in bank charges for online payments
made by some of our subscribers in the amount of $15,000, other office expenses increased $196,000,
partially offset by reductions in other general office expenses. Our general and administrative
expenses as a percentage of net revenues increased to 23.3% in 2005 from 12.1% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Product development. </I>Our product development expenses increased by 36.7% to $236,000 in 2005 from
$173,000 in 2004 due primarily to increase in employee salaries. Our product development expenses
increased as a percentage of net revenues to 3.2% in 2005 from 2.9% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Sales and marketing. </I>Our sales and marketing expenses increased by 123.9% to $1.8&nbsp;million in 2005
from $801,000 in 2004. This increase is largely attributable to an increase in our advertising
expenditures and an increase in our customer service and sales personnel to address increased
subscription demand. Our advertising expenditures increased substantially to $1.4&nbsp;million in 2005
from $415,000 in 2004, primarily reflecting increases in our sponsorship arrangements with portals,
search engines and other websites and, to a lesser extent, an increase in the advertising fee we
pay to one of our sponsors. Salary and compensation expenses attributable to our sales and
marketing personnel increased by 13.7% to $240,000 in 2005 from $211,000 in 2004 reflecting an
increase in headcount. Our sales and marketing expenses as a percentage of net revenues increased
to 24.0% in 2005 from 13.3% in 2004. Our acquisition cost per new subscriber increased by 562.1% to
$197.29 in 2005 from $29.8 in 2004. This increased cost is primarily due to higher sales and
marketing expenses associated with our expanded advertising efforts and decreases in the number of
new subscribers from 2004 to 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income from operations</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the foregoing, we had income from operations of $3.2&nbsp;million in 2005, decreased by
17.6% compared to income from operations of $3.9&nbsp;million in 2004, and our operating margin
decreased to 43.2% in 2005 from 65.2% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Interest income</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our interest income increased by 405.8% to $1.5&nbsp;million in 2005 from $294,000 in 2004, due to a
significant increase in our cash balances derived primarily from net proceeds of our initial public
offering in October&nbsp;2004 which amounted to $58.5&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income tax expense</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our wholly-owned subsidiary, CFO Beijing, enjoys preferential tax treatments in China, including
exemption from enterprise income tax for 2003 and 2004 and a preferential enterprise income tax
rate of 12% from 2005 to 2007. We did not record deferred tax assets in 2003 because such deferred
tax assets were expected to reverse in full during the exemption period. Since our full exemption
period ended on December&nbsp;31, 2004 and we are subject to a preferential enterprise income tax rate
of 12% in 2005, we recognized an income tax expense of $457,000 for 2005, primarily resulting from
the preferential enterprise income tax rate of 12% for CFO Beijing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Net income</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the foregoing, our net income increased slightly by 0.6% to $4.62&nbsp;million in 2005
from $4.60&nbsp;million in 2004. Our net margin decreased to 61.8% in 2005 from 76.4% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Year ended December&nbsp;31, 2004 compared to year ended December&nbsp;31, 2003</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Revenues</I></B>

</DIV>

<P align="center" style="font-size: 10pt">50
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our gross revenues increased by 157.6% from $2.4&nbsp;million in 2003 to $6.1&nbsp;million in 2004. This
increase is primarily due to growth in revenues from our subscription services. Our new subscribers
increased by 54.9% to 26,800 new subscribers for the twelve months ended December&nbsp;31, 2004 from
17,300 new subscribers during the same period in 2003, and our average subscription fee per
subscriber, or ASF, for new subscribers increased by 90.3% to $177 for the twelve months ended
December&nbsp;31, 2004 from $93 for the same period in 2003. Our repeat subscribers increased by 22.8%
to 12,400 for the twelve months ended December&nbsp;31, 2004 from 10,100 for the same period in 2003,
and our ASF for repeat subscribers increased by 118.9% to $243 for the twelve months ended December
31, 2004 from $111 for the same period in 2003. The increase in our ASF for both new and repeat
subscribers reflects price increases associated with our continued efforts to provide more
comprehensive and higher priced service offerings. The increase in our ASF for repeat subscribers
reflects the successful migration of a number of repeat subscribers to our more comprehensive and
higher priced service offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenues derived from online advertising sales increased to $544,000 in 2004 from an
insignificant amount in 2003. This increase is primarily due to our increased efforts in 2004 to
market our advertising services to online advertisers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our business taxes attributable to our gross revenues decreased from $83,000 in 2003 to $48,000 in
2004, primarily because seven of our products received certificates from the PRC government
qualifying them as software products and revenues from these software products became subject to
VAT in lieu of business tax. After taking into account business taxes attributable to our gross
revenues, our net revenues increased by 165.0% to $6.0&nbsp;million in 2004 from $2.3&nbsp;million in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cost of revenues</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our cost of revenues in 2004 increased by 32.3% to $394,000 from $298,000 in 2003 primarily because
our cost of data increased by 84.7% to $190,000 in 2004 from $103,000 in 2003, as we increased the
number of our content and data providers to increase the amount of data and information available
to our subscribers and users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Gross profit</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the foregoing, our gross profit increased by 185.0% to $5.6&nbsp;million in 2004 from
$2.0&nbsp;million in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Operating expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our operating expenses increased by 104.3% to $1.7&nbsp;million in 2004 from $833,000 in 2003. The
increase in our operating expenses was primarily the result of an increase in our sales and
marketing expenses, an increase in our general and administrative expenses and, to a lesser extent,
increase in our product development expenses. Operating expenses as a percentage of net revenues
decreased to 28.3% in 2004 from 36.7% in 2003 because our net revenues grew at a faster rate than
the rate of increase in our operating expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>General and administrative. </I>Our general and administrative expenses increased by 81.7% to $727,000
in 2004 from $400,000 in 2003 due primarily to an increase in stock-based compensation of $190,000.
Our total stock-based compensation was $289,000 in 2004 which was incurred from our grant of
12,197,988 stock options to our directors, officers, employees, consultants and advisors in 2004,
and from our sale of 730,000 restricted shares in April&nbsp;2004 to our chief financial officer in
connection with his initial employment, compared with $96,000 in 2003 from our sale of 2,666,600
ordinary shares to our former chairman and chief executive officer. The increase of our general and
administrative expenses is also due to an increase in our employee headcount, which resulted in an
increase in salary expenses of $98,000, as well as an increase in bank charges for online payments
made by some of our subscribers in the amount of $24,000, partially offset by reductions in other
general office expenses. In addition, the increase in our general and administrative expenses
reflected increased compliance costs associated with our becoming a public company in the U.S. Our
general and administrative expenses as a percentage of net revenues decreased to 12.1% in 2004 from
17.6% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Product development. </I>Our product development expenses increased by 16.2% to $173,000 in 2004 from
$149,000 in 2003 due primarily to employee salaries. However, our product development expenses
decreased as a percentage of net revenues to 2.9% in 2004 from 6.6% in 2003, as our net revenues
increased at a faster rate than the rate of increase in our product development expenses.
</DIV>

<P align="center" style="font-size: 10pt">51
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Sales
and marketing. </I>Our sales and marketing expenses increased by 182.2% to $801,000 in 2004 from
$284,000 in 2003. This increase is largely attributable to an increase in our advertising
expenditures and an increase in our customer service and sales personnel to address increased
subscription demand. Our advertising expenditures increased substantially to $415,000 in 2004 from
$71,000 in 2003, primarily reflecting increases in our sponsorship arrangements with portals,
search engines and other websites and, to a lesser extent, an increase in the advertising fee we
pay to one of our sponsors. Salary and compensation expenses attributable to our sales and
marketing personnel increased by 74.7% to $211,000 in 2004 from $121,000 in 2003, reflecting an
increase in headcount. Our sales and marketing expenses as a percentage of net revenues increased
slightly to 13.3% in 2004 from 12.5% in 2003. Our acquisition cost per new subscriber increased by
81.7% to $29.8 in 2004 from $16.4 in 2003, primarily due to increases in sales and marketing
expenses as we expanded advertising efforts to increase the number of our sponsorship arrangements
and as we increased the size of our sales and marketing team in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income from operations</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the foregoing, we had income from operations of $3.9&nbsp;million in 2004, increased by
243.9% compared to income from operations of $1.1&nbsp;million in 2003, and our operating margin
increased to 65.2% in 2004 from 50.2% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Interest income</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our interest income increased by 473.7% to $294,000 in 2004 from $51,000 in 2003, due to a
significant increase in our cash balances derived primarily from net proceeds of our initial public
offering in October&nbsp;2004 which amounted to $58.5&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income tax benefit</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our income tax benefit increased to $384,000 in 2004 from nil in 2003, attributable to deferred tax
assets we recognized in 2004. Our wholly-owned subsidiary, CFO Beijing, enjoys preferential tax
treatments in China, including exemption from enterprise income tax for 2003 and 2004 and a
preferential enterprise income tax rate of 12% from 2005 to 2007. We did not record deferred tax
assets in 2003 because such deferred tax assets were expected to reverse in full during the
exemption period. Since our exemption period ends on December&nbsp;31, 2004 and we are subject to a
preferential enterprise income tax rate of 12% in 2005, we recognized deferred tax assets of
$386,000 in 2004, accounting for 12% of the accumulated effect of revenue recognition of $3.2
million, which is expected to reverse in 2005 at the preferential enterprise income tax rate of
12%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Net income</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the foregoing, our net income increased by 286.3% to $4.6&nbsp;million in 2004 from $1.2
million in 2003. Our net margin increased to 76.4% in 2004 from 52.4% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><U><B>Liquidity and capital resources.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cash flows and working capital</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of December&nbsp;31, 2005, we had approximately $46.2&nbsp;million in cash and cash equivalents. As of the
same date, we did not have any outstanding debt. Our cash and cash equivalents primarily consist of
cash on hand and liquid investments with original maturities of three months or less that are
deposited with banks and other financial institutions. We generally deposit our excess cash in
interest bearing bank accounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table shows our cash flows with respect to operating activities, investing activities
and financing activities in 2003, 2004 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>(in thousands of U.S. dollars)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash
provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,059</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(152</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,235</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,923</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,428</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,168</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">52
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash provided by operating activities was $3.1&nbsp;million in 2005 compared to $7.0&nbsp;million in
2004. This decrease was primarily due to the fact that we amortized $1.6&nbsp;million of our deferred
revenue in 2005 and accrued $2.2&nbsp;million in 2004. Net cash provided by operating activities was
$7.0&nbsp;million in 2004 compared to $1.5&nbsp;million for 2003. This increase was primarily due to
increases in our net income and deferred revenue from the growth in our subscription services
business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash used in investing activities was $15.2 in 2005, compared to net cash used in investing
activities of $200,000 in 2004. This increase was due to our cost
method investment in Moloon. Net cash
used in investing activities was $200,000 in 2004, compared to net cash used in investing
activities of $152,000 in 2003. This increase was due to purchases of property and equipment which
primarily consisted of office space, computer, network equipment and bandwidth for our network
system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash used in financing activities was $12.9&nbsp;million in 2005, mainly due to the implementation
of our stock repurchase program. We had net cash provided by financing activities of $58.0&nbsp;million
in 2004, mainly due to our initial public offering in October&nbsp;2004 of 5,000,000 American Depositary
Shares, representing 25,000,000 ordinary shares, which raised net proceeds of $58.5&nbsp;million. We
declared a dividend of $503,000 in the first quarter of 2004 in respect of the financial year ended
December&nbsp;31, 2003. This dividend was payable pro rata to our registered shareholders as of December
31, 2003, of which $450,000 was paid in the first quarter of 2004 and the balance was paid in July
2004. We currently intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash dividends on our
ordinary shares, or indirectly on our ADSs, for the foreseeable future. In May&nbsp;2004, we repaid
$60,000 to the shareholders of Fuhua for funds advanced by them, on our behalf, to capitalize Fuhua
when Fuhua was initially incorporated in December&nbsp;2000. This was a one-time payment and the payment
amount constitutes the entire amount advanced by Fuhua&#146;s shareholders when Fuhua was initially
capitalized in December&nbsp;2000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Capital resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our principal capital expenditures for 2003, 2004 and 2005 consisted of primarily purchases of
servers, workstations, computers, computer software, and other items related to our network
infrastructure for a total of approximately $152,000, $200,000 and $235,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our capital expenditure plans for 2006 have not yet been determined, but we expect to spend
approximately $704,000 in total primarily in connection with the furnishing and outfitting of the
new principal executive offices we will move into later this year, and in connection with the
purchasing of workstations, servers, equipment and technology. Capital expenditures in 2004 and
2005 have been, and our 2006 capital expenditures are expected to continue to be, funded through
operating cash flows and through our existing capital resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that our current cash and cash equivalents, and cash flow from operations and proceeds
from our initial public offering in October&nbsp;2004 will be sufficient to meet our anticipated cash
needs, including for our working capital and capital expenditure needs, for the foreseeable future.
We may, however, require additional cash resources due to changes in business conditions or other
future developments. If these sources are insufficient to satisfy our cash requirements, we may
seek to sell debt securities or additional equity securities or obtain a credit facility. The sale
of convertible debt securities or additional equity securities could result in additional dilution
to our shareholders. The incurrence of indebtedness would result in debt service obligations and
could result in operating and financial covenants that would restrict our operations. We cannot
assure you that financing will be available in amounts or on terms acceptable to us, if at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2005, We have made additional capital contributions of $9&nbsp;million and $11.5&nbsp;million to CFO
Beijing and Fortune Software, respectively, with the approval from PRC government. In April&nbsp;2005,
we have made shareholder loans of $11.0&nbsp;million and $18.0&nbsp;million to CFO Beijing and Fortune
Software, respectively, with the approval from PRC government authorities. We applied a portion of
the net proceeds of our initial public offering in October&nbsp;2004 to fund these additional capital
contributions and shareholder loans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the event that CFO Beijing, Fortune Software or Fuhua require additional capital to fund their
operations or to acquire additional businesses or assets, we may need to make loans or additional
capital contributions to CFO
</DIV>

<P align="center" style="font-size: 10pt">53
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Beijing, Fortune Software or Fuhua. Any loans to CFO Beijing, Fortune Software or Fuhua are subject
to PRC regulations and approvals. For example:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>aggregate loans by us to CFO Beijing, a foreign invested enterprise,
to finance its activities, cannot in the aggregate exceed the
difference between CFO Beijing&#146;s currently approved total investment
amount and its currently approved registered capital amount, and must
be registered with the State Administration of Foreign Exchange for
the loans to be effective. The maximum amount we may loan to CFO
Beijing, given CFO Beijing&#146;s currently approved registered capital and
total investment amounts, is $18.0&nbsp;million;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>aggregate loans by us to Fortune Software, a foreign invested
enterprise, to finance its activities, cannot in the aggregate exceed
the difference between Fortune Software&#146;s currently approved total
investment amount and its currently approved registered capital
amount, and must be registered with the State Administration of
Foreign Exchange for the loans to be effective. The maximum amount we
may loan to Fortune Software, given Fortune Software&#146;s currently
approved registered capital and total investment amounts, is $18.0
million; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>loans by us to Fuhua, which is a domestic PRC enterprise, must be
approved by the relevant government authority and must also be
registered with the State Administration of Foreign Exchange, although
in practice we could make loans to CFO Beijing or Fortune Software,
and CFO Beijing or Fortune Software could in separate transactions
make loans to Fuhua through financial or Fortune Software,
intermediaries, without approval from any PRC governmental agencies.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may also determine to finance CFO Beijing or Fortune Software by means of additional capital
contributions. These additional capital contributions must be approved by the PRC Ministry of
Commerce. Because Fuhua is a domestic PRC enterprise, we are not likely to finance its activities
by means of a capital contribution due to regulatory issues relating to foreign investment in
domestic PRC enterprises, as well as the licensing and other regulatory issues. We cannot assure
you that we can obtain these government registrations or approvals on a timely basis, if at all,
with respect to future loans or capital contributions by us to CFO Beijing, Fortune Software or
Fuhua.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">From time to time, we also evaluate possible investments, acquisitions or divestments and may, if a
suitable opportunity arises, make an investment or acquisition or conduct a divestment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2005, our board of directors approved a stock repurchase program pursuant to which we were
authorized to purchase from time to time up to US$10&nbsp;million worth of our American Depositary
Shares, or ADSs, over a period of six months. In May and June&nbsp;2005, we repurchased a total of
1,659,442 ADSs, representing 8,297,210 ordinary shares, at an average cost of $5.98 per ADS for a
total consideration of approximately US$10.0&nbsp;million, including a brokerage commission of US$0.05
per ADS. In August&nbsp;2005, our board of directors approved another stock repurchase program pursuant
to which we were authorized to purchase from time to time up to US$10&nbsp;million worth of its ADSs,
over a period of six months. In December&nbsp;2005, we repurchased a total of 482,164 American
Depositary Shares, or ADSs, representing 2,410,820 ordinary shares, at an average cost of US$6.60
for a total consideration of approximately US$ 3,2&nbsp;million. The purchases were funded from
available working capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Restricted net assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiary and affiliate
only out of their retained earnings, if any, as determined in accordance with PRC accounting
standards and regulations. In addition, the statutory general reserve fund, which requires annual
appropriations of 10% of net after-tax income should be set aside prior to payment of any
dividends. As a result of these and other restrictions under PRC laws and regulations, our PRC
subsidiary and affiliate are restricted in their ability to transfer a portion of their net assets
to us either in the form of dividends, loans or advances, restricted portion amounted to
approximately $40.7&nbsp;million, or 66.9%, of our total consolidated net assets as of December&nbsp;31,
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Even though we currently do not require any such dividends, loans or advances from our PRC
subsidiary and affiliate, we may in the future require additional cash resources from our PRC
subsidiary and affiliate due to changes in business conditions, to fund future acquisitions or
developments, or merely to declare and pay dividends or distributions to our shareholders, although
we currently have no intention to do so.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>C.&nbsp;</B><U><B>Research and development.</B></U>
</DIV>

<P align="center" style="font-size: 10pt">54
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our research and development efforts consist of continuing to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increase the breadth of our service offerings through the addition of new features and functions to our
service packages;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>enhance our subscribers&#146; experience by improving the quality of our research tools and website; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>develop additional research tools, features and content specifically targeting the high-end subscribers.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For example, In August, 2005, we launched a new subscription service offering, Tao of Wealth, which
include new personal finance tools such as book keeping, financial report and payment alert with
comprehensive real time personal wealth management product information and news. The new service
offering is targeted at middle class individuals and financial professionals such as financial
advisors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. </B><U><B>Trend information.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the period from January&nbsp;1, 2003 to December&nbsp;31,
2005 that are reasonably likely to have a material effect on our net revenues, income,
profitability, liquidity or capital resources, or that caused the disclosed financial information
to be not necessarily indicative of future operating results or financial conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. </B><U><B>Off-balance sheet arrangements.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We do not have any outstanding derivative financial instruments, off-balance sheet guarantees,
interest rate swap transactions or foreign currency forward contracts. We do not engage in trading
activities involving non-exchange traded contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>F. </B><U><B>Tabular disclosure of contractual obligations.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into leasing arrangements relating to office premises, equipment and others that
are classified as operating leases. The following sets forth our known contractual obligations as
of December&nbsp;31, 2005 and as of the types that are specified below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Equipment</B></TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right" style="border-bottom: 1px solid #000000"><B>Office Premises</B></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>and Others</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><I>(in U.S. dollars)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Less than 1&nbsp;year
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">115,569</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;
</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">115,569</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">1 &#151; 3&nbsp;years
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;
</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3 &#151; 5&nbsp;years
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;
</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">More than 5&nbsp;years
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#151;
</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into certain leasing arrangements relating to our offices premises. Our rental
expenses under these leases were $243,000 in 2005. Apart from such rental expenses, as of December
31, 2005, we did not have any long-term debt obligations, capital (finance)&nbsp;lease obligations,
operating lease obligations, purchase obligations or any other long-term liabilities reflected on
our balance sheets with durations to maturity as are set forth in the chart directly above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of December&nbsp;31, 2005, we did not have any indebtedness and we did not have any material debt
securities, material contingent liabilities, or material mortgages or liens. We intend to meet our
future funding needs through net cash provided from operating activities and the proceeds of our
initial public offering in 2004. Therefore we intend to keep our cash and cash equivalents in
short-term bank deposits and short-term bonds to maintain safety and liquidity of our cash.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>G. </B><U><B>Quantitative and qualitative disclosures about market risk.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Interest rate risk</B>

</DIV>

<P align="center" style="font-size: 10pt">55
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our exposure to market rate risk for changes in interest rates relates primarily to the interest
income generated by excess cash invested in short term money market accounts and certificates of
deposit. We have not used derivative financial instruments in our investment portfolio. Interest
earning instruments carry a degree of interest rate risk. We have not been exposed nor do we
anticipate being exposed to material risks due to changes in interest rates. However, our future
interest income may fall short of expectations due to changes in interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Foreign currency risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Substantially all our revenues and expenses are denominated in Renminbi and a substantial portion
of our cash is kept in Renminbi, but as noted above, a portion of our cash is also kept in U.S.
dollars. Although we believe that, in general, our exposure to foreign exchange risks should be
limited, the value of our American Depositary Shares, or ADSs, will be affected by the foreign
exchange rate between U.S. dollars and Renminbi. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operational needs and the Renminbi appreciates against the U.S.
dollar at that time, our financial position and the price of our ADSs may be adversely affected.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring
dividends on our ADSs or otherwise and the U.S. dollar appreciates against the Renminbi, the U.S.
dollar equivalent of our earnings from our subsidiaries and controlled entities in China would be
reduced.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have recorded foreign exchange gains of $366,000 in net income in year 2005, due to the recent
revaluation of RMB against the U.S. dollar by Chinese government. The PRC government may further
readjust the current rate at which Renminbi-U.S. dollar exchanges are fixed, as well as re-evaluate
its decades-old policy of using a fixed-rate regime to govern foreign currency transactions,
although the PRC government has not committed itself to take any such action currently. Since we
have not engaged in any hedging activities, we may experience economic loss as a result of any
foreign currency exchange rate fluctuations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>H. </B><U><B>Recent accounting pronouncements.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2004, the FASB issued SFAS No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;SFAS No.
123(R)&#148;).This statement is a revision to SFAS No.&nbsp;123 and supersedes APB Opinion No.&nbsp;25. This
statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, primarily focusing on the accounting for transactions
in which an entity obtains employee services in share-based payment transactions. Entities are
required to measure the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award (with limited
exceptions).That cost will be recognized over the period during which an employee is required to
provide service, the requisite service period (usually the vesting period), In exchange for the
award. The grant-date fair value of employee share options and similar instruments are to be
estimated using option pricing models. If an equity award is modified after the grant date,
incremental compensation cost will be recognized in an amount equal to the excess of the fair value
of the modified award over the fair value of the original award immediately before the
modification. This statement is effective as of the beginning of the first interim or annual
reporting period that begins after June&nbsp;15, 2005. In accordance with the standard, the Company is
required to adopt SFAS No.123(R) effective January&nbsp;1, 2006. Upon adoption, the Company has two
application methods to choose from: the modified prospective transition approach or the
modified-retrospective transition approach.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the modified-prospective transition method the Company would be required to recognize
compensation cost for share-based awards to employees based on their grant-date fair value from the
beginning of the fiscal period in which the recognition provisions are first applied as well as
compensation cost for awards that were granted prior to, but not vested as of the date of adoption.
Prior periods remain unchanged and pro forma disclosures previously required by SFAS No.&nbsp;123
continue to be required. Under the modified-retrospective transition method, the Company would
restate prior periods by recognizing compensation cost in the amounts previously reported in the
pro forma footnote disclosure under SFAS No.&nbsp;123. Under this method, the Company is permitted to
apply this presentation to all periods presented or to the start of the fiscal year in which SFAS
No.&nbsp;123(R) is adopted. The Company would follow the same guidelines as in the modified prospective
transition method for awards granted subsequent to adoption and those that were granted and not yet
vested. The Company believes that the impact that the adoption of SFAS No.&nbsp;123(R) will have on its
financial position or results of operations will approximate the magnitude of the stock-based
employee compensation cost disclosed in Note 2 pursuant to the disclosure requirements of SFAS No.
148.
</DIV>

<P align="center" style="font-size: 10pt">56
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In May&nbsp;2005, FASB issued SFAS No.&nbsp;154, &#147;Accounting Changes and Error Corrections&#148; (SFAS 154) which
replaces APB Opinion No.&nbsp;20 &#147;Accounting Changes&#148; and SFAS No.&nbsp;3, &#147;Reporting Accounting Changes in
Interim Financial Statements &#151; An Amendment of APB Opinion No.&nbsp;28&#148;. SFAS 154 provides guidance on
the accounting for and reporting of accounting changes and error corrections. It requires
retrospective application to prior periods&#146; financial statements of changes in accounting principle
and corrections of errors, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December&nbsp;15, 2005, and must be adopted
by the Company in the first quarter of fiscal year 2006. The Company considers that the adoption of
SFAS 154 will not have material impact on its consolidated results of operations and financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2006, FASB issued SFAS No.&nbsp;155, &#147;Accounting for Certain Hybrid Financial Instruments&#148;
which amends FASB Statements No.&nbsp;133 &#147;Accounting for Derivative Instruments and Hedging
Activities&#148;, and No.&nbsp;140 &#147;Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities&#148;. This statement permits fair value re-measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would require bifurcation.
This statement is effective for all financial instruments acquired or issued after the beginning of
an entity&#146;s first fiscal year that begins after September&nbsp;15, 2006. The Company is currently
evaluating the effect that the adoption of SFAS 155 will have on its consolidated results of
operations and financial condition but does not expect it to have a material impact.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><U><B>Directors and senior management.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth the name, age and position of each director and executive officer of
our company as of March&nbsp;31,2006.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Position</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zhiwei Zhao
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">43</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and a
member of the Board of Directors</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hugo Shong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board of Directors</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kheng Nam Lee(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">58</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ling Wang(1)(2)(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">43</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fansheng Guo(1)(2)(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sam Qian
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">42</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Financial Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Member, audit committee</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Member, compensation committee</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Member, nominations committee</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The address of each of our executive officers and directors is Room&nbsp;610B, 6/F, Ping&#146;an
Mansion, No.&nbsp;23 Financial Street, Xicheng District, Beijing, People&#146;s Republic of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Jun Ning, our former Chairman and Chief Executive Officer, resigned from these positions, effective
July&nbsp;25, 2005, for health reasons. Zhiwei Zhao was appointed as our new Chief Executive Officer and
as a member of the Board of Directors and Mr.&nbsp;Hugo Shong was appointed as the new Chairman of our
Board of Directors. Zhiwei Zhao will at all times be a director, and will not retire as a director,
so long as he remains as the Chief Executive Officer. Kheng Nam Lee and Fansheng Guo will stand
for re-election as directors in the upcoming annual general meeting of shareholders in July&nbsp;2006.
Ling Wang and Hugo Shong will hold office until the next annual general meeting of shareholders and
until such director&#146;s successor is elected and duly qualified, or until such director&#146;s earlier
death, bankruptcy, insanity, resignation or removal. There are no family relationships among any of
the directors or executive officers of our company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Bo Wu, our former Vice President and Chief Operating Officer, resigned from these positions,
effective as of August&nbsp;9, 2005 for family reasons. We have not appointed a new Chief Operating
Officer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sam Qian, our President &#038; Chief Financial Officer, has indicated his intention to resign from his
positions in the company to spend more time with his family. To ensure a smooth transition, Mr.
Qian has committed to remaining in his current position until a suitable successor is appointed. We
are searching for his successor.
</DIV>

<P align="center" style="font-size: 10pt">57
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Biographical Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Hugo Shong </I></B>has served as our director since May&nbsp;2004. He was elected as the Chairman of our Board
of Directors as of July&nbsp;25, 2005 and has been in that position since then. Mr.&nbsp;Shong has been a
senior vice president of International Data Group, Inc., or IDG, since 2001, the president of IDG
Asia since 1995, a director of IDG Technology Venture Investment, Inc., or IDGVC, since 1994, and a
member of IDG Technology Venture Investments, LLC, the general partner of IDG Technology Venture
Investments, LP, since 2000. Mr.&nbsp;Shong has headed a number of operations for IDG including in
information technology, publishing, market research and tradeshows in the Asia Pacific region. Mr.
Shong graduated from Hunan University with a Bachelor of Arts degree in English, followed by a
Master of Science degree from the Boston University College of Communications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Zhiwei Zhao </I></B>has served as our Chief Executive Officer since June&nbsp;21, 2005 and our director since
July&nbsp;25, 2005. Mr.&nbsp;Zhao was the Chairman of the Board of Directors of Abitcool Inc before joining
us. Abitcool is a company that provides broadband internet services in China. It boasts the largest
private Internet Data Center in China. From 1998 to 2005, he served as the General Manager of
Huatong International Development Limited in Hong Kong. Mr.&nbsp;Zhao graduated with a Bachelor of
Science degree from Huazhong University of Science and Technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Kheng Nam Lee </I></B>has served as our director since May&nbsp;2004. Mr.&nbsp;Lee was the president of Vertex
Management Pte Ltd, a management company for a venture capital fund, from March&nbsp;1995 to February
2004 and was also a director of Vertex Venture Holdings Ltd., both of which are affiliates of
Vertex Technology Fund (III)&nbsp;Ltd. Mr.&nbsp;Lee is a director of Creative Technology Ltd and United Test
and Assembly Centre Ltd, and has served as a director of ActivCard Corp, Centillium Communications
Inc., Creative Lab Inc., GRIC Communications Inc., Gemplus International SA and Semiconductor
Manufacturing International Corporation. Mr.&nbsp;Lee holds a Bachelor of Science degree in mechanical
engineering, with first class honors, from Queen&#146;s University, Canada and a Master of Science
degree in operations research and systems analysis from the U.S. Naval Postgraduate School.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Ling Wang </I></B>has served as our director since May&nbsp;2004. Mr.&nbsp;Wang is the chairman and chief executive
officer of GCTech Company Limited, a company that provides systems integration and software
development services to the telecommunications industry, which he founded in 1994. Since 2003, he
has been a director of Tiantian Online Co., Ltd., a provider of broadband Internet audio-visual
programs (or Internet TV) in the PRC. Mr.&nbsp;Wang graduated with a Bachelor of Science degree in
Mathematics from the University of Science and Technology of China, and also has a Master of
Science degree in automation control from the Beijing Institute of Information Control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Fansheng Guo </I></B>has served as our director since May&nbsp;2004. Mr.&nbsp;Guo is the chairman, chief executive
officer and president of HC International, Inc., a Hong Kong listed company that provides business
information services in the PRC, which he founded in 1990. Mr.&nbsp;Guo obtained a Bachelor of Arts
degree in Industrial Economics from Renmin University of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Sam Qian </I></B>has served as our President since February&nbsp;2005 and has served as our Chief Financial
Officer since April&nbsp;2004. Mr.&nbsp;Qian was a vice president of Sohu.com Inc., a Chinese Internet
portal, from March&nbsp;2000 to March&nbsp;2004. From July&nbsp;1996 to February&nbsp;2000, Mr.&nbsp;Qian was an associate
director in the risk finance group of Barclays Capital, a financial services corporation. Mr.&nbsp;Qian
graduated with a Bachelor of Arts degree in Physics from the University of Science and Technology
of China, and holds a Ph. D. degree in Astrophysics from Columbia University. He was a Bakhmeteff
fellow in fluid dynamics at Columbia University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><U><B>Compensation of directors and executive officers.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2005, we granted our non-executive directors, in the aggregate, options representing the right
to purchase 260,000 ordinary shares. Other than the foregoing option grants, we did not pay any
other compensation to our non-executive directors in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2005, we paid aggregate cash compensation of approximately $115,487 to our directors and
executive officers as a group. In 2005, we granted to selected directors, officers, employees and
individual consultants and advisors options to acquire an aggregate of 5,003,000 ordinary shares.
Unvested options to purchase 402,000 ordinary shares were returned to the pool of our ungranted
options upon resignation of the employees holding such options
in 2005. We have no service contracts with any of our directors or executive officers that provide
benefits to them upon termination, except for change in control agreements we entered into with
each of our chief executive officer and chief financial officer. The change in control agreements
provide that if after a change-of-control of our
</DIV>

<P align="center" style="font-size: 10pt">58
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">company has occurred, the executive is terminated without cause or resigns for good reason, we are obligated to provide severance benefits to that
executive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of our current directors have entered into indemnification agreements in which we agree to
indemnify, to the fullest extent allowed by Hong Kong law, our charter documents or other
applicable law, our directors from any liability or expenses, unless the liability or expense
arises from the director&#146;s own willful negligence, intentional malfeasance, bad faith act, or other
transactions from which the director may not be relieved of liability under applicable law. The
indemnification agreements also specify the procedures to be followed with respect to
indemnification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Directors&#146; and officers&#146; liability insurance</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have renewed directors&#146; and officers&#146; liability insurance on behalf of our directors and
officers that will expire in January&nbsp;2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employee&#146;s stock option plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We adopted the 2004 Stock Incentive Plan, or the Plan, in January&nbsp;2004. The Plan is intended to
promote our success and to increase shareholder value by providing an additional means to attract,
motivate, retain and reward selected directors, officers, employees and other eligible persons. An
aggregate of 5,688,488 ordinary shares were reserved for issuance under the Plan in January&nbsp;2004.
We amended the Plan in September&nbsp;2004 to increase the total number of ordinary shares issuable
under the Plan to 10,688,488 or 10.5% of our issued share capital at that time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have
issued options under the Plan to purchase a total of 10,691,488 ordinary shares to selected
directors, officers, employees and individual consultants and advisors. The exercise price for the
5,368,488 stock options granted in January&nbsp;2004 under the Plan is $0.16 per share, the exercise
price for the 320,000 options granted in June&nbsp;2004 is $1.04 per share, the exercise price for the
4,353,000 options granted in February&nbsp;2005 is $1.31 per share, the exercise price for the 50,000
options granted in June&nbsp;2005 is $1.32 and the exercise price for the 400,000 and 200,000 options
granted in November&nbsp;2005 are $1.12 and $1.16, respectively. Unvested options to purchase 972,600
ordinary shares were returned to the pool of our ungranted options upon resignation of the
employees holding such options as of March&nbsp;31, 2006. With the exception of the options granted to
our directors and our management, which vest over a period of one to four years, our options
granted to employees generally vest over a period of three to five years. Together with options we
granted under option agreements that were independent of the Plan, we have a total number of
11,535,680 options that are currently vested and exercisable for ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Options granted under the Plan generally do not vest unless the grantee remains under our
employment or in service with us on the given vesting date. However, in circumstances where there
is a death or disability of the grantee, or a change in the control of our company, the vesting of
options will be accelerated to permit immediate exercise of all options granted to a grantee.
Generally, to the extent an outstanding option granted under the Plan has not vested by the date
the grantee&#146;s employment or service with us terminates, the option will terminate and become
unexercisable. Our board of directors may amend, alter, suspend, or terminate the Plan at any time,
provided, however, that our board of directors must first seek the approval of our shareholders
and, if such amendment, alteration, suspension or termination would adversely affect the rights of
an optionee under any option granted prior to that date, the approval of such optionee. Without
further action by our board of directors, the Plan will terminate in January&nbsp;2014.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The table below sets forth the option grants made to our directors and executive officers pursuant
to the Plan:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>ordinary Shares to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>be issued upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3"><B>Exercise price per</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exercise of options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3" style="border-bottom: 1px solid #000000"><B>ordinary share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Date of grant</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Date of expiration</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zhiwei Zhao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.12</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November 15, 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November 15, 2015</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hugo Shong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">0.16</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 5, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.04</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 15, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.314</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2015</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Kheng Nam Lee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">0.16</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 5, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">59
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>ordinary Shares to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>be issued upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3"><B>Exercise price per</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exercise of options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3" style="border-bottom: 1px solid #000000"><B>ordinary share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Date of grant</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Date of expiration</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.04</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 15, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.314</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2015</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fansheng Guo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">0.16</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 5, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.04</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 15, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.314</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2015</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ling Wang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">0.16</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 5, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.04</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 15, 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March 5, 2009</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.314</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2015</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sam Qian</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">189,200</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">1.314</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 18, 2015</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Upon exercise of all options granted, would beneficially own less
than 1% of our outstanding ordinary shares.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><U><B>Board practices</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2005, our directors met in person or passed resolutions by unanimous written consent eight
times. No director attended fewer than 75% of all the meetings of our board and its committees on
which he served after becoming a member of our board. No director is entitled to any severance
benefits upon termination of his directorship with us. Our board of directors has also concluded
that Mr.&nbsp;Kheng Nam Lee meets the criteria for an &#147;audit committee financial expert&#148; as established
by the U.S. Securities and Exchange Commission (SEC).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Board committees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our board of directors has established an audit committee, a compensation committee and a
nominations committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Audit committee. </I>Our audit committee currently consists of Kheng Nam Lee, Ling Wang and Fansheng
Guo. Our board of directors has determined that all of our audit committee members are &#147;independent
directors&#148; within the meaning of Nasdaq Marketplace Rule&nbsp;4200(a)(15) and meet the criteria for
independence set forth in Section&nbsp;10A(m)(3) of the U.S. Securities Exchange Act of 1934, or the
Exchange Act. Our audit committee is responsible for, among other things:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>recommending to our shareholders, if appropriate, the annual re-appointment of our independent
auditors and pre-approving all auditing and non-auditing services permitted to be performed by the
independent auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>annually reviewing an independent auditors&#146; report describing the auditing firm&#146;s internal
quality-control procedures, any material issues raised by the most recent internal quality control
review, or peer review, of the independent auditors and all relationships between the independent
auditors and our company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>setting clear hiring policies for employees or former employees of the independent auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing with the independent auditors any audit problems or difficulties and management&#146;s response;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and approving all proposed related-party transactions, as defined in Item&nbsp;404 of
Regulation&nbsp;S-K under the U.S. securities laws;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing the annual audited financial statements with management and the independent auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing with management and the independent auditors major issues regarding accounting principles
and financial statement presentations; reviewing reports prepared by management or the independent
auditors relating to significant financial reporting issues and judgments;
</TD>
</TR>


<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing reports prepared by management or the independent auditors relating to significant
financial reporting issues and judgments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing earnings press releases, as well as financial information and earnings guidance provided
to analysts and rating agencies;</TD>
</TR>




</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">60
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing with management and the independent auditors the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures on our financial statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing policies with respect to risk assessment and risk management;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing major issues as to the adequacy of our internal controls and any special audit steps
adopted in light of material control deficiencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>timely reviewing reports from the independent auditors regarding all critical accounting policies
and practices to be used by our company, all alternative treatments of financial information within
U.S. GAAP that have been discussed with management and all other material written communications
between the independent auditors and management;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establishing procedures for the receipt, retention and treatment of complaints received from our
employees regarding accounting, internal accounting controls or auditing matters and the
confidential, anonymous submission by our employees of concerns regarding questionable accounting or
auditing matters;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>annually reviewing and reassessing the adequacy of our audit committee charter;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such other matters that are specifically delegated to our audit committee by our board of directors
from time to time;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>meeting separately, periodically, with management, the internal auditors and the independent
auditors; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reporting regularly to the full board of directors.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Compensation committee. </I>Our current compensation committee consists of Ling Wang and Fansheng Guo.
Our board of directors has determined that all of our compensation committee members are
&#147;independent directors&#148; within the meaning of Nasdaq Marketplace Rule&nbsp;4200(a)(15). Our compensation
committee is responsible for:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>determining and recommending the compensation of our Chief Executive Officer;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and making recommendations to our board of directors regarding our
compensation policies and forms of compensation provided to our directors and
officers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and determining bonuses for our officers and other employees;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and determining stock-based compensation for our directors, officers,
employees and consultants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>administering our equity incentive plans in accordance with the terms thereof; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such other matters that are specifically delegated to the compensation committee
by our board of directors from time to time.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Nominations committee. </I>Our current nominations committee consists of Ling Wang and Fansheng Guo.
Our board of directors has determined that all of our nominations committee members are
&#147;independent directors&#148; within the meaning of Nasdaq Marketplace Rule&nbsp;4200(a)(15). Our nominations
committee is responsible for, among other things, selecting and recommending the appointment of new
directors to our board of directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Corporate governance</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our board of directors has adopted a code of ethics, which is applicable to our senior executive
and financial officers. In addition, our board of directors has adopted a code of conduct, which is
applicable to all of our directors, officers and employees. Our code of ethics and our code of
conduct are publicly available on our website.
</DIV>

<P align="center" style="font-size: 10pt">61
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, our board of directors has adopted a set of corporate governance guidelines. The
guidelines reflect certain guiding principles with respect to our board&#146;s structure, procedures and
committees. The guidelines are not intended to change or interpret any law, or our memorandum and
articles of association.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Duties of directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under Hong Kong law, our directors have a duty of loyalty to act honestly in good faith with a view
to our best interests. Our directors also have a duty to exercise the care, diligence and skills
that a reasonable person with that director&#146;s qualifications and experience would exercise in
comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The functions and powers of our board of directors include, among others:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>convening shareholders&#146; meetings and reporting its work to shareholders at such meetings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>implementing shareholders&#146; resolutions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>determining our business plans and investment proposals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>formulating our profit distribution plans and loss recovery plans;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>determining our debt and finance policies and recommending proposals for the increase or
decrease in our share capital and the issuance of debentures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>formulating our major acquisition and disposition plans, and plans for consolidation,
division or dissolution;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>proposing amendments to our articles of association; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>exercising any other powers conferred at shareholders&#146; meetings or under our memorandum
and articles of association.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Terms of directors and executive officers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a staggered board, which means our directors, excluding our Chief Executive Officer, are
divided into two classes, with half of our board, excluding our Chief Executive Officer, standing
for election every two years. Our Chief Executive Officer will at all times be a director, and will
not retire as a director, so long as he remains as the Chief Executive Officer. Accordingly, our
directors, excluding our Chief Executive Officer, hold office until the second annual meeting of
shareholders following their election, or until their successors have been duly elected and
qualified. Our board has adopted a policy providing that no director may be nominated for
re-election or re-appointment to our board after reaching 70&nbsp;years of age, unless our board
concludes that such person&#146;s continued service as our director is in our best interest. Officers
are elected by and serve at the discretion of the board of directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. </B><U><B>Employees</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2006 we had 106 full-time employees. We currently anticipate hiring an additional
20 employees in 2006, most of whom will be located in Beijing. Of our current employees, 2 are
executive officers, 12 are administrative, 43 form our sales, marketing and customer support staff,
25 form our editorial department, and 24 are dedicated to our technology department.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None of our employees are represented by a labor union. We believe we maintain a good working
relationship with our employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. </B><U><B>Share ownership.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2006, 104,329,933 of our ordinary shares were outstanding, excluding shares
issuable upon exercise of outstanding options. On that date, a total of 12,078,734 of our ADSs were
outstanding.
</DIV>

<P align="center" style="font-size: 10pt">62
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth information with respect to the beneficial ownership, within the
meaning of Section&nbsp;13(d)(3) of the U.S. Securities Exchange Act of 1934, as amended, or the
Exchange Act, of our ordinary shares by:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each person known to us to own beneficially more than 5% of our ordinary shares; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each of our directors and executive officers who beneficially own any of our ordinary shares.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Beneficial ownership includes voting or investment power with respect to the securities. Except as
indicated below, and subject to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all ordinary shares shown as beneficially
owned by them. Percentage of beneficial ownership is based on 104,329,933 ordinary shares
outstanding.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Number of Shares Beneficially Owned
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Percent</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>5% Shareholder</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">IDG Technology Venture Investment, Inc.(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">20,580,652</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">19.7</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">IDG Technology Venture Investments, LP(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6,723,115</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.4</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Vertex Technology Fund (III)&nbsp;Ltd.(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">14,481,319</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">13.9</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jianping Lu (4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,156,121</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.9</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ling Zhang (5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,746,370</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.4</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Directors and executive officers</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hugo Shong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kheng Nam Lee
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ling Wang
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fansheng Guo
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zhiwei Zhao
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sam Qian
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">730,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0.7</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">All current directors and executive officers as a group (6 persons)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,433,600</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.3</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Upon exercise of all options currently exercisable or vesting
within 60&nbsp;days of the date of this annual report, would
beneficially own less than 1% of our ordinary shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 20,580,652 ordinary shares held by IDG Technology Venture
Investment, Inc. IDG Technology Venture Investment, Inc. is the
limited partner of IDG Technology Venture Investments, LP and does
not control IDG Technology Venture Investments, LP. IDG Technology
Venture Investment, Inc., a Massachusetts corporation, is wholly
owned by International Data Group Inc., a Massachusetts
corporation, which is controlled by Patrick McGovern, the majority
shareholder, founder and chairman of International Data Group Inc.
IDG Technology Venture Investment, Inc. disclaims beneficial
ownership of all of the ordinary shares owned by IDG Technology
Venture Investments, LP. The registered address of IDG Technology
Venture Investment, Inc. is 5 Speen Street, Framingham, MA 01701,
U.S.A.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 6,723,115 ordinary shares held by IDG Technology Venture
Investments, LP. The general partner of IDG Technology Venture
Investments, LP is IDG Technology Venture Investments, LLC. Messrs.
Patrick McGovern and Quan Zhou are managing members of IDG
Technology Venture Investments, LLC, both of whom disclaim
beneficial ownership of our shares held by IDG Technology Venture
Investments, LLC. IDG Technology Venture Investment, Inc. is a
limited partner of IDG Technology Venture Investments, LP, and does
not control IDG Technology Venture Investments, LP. IDG Technology
Venture Investments, LP disclaims beneficial ownership of all of
the ordinary shares owned by IDG Technology Venture Investment,
Inc. The registered address of IDG Technology Venture Investments,
LP is Corporation Service Company, 1013 Centre Road, Wilmington,
County of New Castle, Delaware 19805-1297, U.S.A.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 14,481,319 ordinary shares held by Vertex Technology Fund
(III)&nbsp;Ltd. Vertex Technology Fund (III)&nbsp;Ltd is 100% owned by Vertex
Venture Holdings Ltd. Vertex Venture Holdings Ltd is 100% owned by
Ellensburg Holding Pte Ltd; and Ellensburg Holding Pte Ltd is 100%
owned by Singapore Technologies Pte Ltd. Vertex Management (II)&nbsp;Pte
Ltd is the fund manager of Vertex Technology Fund (III)&nbsp;Ltd, and as
such, exercises voting and dispositive power over our shares held
by Vertex Technology Fund (III)&nbsp;Ltd. The</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">63
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>president of Vertex
Management (II)&nbsp;Pte Ltd is Mui Hong Tan. Ms.&nbsp;Tan disclaims
beneficial ownership of our shares held by Vertex Technology Fund
(III)&nbsp;Ltd. The address of Vertex Technology Fund (III)&nbsp;Ltd. is 51
Cuppage Road, #10-08 Starhub Centre, Singapore 229469.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes (i)&nbsp;4,028,156 ordinary shares held by Cast Technology,
Inc.; and (ii)&nbsp;3,127,965 ordinary shares held by Fanasia Capital
Limited. Both Cast Technology, Inc. and Fanasia Capital Limited are
held 45% and 55% by Jianping Lu and Ling Zhang, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes (i)&nbsp;4,923,302 ordinary shares held by Cast Technology,
Inc.; and (ii)&nbsp;3,823,068 ordinary shares held by Fanasia Capital
Limited. Both Cast Technology, Inc. and Fanasia Capital Limited are
held 45% and 55% by Jianping Lu and Ling Zhang, respectively.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None of our existing shareholders has voting rights that differ from the voting rights of other
shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change in control of our company. Other than shares held by IDG Technology Venture Investment, Inc.
and IDG Technology Venture Investments, LP, each of which is a United States corporation or limited
partnership, in each case as set forth in the table above, and shares held by our President and
Chief Financial Officer Sam Qian, who is a U.S. citizen, none of our outstanding ordinary shares or
preference shares is held in the United States, nor do we have any record holders of our voting
securities in the United States.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><U><B>Major shareholders.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Please refer to Item&nbsp;6. &#147;Directors, Senior Management and Employees &#151; Share Ownership&#148;
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>B. </B><U><B>Related party transactions</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CFO Beijing/Fuhua arrangements</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to comply with PRC regulations, we operate our online business in China through Fuhua, a
company wholly owned by Wu Chen, a financial manager at International Data Group China, Ltd., a PRC
company affiliated with IDG Technology Venture Investment Inc., and IDG Technology Venture
Investments, LP, two of our principal shareholders, and Jun Ning, our former chairman and Chief
Executive Officer, who are both PRC citizens. Jun Ning is expected to transfer his holdings in
Fuhua to Zhiwei Zhao, a PRC citizen and our current Chief Executive Officer and a member of our
board of directors, later this year. We have entered into a series of contractual arrangements with
Fuhua and its shareholders, including contracts relating to the leasing of equipment, the licensing
of our domain name, the provision of services and certain shareholder rights and corporate
governance matters. Upon his receipt of Jun Ning&#146;s holdings in Fuhua later this year, Zhiwei Zhao
is expected to replace Jun Ning as a party to each of the contractual arrangements we have entered
into with Jun Ning with respect to his holdings in Fuhua and the operation of Fuhua.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Each of our contractual arrangements with Fuhua and its shareholders may only be amended with the
approval of our audit committee or another independent body of our board of directors. The
following is a summary of the material provisions of these agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Leasing of equipment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Equipment Leasing Agreement, dated May&nbsp;27, 2004, between CFO Beijing and Fuhua.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">CFO Beijing leases to Fuhua equipment necessary for Fuhua&#146;s operation and requested by Fuhua from
time to time for a monthly lease payment calculated based on the actual value of the leased
equipment. Without CFO Beijing&#146;s written consent, Fuhua may not lease any equipment from any other
parties. The term of the lease is ten years, which will be automatically renewed for another one
year term upon the expiration of each term unless CFO Beijing notifies Fuhua of its intention not
to renew 30&nbsp;days before the relevant term expires.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Provision of services</I>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Technical Support Agreement, dated May&nbsp;27, 2004, between CFO Beijing and Fuhua.</I>
</DIV>



<P align="center" style="font-size: 10pt">64
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">CFO Beijing provides Fuhua with exclusive technical support services for the maintenance of Fuhua&#146;s
servers, networks and other equipment, software and systems. Fuhua pays a quarterly service fee to
CFO Beijing which is based on the actual labor cost of CFO Beijing during the relevant period. In
addition, Fuhua reimburses CFO Beijing for out of pocket costs CFO Beijing incurs in connection
with providing the services under this agreement. The term of this agreement is ten years, which
will be automatically renewed for another one year term upon the expiration of each term unless CFO
Beijing notifies Fuhua of its intention not to renew 30&nbsp;days before the relevant term expires.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Amended and Restated Strategic Consulting Service Agreement, dated May&nbsp;27, 2004, between CFO
Beijing and Fuhua.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">CFO Beijing provides Fuhua with strategic consulting and related services for Fuhua&#146;s business,
including (1)&nbsp;valuation of new products; (2)&nbsp;industry investigation and survey; (3)&nbsp;marketing and
promotion strategies; and (4)&nbsp;other services relating to Fuhua&#146;s business, including its online
advertising business. The fee for these services will be calculated quarterly based on the actual
time of services provided by CFO Beijing. The term of this agreement is 20&nbsp;years, which will be
automatically renewed for another one year term upon the expiration of each term unless CFO Beijing
notifies Fuhua of its intention not to renew 30&nbsp;days before the relevant term expires.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Domain Name Licensing Agreement, dated May&nbsp;27, 2004, between CFO Beijing and Fuhua.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">CFO Beijing has granted to Fuhua a non-exclusive license to use its domain name <I>www.jrj.com.cn</I>.
Without CFO Beijing&#146;s consent, Fuhua cannot transfer, pledge or sublicense its interest in the
domain name. CFO Beijing reserves the right to either use the domain name by itself or license the
domain name to other parties. Fuhua will not pay a separate licensing fee to CFO Beijing for such
license but will bear CFO Beijing&#146;s costs relating to registration and maintenance of the domain
name. The term of the license equals the term of the Amended and Restated Strategic Consulting
Service Agreement between CFO Beijing and Fuhua. Before the terms expires, CFO Beijing may
unilaterally terminate the license by delivering a written notice to Fuhua.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Domain Name Licensing Agreement, dated March&nbsp;20, 2005, among CFO Beijing, Fuhua and us.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have granted to Fuhua a non-exclusive license to use our domain name <I>www.jrj.com</I>. Without our
consent, Fuhua cannot sublicense the domain name to any third party. We reserve the right to use
the domain name by ourselves, but are not permitted to transfer or license the domain name. In
consideration of the Amended and Restated Strategic Consulting Service Agreement between CFO
Beijing and Fuhua, Fuhua will not pay a separate licensing fee to us for such license but will bear
our costs relating to registration and maintenance of the domain name. CFO Beijing will act as the
administrator for the domain name licensed to Fuhua. The term of the license equals the term of the
Amended and Restated Strategic Consulting Service Agreement between CFO Beijing and Fuhua.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Loans to Jun Ning and Wu Chen</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We entered into a loan agreement with each of Jun Ning and Wu Chen, the shareholders of Fuhua, on
May&nbsp;27, 2004 to extend each of Jun Ning and Wu Chen a loan with the amount of $163,000 and
$199,000, respectively, for the sole purpose of investing in Fuhua as Fuhua&#146;s registered capital.
Upon his receipt of Jun Ning&#146;s holdings in Fuhua later this year, Zhiwei Zhao is expected to
replace Jun Ning as a party to the loan agreement we entered into with Jun Ning. The initial term
of these loans in each case is 10&nbsp;years which may be extended upon the parties&#146; agreement. Jun Ning
and Wu Chen can only repay the loans by transferring all of their interest in Fuhua to us or a
third party designated by us. When Jun Ning and Wu Chen transfer their interest in Fuhua to us or
our designee, if the actual transfer price is higher than the principal amount of the loans, the
amount exceeding the principal amount of the loans will be deemed as interest accrued on such loans and repaid by Jun Ning and Wu
Chen to us. While Hong Kong law limits the maximum interest payment chargeable under a loan to 60%
of the outstanding principal amount per annum, this limitation would only be relevant if, at the
time of a future transfer to us of the interests in Fuhua held by Jun Ning and Wu Chen, the actual
value of Fuhua were to have increased at an average annual rate greater than 60%. Fuhua&#146;s assets
currently consist primarily of registered capital and licenses to provide Internet content and
advertising related services, and its operations are primarily limited to operating our free
website and providing advertising related services on behalf of CFO Beijing. In addition, we do not
expect Fuhua to continue to provide advertising related services once CFO Beijing is permitted
under PRC law to engage in these advertising related services directly, which may be as soon as
2006 according to recent PRC government
</DIV>

<P align="center" style="font-size: 10pt">65
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">announcements related to China&#146;s World Trade Organization
compliance schedule. Accordingly, we do not believe this limitation will have a material effect on
our business and operations, or will result in a material amount being paid to the shareholders of
Fuhua if and when they are permitted to transfer their interests in Fuhua to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In May&nbsp;2004, we repaid $60,000 to Jun Ning and Wu Chen for funds advanced by Jun Ning and Wu Chen,
on our behalf, to capitalize Fuhua when Fuhua was initially incorporated in December&nbsp;2000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Loans to CFO Beijing and Fortune Software</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2005, we have made additional capital contributions of $9&nbsp;million and $11.5&nbsp;million to CFO
Beijing and Fortune Software, respectively. In April&nbsp;2005, we further made shareholder loans of
$16.8&nbsp;million and $18.0&nbsp;million to CFO Beijing and Fortune Software, respectively. We made these
additional capital contributions and shareholder loans solely for purposes of capitalizing CFO
Beijing and Fortune Software. Funding for these additional capital contributions and shareholder
loans came from net proceeds of our initial public offering in October&nbsp;2004. We intend to use these
additional capital to fund the operations of CFO Beijing and Fortune Software.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Shareholder rights and corporate governance</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Transfer of ownership when permitted by law</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to a purchase option and cooperation agreement, or the purchase option agreement, entered
into among us, CFO Beijing, Jun Ning, Wu Chen and Fuhua on May&nbsp;27, 2004, Jun Ning and Wu Chen
jointly granted us an exclusive option to purchase all of their equity interest in Fuhua, and Fuhua
granted us an exclusive option to purchase all of its assets if and when (1)&nbsp;such purchase is
permitted under applicable PRC law, or (2)&nbsp;to the extent permitted by law, with respect to Jun
Ning&#146;s or Wu Chen&#146;s individual interest, as the case may be, when Jun Ning ceases to be a director
or employee of Fuhua, Wu Chen ceases to be affiliated with IDG Technology Venture Investment, Inc.
or IDG Technology Venture Investments, LP or neither entity continues to be our shareholder, or
either Jun Ning or Wu Chen desires to transfer his equity interest in Fuhua to a third party. We
may purchase such interest or assets ourselves or designate another party to purchase such interest
or assets. Upon his receipt of Jun Ning&#146;s holdings in Fuhua later this year, Zhiwei Zhao is
expected to replace Jun Ning as a party to this purchase option agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The exercise price of the option will equal the total principal amount of the loans lent by us to
Jun Ning and Wu Chen under the loan agreements dated May&nbsp;27, 2004 between us and Jun Ning and Wu
Chen, respectively, or the price required by relevant PRC law or government approval authority if
such required price is higher than the total principal amount of the loans lent by us to Jun Ning
and Wu Chen. We may choose to pay the purchase price payable to Jun Ning and Wu Chen by canceling
our loans to Jun Ning and Wu Chen.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Following any exercise of the option, the parties will enter into a definitive share or asset
purchase agreement and other related transfer documents within 30&nbsp;days after written notice of
exercise is delivered by us. Pursuant to the purchase option agreement, at all times before we or
any party designated by us acquire 100% of Fuhua&#146;s shares or assets, Fuhua may not (1)&nbsp;sell,
transfer, assign, dispose of in any manner or create any encumbrance in any form on any of its
assets unless such sale, transfer, assignment, disposal or encumbrance is related to the daily
operation of Fuhua or has been disclosed to and consented to in writing by us; (2)&nbsp;enter into any
transaction which may have a material effect on Fuhua&#146;s assets, liabilities, operations, equity or
other legal interests unless such transaction relates to the daily operation of Fuhua or has been
disclosed to and consented to in writing by us; or (3)&nbsp;distribute any dividends to its shareholders
in any manner, and Jun Ning and Wu Chen may not cause Fuhua to amend its articles of association to
the extent such amendment may have a material effect on Fuhua&#146;s assets, liabilities, operations,
equity or other legal interests except for <I>pro rata </I>increases of registered capital required by
law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Voting arrangement</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to two proxies executed and delivered by Jun Ning and Wu Chen to Ling Hai Ma and Jian
Feng, respectively, each an employee of CFO Beijing, on May&nbsp;27, 2004, Jun Ning and Wu Chen have
granted Ling Hai Ma and Jian Feng the power to exercise all their voting rights as shareholders of
Fuhua, including the right to appoint directors, the general manager and other senior managers of
Fuhua. The term of the proxies is 20&nbsp;years which will be automatically renewed for another one year
term upon the expiration of each term unless we notify Jun Ning and Wu Chen of our intention not to
renew 30&nbsp;days before the relevant term expires. Under the purchase
</DIV>

<P align="center" style="font-size: 10pt">66
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">option agreement, Jun Ning and Wu Chen have agreed that (1)&nbsp;they will only revoke the proxies granted to Ling Hai Ma and Jian Feng
when either Ling Hai Ma or Jian Feng ceases to be an employee of CFO Beijing or we deliver a
written notice to Jun Ning and Wu Chen requesting such revocation, and (2)&nbsp;they, or either of them,
as the case may be, will execute and deliver another proxy in the same format as the one dated May
27, 2004 to any other individuals as instructed by us. Upon his receipt of Jun Ning&#146;s holdings in
Fuhua later this year, Zhiwei Zhao will execute and deliver a proxy substantially identical to the
proxy executed by Jun Ning with respect to his voting rights as a shareholder of Fuhua.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Share Pledge Agreement</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to a share pledge agreement, dated May&nbsp;27, 2004, Jun Ning and Wu Chen have pledged all of
their equity interest in Fuhua to CFO Beijing to secure the payment obligations of Fuhua under the
equipment leasing agreement, the technical support agreement and the amended and restated strategic
consulting agreement between CFO Beijing and Fuhua. Upon his receipt of Jun Ning&#146;s holdings in
Fuhua later this year, Zhiwei Zhao is expected to replace Jun Ning as a party to the share pledge
agreement. Under this agreement, Jun Ning and Wu Chen have agreed not to transfer, assign, pledge
or in any other manner dispose of their interests in Fuhua or create any other encumbrance on their
interest in Fuhua which may have a material effect on CFO Beijing&#146;s interest without the written
consent of CFO Beijing, except the transfer of their interest in Fuhua to us or the third party
assignee designated by us according to the purchase option agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Financing support</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the purchase option agreement, we have agreed to provide or designate one of our
affiliates to provide financing to Fuhua in a way permitted by relevant laws in case Fuhua needs
such financing. If Fuhua is unable to repay the financing due to its losses, we agree to waive or
cause other relevant parties to waive all recourse against Fuhua with respect to the financing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Indemnifications</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the purchase option agreement, CFO Beijing has agreed to provide necessary support to
and to indemnify Jun Ning and Wu Chen to the extent that they are subject to any legal or economic
liabilities as a result of performing their obligations pursuant to their agreements with us or CFO
Beijing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other related party transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Shareholders Agreement</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our investors under the shareholders agreement are IDG Technology Venture Investment, Inc. and
Vertex Technology Fund (III)&nbsp;Ltd. Investors to the shareholders agreement or their permitted
assignees that hold at least 15% of our registrable securities may require us to effect a
registration statement on Form F-3 (or any successor form or any comparable form for a registration
in a jurisdiction other than the United States) for a public offering of registrable securities so
long as the reasonably anticipated aggregate price to the public (net of selling expenses) would be
at least $1&nbsp;million and we are entitled to use Form F-3 (or a comparable form) for such offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Holders of registrable securities may demand a registration on Form F-3 on unlimited occasions,
although we are not obligated to effect more than two such registration in any twelve month period.
Holders of registrable securities are also entitled to ''piggyback&#146;&#146; registration rights, which may
require us to register all or any part of the registrable securities then held by such holders when
we register any of our ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Registrable securities are ordinary shares not previously sold to the public and issued or issuable
to IDG Technology Venture Investment, Inc. and Vertex Technology Fund (III)&nbsp;Ltd., who are holders
of our preference shares, including (1)&nbsp;ordinary shares issued upon conversion of our preferred shares, (2)&nbsp;ordinary
shares issued or issuable upon exercise of their options or warrants to purchase ordinary shares,
and (3)&nbsp;ordinary shares issued pursuant to stock splits, stock dividends and similar distributions
to holders of our preference shares. Under certain circumstances, such demand registration may also
include ordinary shares other than registrable securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If any of the offerings involves an underwriting, the managing underwriter of any such offering has
certain rights to limit the number of shares included in such registration. However, the number of
registrable securities included in an underwritten public offering subsequent to our initial public
offering pursuant to &#147;piggyback&#148; registration
</DIV>

<P align="center" style="font-size: 10pt">67
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">rights may not be reduced to less than 10% of the
aggregate securities included in such offering without the consent of a majority of the holders of
registrable securities who have requested their shares to be included in the registration and
underwriting. We are generally required to bear all of the registration expenses incurred in
connection with one demand registration on a form other than Form F-3, and unlimited Form F-3 and
piggyback registrations. The foregoing demand, Form F-3 and piggyback registration rights will
terminate, with respect to any holder of registrable securities, on the earliest of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the fifth anniversary of the consummation of our initial public offering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>upon such holder holding less than 1% of our outstanding ordinary shares
after our initial public offering; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>upon such holder becoming eligible to sell all of such holder&#146;s
registrable securities pursuant to Rule&nbsp;144 under the Securities Act
within any three-month period without volume limitations, under Rule
144(k), or under any comparable securities law of a jurisdiction other
than the United States for sale of registrable securities in such
jurisdiction.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><U><B>Interests of experts and counsel.</B></U>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>

<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><U><B>Consolidated statements and other financial information.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have appended consolidated financial statements filed as part of this annual report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Legal Proceedings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;19, 2004, four former employees of CFO Beijing filed claims with the Labor Arbitration
Committee of Xi Cheng District in Beijing against CFO Beijing alleging that we owed them unpaid
overtime incurred while they were employed by CFO Beijing. The claims were dismissed on July&nbsp;28,
2004 for lack of evidence. All four claimants then filed lawsuits against us in the Beijing Xicheng
District People&#146;s Court to recover the alleged unpaid overtime. These claims were dismissed on
December&nbsp;28, 2004 for lack of evidence. The claimants subsequently appealed to the Beijing No.&nbsp;1
Mid-level People&#146;s Court but their appeals were rejected by the court. We cannot assure you that
the plaintiffs filing the lawsuits against us will not bring other claims against us in other
forums. We believe these claims will not result in any material liability for us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividend Policy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We currently intend to retain all available funds and any future earnings for use in the operation
and expansion of our business and do not anticipate paying any cash dividends on our ordinary
shares, or indirectly on our ADSs, for the foreseeable future. Investors seeking cash dividends
should not purchase our ADSs. Future cash dividends, if any, will be at the discretion of our board
of directors and will depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors as our board of
directors may deem relevant. In addition, we can pay dividends only out of our profit or other
distributable reserves. Any dividend we declare will be paid to the holders of ADSs, subject to the
terms of the deposit agreement, to the same extent as holders of our ordinary shares, less the fees
and expenses payable under the deposit agreement. Other distributions, if any, will be paid by the
depositary to holders of our ADSs in any means it deems legal, fair and practical. Any dividend
will be distributed by the depositary, in the form of cash or additional ADSs, to the holders of
our ADSs. Cash dividends on our ADSs, if any, will be paid in U.S. dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><U><B>Significant changes since December&nbsp;31, 2004</B></U><B>.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We derive revenues primarily from annual subscription fees from subscribers to our financial data
and information services. Our subscription service is substantially dependent on user demand for
market intelligence on China&#146;s securities markets. Such demand has fluctuated with the level of
trading activity in China&#146;s securities markets. During the past several years, China&#146;s securities
markets have experienced significant volatility and decrease in value. The Shanghai Stock Exchange
A-Share Index and the Shenzhen Stock Exchange A-Share Index declined
</DIV>

<P align="center" style="font-size: 10pt">68
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">38.8% and
58.1%, respectively, from January&nbsp;2, 2001 to March&nbsp;31, 2006. On June&nbsp;6, 2005, the Shanghai Stock Exchange Index reached
its lowest level since March&nbsp;1997. If China&#146;s securities markets weaken, and if investors&#146; interest
in China&#146;s securities markets declines in the future, our business could be materially and
adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2005, we enhanced our effort to sell online advertisements and advertising related services. We
have a dedicated 3 person sales team that cooperates with 11 advertising agents. Our primary target
client base for advertisers consists of global and domestic corporations whose target clients are
established middle class Chinese. Our online advertising revenue has increased from $544,000 in
2004 to $1,752,000 in 2005. The number of advertisers has increased from 12 in 2004 to 40 in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2005, our board of directors approved a stock repurchase program pursuant to which we were
authorized to repurchase up to US$10&nbsp;million worth of our American Depositary Shares, or ADSs, In
May and June of 2005 we repurchased a total of 1,659,442 ADSs, representing 8,297,210 ordinary
shares, at an average cost of $5.98 per ADS for a total consideration of approximately US$ 10
million, including a brokerage commission of US$0.05 per ADS. In July&nbsp;2005, our board of
directors approved another stock repurchase program pursuant to which we were authorized to
repurchase up to an additional US$10&nbsp;million worth of our ADSs. In December&nbsp;2005, we repurchased a
total of 482,164 ADSs, representing 2,410,820 ordinary shares, at an average cost of US$6.60 per
ADS for total consideration of approximately US$ 3.2&nbsp;million, including a brokerage commission of
US$0.05 per ADS.
</DIV>
<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9. THE OFFER AND LISTING</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A. </B><U><B>Offering and listing details.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our ADSs, each representing five of our ordinary shares, have been listed on the Nasdaq National
Market since October&nbsp;15, 2004. Our ADSs trade under the symbol &#147;JRJC.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table provides the high and low trading prices for our ADSs on the Nasdaq National
Market for (1)&nbsp;the year 2004 and 2005, (2)&nbsp;each of the quarters since the fourth quarter in 2004
and (3)&nbsp;each of the months since October&nbsp;2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Sales Price</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Yearly highs and lows</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Year 2004 (from October&nbsp;15, 2004)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15.99</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.3</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Year 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">11.14</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.22</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Quarterly highs and lows</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fourth Quarter 2004 (from October&nbsp;15, 2004)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15.99</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.30</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">First Quarter 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">11.14</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.8</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Second Quarter 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.17</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.22</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Third Quarter 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.52</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.5</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fourth Quarter 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.9</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.52</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">First Quarter 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">9.68</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.66</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Monthly highs and lows</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">November&nbsp;2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.88</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.52</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.9</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.8</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">January&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.69</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.01</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">February&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">9.68</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.84</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">March&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.28</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.66</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">April&nbsp;2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.37</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.50</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><U><B>Plan of distribution.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><U><B>Markets.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See Item&nbsp;9.A. above.
</DIV>

<P align="center" style="font-size: 10pt">69
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. </B><U><B>Selling shareholders.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. </B><U><B>Dilution.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>F. </B><U><B>Expenses of the issue.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 10. ADDITIONAL INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A.&nbsp;</B><U><B>Share capital.</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. </B><U><B>Memorandum and articles of association.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We incorporate by reference into this Annual Report the description of our amended and restated
memorandum of association contained in our registration statement on Form F-1 (File No.&nbsp;333-119166)
filed with the Commission on October&nbsp;14, 2004. Our shareholders adopted our amended and restated
memorandum and articles of association at an extraordinary shareholder meeting on October&nbsp;14, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. </B><U><B>Material contracts.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have not entered into any material contracts other than in the ordinary course of business and
other than those described in Item&nbsp;4, &#147;Information on the Company&#148; or elsewhere in this annual
report on Form 20-F.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. </B><U><B>Exchange controls.</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">China&#146;s government imposes control over the convertibility of RMB into foreign currencies. Under
the current unified floating exchange rate system, the People&#146;s Bank of China publishes a daily
exchange rate for RMB, or the PBOC Exchange Rate, based on the previous day&#146;s dealings in the
inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an authorized range above or
below the PBOC Exchange Rate according to market conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the Foreign Exchange Control Regulations issued by the State Council on January&nbsp;29,
1996 and effective as of April&nbsp;1, 1996 (and amended on January&nbsp;14, 1997) and the Administration of
Settlement, Sale and Payment of Foreign Exchange Regulations which came into effect on July&nbsp;1, 1996
regarding foreign exchange control, or the Regulations, conversion of Renminbi into foreign
exchange by foreign investment enterprises for current account items, including the distribution of
dividends and profits to foreign investors of joint ventures, is permissible upon the proper
production of qualified commercial vouchers or legal documents as required by the Regulations.
Foreign investment enterprises are permitted to remit foreign exchange from their foreign exchange
bank account in China upon the proper production of, inter alia, the board resolutions declaring
the distribution of the dividend and payment of profits. Conversion of RMB into foreign currencies
and remittance of foreign currencies for capital account items, including direct investment, loans,
security investment, is still subject to the approval of the State Administration of Foreign
Exchange, or SAFE, in each such transaction. On January&nbsp;14, 1997, the State Council amended the
Foreign Exchange Control Regulations and added, among other things, an important provision, as
Article&nbsp;5 provides that the State shall not impose restrictions on recurring international payments
and transfers under current accounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the Regulations, foreign investment enterprises are required to open and maintain separate
foreign exchange accounts for capital account items (but not for other items). In addition, foreign
investment enterprises may only buy, sell and/or remit foreign currencies at those banks authorized
to conduct foreign exchange business upon the production of valid commercial documents and, in the
case of capital account item transactions, document approval from SAFE.
</DIV>


<P align="center" style="font-size: 10pt">70
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Currently, foreign investment enterprises are required to apply to SAFE for &#147;foreign exchange
registration certificates for foreign investment enterprises.&#148; With such foreign exchange
registration certificates (which are granted to foreign investment enterprises, upon fulfilling
specified conditions and which are subject to review and renewal by SAFE on an annual basis) or
with the foreign exchange sales notices from the SAFE (which are obtained on a
transaction-by-transaction basis), foreign-invested enterprises may open foreign exchange bank
accounts and enter into foreign exchange transactions at banks authorized to conduct foreign
exchange business to obtain foreign exchange for their needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>E. </B><U><B>Taxation.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hong Kong taxation</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Profits tax. </I>No tax is imposed in Hong Kong in respect of capital gains from the sale of property,
such as the ordinary shares underlying our ADSs. However, trading gains from the sale of property
by persons carrying on a trade, profession or business in Hong Kong where such gains are derived
from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong
profit tax. Liability for Hong Kong profits tax would therefore arise in respect of trading gains
from the sale of ADSs or the underlying ordinary shares realized by persons in the course of
carrying on a business of trading or dealing in securities in Hong Kong. For the current year of
assessment 2005/2006, the charging rate for profits tax is 17.5% for corporations and 16% for
unincorporated businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, Hong Kong does not impose withholding tax on gains derived from the sale of stock in
Hong Kong companies and does not impose withholding tax on dividends paid outside of Hong Kong by
Hong Kong companies. Accordingly, investors will not be subject to Hong Kong withholding tax with
respect to a disposition of their ADSs or with respect to the receipt of dividends on their ADSs,
if any. No income tax treaty relevant to the acquiring, withholding or dealing in the ADSs or the
ordinary shares underlying our ADSs exists between Hong Kong and the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Estate duty. </I>Estate duties are imposed upon the value of properties situated or deemed to be
situated in Hong Kong that pass to a person&#146;s estate upon his or her death. Our ordinary shares are
Hong Kong property under Hong Kong law, and accordingly may be subject to estate duty on the death
of the beneficial owner of such ordinary shares, regardless of the place of the owner&#146;s residence,
citizenship or domicile. We cannot assure you that the Hong Kong Inland Revenue Department will not
treat the ADSs as Hong Kong property that may be subject to estate duty on the death of the
beneficial owner of the ADSs, notwithstanding that the ADRs representing such ADSs may be situated
outside Hong Kong at the date of such death. Hong Kong estate duty is currently imposed on a
progressive scale from 5% to 15%, which rate and threshold has been adjusted on a fairly regular
basis in the past. No estate duty is payable when the aggregate value of the dutiable estate does
not exceed HK$7.5&nbsp;million, and the maximum rate of 15% applies when the aggregate value of the
dutiable estate exceeds HK$10.5&nbsp;million. The Hong Kong Financial Secretary proposed in his
2005/2006 Budget to abolish estate duty, but the necessary legislative changes have not yet been
made as at the date of this document.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Stamp duty. </I>Hong Kong stamp duty is generally payable on the transfer of shares in companies
incorporated in Hong Kong. The stamp duty is payable both by the purchaser on every purchase and by
the seller on every sale of such shares at the ad valorem rate of HK$1.00 per HK$1,000 or part
thereof, on the higher of the consideration for or the value of the shares transferred. In
addition, a fixed duty, currently of HK$5, is payable on an instrument of transfer of such shares.
Where one party to the sale is a non-resident of Hong Kong and does not pay the required stamp
duty, the stamp duty not paid will be assessed on the instrument of transfer of such shares (if
any), and the purchaser will be liable for payment of such stamp duty. A withdrawal of ordinary
shares upon the surrender of ADSs, and the issuance of ADSs upon the deposit of ordinary shares,
will also require payment of Hong Kong stamp duty at the rate described above for sale and purchase
transactions, unless such withdrawal or deposit does not result in a change in the beneficial
ownership of shares under Hong Kong law. The issuance of the ADSs upon the deposit of ordinary
shares issued directly to the depositary or for the account of the depositary does not require
payment of stamp duty. In addition, no Hong Kong stamp duty is payable upon the transfer of ADSs
effected outside Hong Kong.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>United States federal income taxation</B>

</DIV>

<P align="center" style="font-size: 10pt">71
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This discussion describes the material U.S. federal income tax consequences of the purchase,
ownership and disposition of our ADSs. This discussion does not address any aspect of U.S. federal
gift or estate tax, or the state,
local or foreign tax consequences of an investment in our ADSs. This discussion applies to you only
if you hold and beneficially own our ADSs as capital assets for tax purposes. This discussion does
not apply to you if you are a member of a class of holders subject to special rules, such as:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>dealers in securities or currencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>traders in securities that elect to use a mark-to-market method of accounting for securities holdings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>banks or other financial institutions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>insurance companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>tax-exempt organizations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>partnerships and other entities treated as partnerships for U.S. federal income tax purposes or
persons holding ADSs through any such entities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons that hold ADSs as part of a hedge, straddle, constructive sale, conversion transaction or
other integrated investment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Holders (as defined below) whose functional currency for tax purposes is not the U.S. dollar;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons liable for alternative minimum tax; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons who actually or constructively own 10% or more of the total combined voting power of all
classes of our shares (including ADSs) entitled to vote.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer to
in this discussion as the Code, its legislative history, existing and proposed regulations
promulgated thereunder, published rulings and court decisions, all as currently in effect. These
laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on
our assumptions regarding the value of our shares and the nature of our business over time.
Finally, this discussion is based in part upon the representations of the depositary and the
assumption that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms. For U.S. federal income tax purposes, as a holder of ADSs,
you are treated as the owner of the underlying ordinary shares represented by such ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the purchase, ownership and disposition of our ADSs, as well as the
consequences to you arising under the laws of any other taxing jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For purposes of the U.S. federal income tax discussion below, you are a &#147;U.S. Holder&#148; if you
beneficially own ADSs and are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a citizen or resident of the United States for U.S. federal income tax purposes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation, or other entity taxable as a corporation, that was created or organized in or
under the laws of the United States or any political subdivision thereof;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate the income of which is subject to U.S. federal income tax regardless of its source; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trust if (a)&nbsp;a court within the United States is able to exercise primary supervision over
its administration and one or more U.S. persons have the authority to control all substantial
decisions of the trust, or (b)&nbsp;the trust has a valid election in effect to be treated as a U.S.
person.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If you are not a U.S. person, please refer to the discussion below under &#147;Non-U.S. Holders.&#148;
</DIV>

<P align="center" style="font-size: 10pt">72
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For U.S. federal income tax purposes, income earned through a foreign or domestic partnership or
other flow-through entity is attributed to its owners. Accordingly, if a partnership or other
flow-through entity holds ADSs, the tax treatment of the holder will generally depend on the status
of the partner or other owner and the activities of the partnership or other flow-through entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>U.S. Holders</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Dividends on ADSs</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We do not anticipate paying dividends on our ordinary shares or indirectly on our ADSs, in the
foreseeable future. See &#147;Dividend policy.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Subject to the &#147;Passive Foreign Investment Company&#148; discussion below, if we do make distributions
and you are a U.S. Holder, the gross amount of any distributions you receive on your ADSs will
generally be treated as dividend income if the distributions are made from our current or
accumulated earnings and profits, calculated according to U.S. federal income tax principles.
Dividends will generally be subject to U.S. federal income tax as ordinary income on the day you
actually or constructively receive such income. However, if you are an individual and have held
your ADSs for a sufficient period of time, dividend distributions on our ADSs will generally
constitute qualified dividend income taxed at a preferential rate (generally 15% for dividend
distributions before January&nbsp;1, 2009) as long as our ADSs continue to be readily tradable on the
Nasdaq National Market and certain other conditions apply. You should consult your own tax adviser
as to the rate of tax that will apply to you with respect to dividend distributions, if any, you
receive from us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We do not intend to calculate our earnings and profits according to U.S. tax accounting principles.
Accordingly, distributions on our ADSs, if any, will generally be taxed to you as dividend
distributions for U.S. tax purposes. Even if you are a corporation, you will not be entitled to
claim a dividends-received deduction with respect to distributions you receive from us. Dividends
generally will constitute foreign source passive income for U.S. foreign tax credit limitation
purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Sales and other dispositions of ADSs</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Subject to the &#147;Passive Foreign Investment Company&#148; discussion below, when you sell or otherwise
dispose of ADSs, you will generally recognize capital gain or loss in an amount equal to the
difference between the amount realized on the sale or other disposition and your adjusted tax basis
in the ADSs, both as determined in U.S. dollars. Your adjusted tax basis will generally equal the
amount you paid for the ADSs. Any gain or loss you recognize will be long-term capital gain or loss
if your holding period in our ADSs is more than one year at the time of disposition. If you are an
individual, any such long-term capital gain will be taxed at preferential rates. Your ability to
deduct capital losses will be subject to various limitations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Passive Foreign Investment Company</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we were a Passive Foreign Investment Company or &#147;PFIC&#148; in any taxable year in which you hold our
ADSs, as a U.S. Holder, you would generally be subject to adverse U.S. tax consequences, in the
form of increased tax liabilities and special U.S. tax reporting requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We will be classified as a PFIC in any taxable year if either: (1)&nbsp;the average percentage value of
our gross assets during the taxable year that produce passive income or are held for the production
of passive income is at least 50% of the value of our total gross assets or (2)&nbsp;75% or more of our
gross income for the taxable year is passive income (such as certain dividends, interest or
royalties). For purposes of the first test: (1)&nbsp;any cash, cash equivalents, and cash invested in
short-term, interest bearing, debt instruments, or bank deposits that is readily convertible into
cash, will generally count as producing passive income or held for the production of passive income
and (2)&nbsp;the average value of our gross assets is calculated based on our market capitalization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that we were not a PFIC for the taxable year 2004. However, there can be no assurance
that we will not be a PFIC for the taxable year 2005 and/or later taxable years, as PFIC status is
re-tested each year and depends on the facts in such year. For example, we would be a PFIC for the
taxable year 2005 if the sum of our average market capitalization, which is our share price
multiplied by the total amount of our outstanding shares, and our liabilities over that taxable
year is not more than twice the value of our cash, cash equivalents, and other assets that are
readily converted into cash. In particular, we currently deposit a substantial portion of our net
proceeds from our
</DIV>

<P align="center" style="font-size: 10pt">73
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">initial public offering in interest bearing bank accounts, which we book as cash and cash
equivalents, but the value of our ADSs have declined to $5.22 per ADS on May&nbsp;5, 2005 from our
initial public offering price of $13.00 per ADS. If the value of our outstanding stock were to
continue to decrease for an extended period of time in which we hold substantial cash and cash
equivalents, we would likely become a PFIC. We could also be a PFIC for any taxable year if the
gross income that we and our subsidiaries earn from investing the portion of the cash raised in our
initial public offering in 2004 that exceeds the immediate capital needs of our active online
business is substantial in comparison with the gross income from our business operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we were a PFIC, you would generally be subject to additional taxes and interest charges on
certain &#147;excess&#148; distributions we make and on any gain realized on the disposition or deemed
disposition of your ADSs, regardless of whether we continue to be a PFIC in the year in which you
receive an &#147;excess&#148; distribution or dispose of or are deemed to dispose of your ADSs. Distributions
in respect of your ADSs during a taxable year would generally constitute &#147;excess&#148; distributions if,
in the aggregate, they exceed 125% of the average amount of distributions in respect of your ADSs
over the three preceding taxable years or, if shorter, the portion of your holding period before
such taxable year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To compute the tax on &#147;excess&#148; distributions or any gain, (1)&nbsp;the &#147;excess&#148; distribution or the gain
would be allocated ratably to each day in your holding period, (2)&nbsp;the amount allocated to the
current year and any tax year before we became a PFIC would be taxed as ordinary income in the
current year, (3)&nbsp;the amount allocated to other taxable years would be taxable at the highest
applicable marginal rate in effect for that year, and (4)&nbsp;an interest charge at the rate for
underpayment of taxes for any period described under (3)&nbsp;above would be imposed with respect to any
portion of the &#147;excess&#148; distribution or gain that is allocated to such period. In addition, if we
were a PFIC, no distribution that you receive from us would qualify for taxation at the
preferential rate discussed in the &#147;Dividends on ADSs&#148; section above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we were a PFIC in any year, as a U.S. Holder, you would be required to make an annual return on
IRS Form&nbsp;8621 regarding your ADSs. However, we do not intend to generate, or share with you,
information that you might need to properly complete IRS Form&nbsp;8621. You should consult with your
own tax adviser regarding reporting requirements with regard to your ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If we were a PFIC in any year, you would generally be able to avoid the &#147;excess&#148; distribution rules
described above by making a timely so-called &#147;mark-to-market&#148; election with respect to your ADSs
provided our ADSs are &#147;marketable&#148;. Our ADSs will be &#147;marketable&#148; as long as they remain regularly
traded on a national securities exchange, such as the Nasdaq National Market. If you made this
election in a timely fashion, you would generally recognize as ordinary income or ordinary loss the
difference between the fair market value of your ADSs on the first day of any taxable year and
their value on the last day of that taxable year. Any ordinary income resulting from this election
would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of
tax applicable to qualified dividend income. Any ordinary losses would be limited to the extent of
the net amount of previously included income as a result of the mark-to-market election, if any.
Your basis in the ADSs would be adjusted to reflect any such income or loss. You should consult
with your own tax adviser regarding potential advantages and disadvantages to you of making a
&#147;mark-to-market&#148; election with respect to your ADSs. Separately, if we were a PFIC in any year, you
would be able to avoid the &#147;excess&#148; distribution rules by making a timely election to treat us as a
so-called &#147;Qualified Electing Fund&#148; or &#147;QEF.&#148; You would then generally be required to include in
gross income for any taxable year (1)&nbsp;as ordinary income, your pro rata share of our ordinary
earnings for the taxable year, and (2)&nbsp;as long-term capital gain, your pro rata share of our net
capital gain for the taxable year. However, we do not intend to provide you with the information
you would need to make or maintain a &#147;QEF&#148; election and you will, therefore, not be able to make or
maintain such an election with respect to your ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Non-U.S. Holders</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If you beneficially own ADSs and are not a U.S. Holder for U.S. federal income tax purposes (a
&#147;Non-U.S. Holder&#148;), you generally will not be subject to U.S. federal income tax or withholding on
dividends received from us with respect to ADSs unless that income is considered effectively
connected with your conduct of a U.S. trade or business and, if an applicable income tax treaty so
requires as a condition for you to be subject to U.S. federal income tax with respect to income
from your ADSs, such dividends are attributable to a permanent establishment that you maintain in
the United States. You generally will not be subject to U.S. federal income tax, including
withholding tax, on any gain realized upon the sale or exchange of ADSs, unless:
</DIV>

<P align="center" style="font-size: 10pt">74
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>that gain is effectively connected with the conduct of a U.S. trade or
business and, if an applicable income tax treaty so requires as a
condition for you to be subject to U.S. federal income tax with
respect to income from your ADSs, such gain is attributable to a
permanent establishment that you maintain in the United States; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>you are a nonresident alien individual and are present in the United
States for at least 183&nbsp;days in the taxable year of the sale or other
disposition and either (1)&nbsp;your gain is attributable to an office or
other fixed place of business that you maintain in the United States
or (2)&nbsp;you have a tax home in the United States.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides otherwise,
the income from your ADSs, including dividends and the gain from the disposition of ADSs, that is
effectively connected with the conduct of that trade or business will generally be subject to the
rules applicable to U.S. Holders discussed above. In addition, if you are a corporation, you may be
subject to an additional branch profits tax at a rate of 30% or any lower rate under an applicable
tax treaty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>U.S. information reporting and backup withholding rules</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, dividend payments with respect to the ADSs and the proceeds received on the sale or
other disposition of those ADSs may be subject to information reporting to the IRS and to backup
withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if
you (1)&nbsp;are a corporation or come within certain other exempt categories and, when required, can
demonstrate that fact or (2)&nbsp;provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with the applicable backup withholding
rules. To establish your status as an exempt person, you will generally be required to provide
certification on IRS Form W-9, W-8BEN or W-8ECI, as applicable. Any amounts withheld from payments
to you under the backup withholding rules will be allowed as a refund or a credit against your U.S.
federal income tax liability, provide that you furnish the required information to the IRS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">HOLDERS OF OUR ADSS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ADSS, INCLUDING THE APPLICABILITY AND EFFECT
OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND
INHERITANCE LAWS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>F. </B><U><B>Dividends and paying agents.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>G. </B><U><B>Statement by experts.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>H. </B><U><B>Documents on display.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have previously filed with the Commission our registration statement on Form F-1, as amended,
and our prospectus under the Securities Act of 1933, with respect to our ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are subject to the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with the Securities and Exchange Commission. Specifically, we
are required to file annually a Form 20-F no later than six months after the close of each fiscal
year, which is December&nbsp;31. Copies of reports and other information, when so filed, may be
inspected without charge and may be obtained at prescribed rates at the public reference facilities
maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional office of the Securities and Exchange Commission
located at Citicorp Center, 500 West Madison Street, Suite&nbsp;1400, Chicago, Illinois 60661. The
public may obtain information regarding the Washington, D.C. Public Reference Room by calling the
Commission at 1-800-SEC-0330. The SEC also maintains a Web site at <I>www.sec.gov </I>that contains
reports, proxy and information statements, and other information regarding registrants that make
electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing and content of
</DIV>

<P align="center" style="font-size: 10pt">75
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">quarterly reports and proxy statements, and officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section&nbsp;16 of the
Exchange Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our financial statements have been prepared in accordance with U.S. GAAP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We will furnish our shareholders with annual reports, which will include a review of operations and
annual audited consolidated financial statements prepared in conformity with U.S. GAAP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>I. </B><U><B>Subsidiaries information.</B></U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Please refer to Item&nbsp;5, &#147;Operating and Financial Review and Prospects; Quantitative and qualitative
disclosures about market risk.&#148;
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>

<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following &#147;Use of Proceeds&#148; information relates to the registration statement on Form F-1 (File
No.&nbsp;333-119166), or Registration Statement, for our initial public offering and sale of 6,200,000
American Depositary Shares, each representing five of our ordinary shares, for an aggregate
offering price of US$80.6&nbsp;million. Our Registration Statement was declared effective by the
Commission on October&nbsp;14, 2005 and we began offering and selling American Depositary Shares, on
October&nbsp;15, 2004. In the offering we sold 5,000,000 ADSs and the participating selling shareholders
sold 1,200,000 ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We received net proceeds of approximately US$58.5&nbsp;million from our initial public offering (after
deducting underwriting discounts and other expenses related to the offering). We did not receive
any of the proceeds from sales by the selling shareholders. JPMorgan Securities Inc; Jefferies
Broadview, a division of Jefferies &#038; Company, Inc; and WR Hambrecht &#043; Co, LLC were the underwriters
for our initial public offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We used the net proceeds we received from our initial public offering as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approximately $20.5&nbsp;million was used for additional capital contributions to CFO Beijing
and Fortune Software.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approximately $29&nbsp;million was used for shareholder loans to CFO Beijing and Fortune
Software.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the remaining amount was used as part of the $13.2&nbsp;million we used for repurchases of
our American Depositary Shares pursuant to repurchase programs approved by our board of
directors.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. CONTROLS AND PROCEDURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our management, with the participation of Zhiwei Zhao, our chief executive officer, and Sam Qian,
our president and chief financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules&nbsp;13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the fiscal year
covered by this report. Based on such evaluation, our chief executive officer and chief financial
officer have concluded that, as of the end of the fiscal year covered by this report, our
disclosure
</DIV>

<P align="center" style="font-size: 10pt">76
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">controls and procedures were effective in recording, processing, summarizing and reporting, on a
timely basis, information required to be disclosed by us in the reports that we file or submit
under the Exchange Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There have not been any change in our internal control over financial reporting (as such term is
defined in Rules&nbsp;13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal year covered by
this report that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See Item&nbsp;6.C. of this annual report, &#147;Directors, Senior Management and Employees &#151; Board
Practices.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our board of directors has concluded that Mr.&nbsp;Kheng Nam Lee, a member of our audit committee, meets
the criteria for an &#147;audit committee financial expert&#148; as established by the U.S. Securities and
Exchange Commission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Kheng Nam Lee will not be deemed an &#147;expert&#148; for any purpose, including, without limitation,
for purposes of section 11 of the U.S. Securities Act of 1933, as amended, as a result of being
designated or identified as an audit committee financial expert. The designation or identification
of Mr.&nbsp;Kheng Nam Lee as an audit committee financial expert does not impose on him any duties,
obligations or liability that are greater than the duties, obligations and liability imposed on him
as a member of the audit committee and board of directors in the absence of such designation or
identification. The designation or identification of Mr.&nbsp;Kheng Nam Lee as an audit committee
financial expert does not affect the duties, obligations or liability of any other member of the
audit committee or board of directors.
</DIV>
<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16B. CODE OF ETHICS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See Item&nbsp;6.C. of this annual report, &#147;Directors, Senior Management and Employees &#151; Board
Practices.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our board of directors has adopted a code of ethics, which is applicable to our senior executive
and financial officers and any other persons who perform similar functions for us. We have posted
the text of our code of ethics on our Internet website at
<I>www.chinafinanceonline.com/investor/governance.asp</I>.
</DIV>
<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth the aggregate fees by category specified below in connection with
certain professional services rendered by Deloitte Touche Tohmatsu CPA Ltd., our principal external
auditors, for the periods indicated. We did not pay any other fees to our auditors during the
periods indicated below.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>For the Year Ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit fees<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">US$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>    <TD align="right">US$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">347,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">US$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,500</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&#147;Audit fees&#148; means the aggregate fees billed in each
of the fiscal years listed for professional services
rendered by our principal auditors for the audit of
our annual financial statements, review of interim
financial statements and attestation services that are
provided in connection with statutory and regulatory
filings or engagements.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16D. EXEMPTION FROM THE LISTING STANDARD FOR AUDIT COMMITTEES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable.
</DIV>
<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2005, our board of directors approved a stock repurchase program pursuant to which we were
authorized to purchase from time to time up to $10&nbsp;million worth of our American Depositary Shares,
or ADSs, over a period
</DIV>

<P align="center" style="font-size: 10pt">77
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of six months. In May and June&nbsp;2005, the Company repurchased a total of 1,659,442 ADSs,
representing 8,297,210 ordinary shares, at an average cost of $5.98 per ADS for total consideration
of approximately US$ 10&nbsp;million including a brokerage commission
of US$0.05 per ADS. We believe that all of these repurchases were made in full
compliance with the anti-manipulation provisions of the Securities and Exchange Commission&#146;s Rule
10b-18. In July&nbsp;2005, our board of directors approved another stock repurchase program pursuant to
which we were authorized to purchase from time to time up to US$10&nbsp;million worth of its ADSs, over
a period of six months. In the fourth quarter, we repurchased again a total of 482,164 ADSs,
representing 2,410,820 ordinary shares, at an average cost of
US$6.60. We believe that all of these repurchases were made in full compliance with the
anti-manipulation provisions of the Securities and Exchange Commission&#146;s Rule&nbsp;10b-18.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth, for each of the months indicated, the total number of ADSs
purchased by us or on our behalf or any affiliated purchaser, the average price paid per ADS, the
number of ADSs purchased as part of a publicly announced repurchase plan or program, the maximum
number of ADSs or approximate United States dollar value that may yet be purchased under the plans
or programs.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(c) Total Numbers of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(d) Maximum Numbers</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ADSs Purchased as</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of ADSs that May</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(a) Total Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(b) Average Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Part of Publicly</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Yet Be Purchased</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>ADSs Purchased</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Paid per ADS</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Announced Plans or</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Under the Plans or</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(Shares)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Programs</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Programs</B><SUP style="font-size: 85%; vertical-align: text-top">&#134;</SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">May&nbsp;1,
2005 &#151;
May&nbsp;31, 2005 *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,252,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,252,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">478,061</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;1,
2005 &#151; June
30, 2005 *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">407,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">407,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;1, 2005 &#151;
December&nbsp;31, 2005
**</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,021,595</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&#134;</TD>
    <TD>&nbsp;</TD>
    <TD>The numbers of ADSs set forth in this column represent the number of ADSs that could be purchased, as of the month referred to in the
corresponding row of this table, assuming the same average purchase price per ADS as set forth in column (b)&nbsp;of the corresponding row of this table.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to a stock repurchase program approved by our board of directors on March&nbsp;31, 2005 and announced to the public on March&nbsp;31, 2005, we were
authorized to purchase from time to time up to $10&nbsp;million worth of our American Depositary Shares, or ADSs, over a period of six months. This stock repurchase
program expired in September&nbsp;2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">**</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to a stock repurchase program approved by our board of directors on July&nbsp;26, 2005 and announced to the public on August&nbsp;1, 2005, we were
authorized to purchase from time to time up to $10&nbsp;million worth of our American Depositary Shares, or ADSs, over a period of six months. This stock repurchase
program expired in January&nbsp;2006.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that all of these repurchases were made in full compliance with the
anti-manipulation provisions of the Securities and Exchange Commission&#146;s Rule&nbsp;10b-18.
</DIV>
<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART III</B>
</DIV>

<DIV align="left">
<A name="125"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 17. FINANCIAL STATEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have elected to provide financial statements pursuant to Item&nbsp;18.
</DIV>
<DIV align="left">
<A name="126"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 18. FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The consolidated financial statements for China Finance Online Co., Limited and its subsidiaries
are included at the end of this annual report.
</DIV>
<DIV align="left">
<A name="127"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 19. EXHIBITS</B>
</DIV>


<P align="center" style="font-size: 10pt">78
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Index to exhibits</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Memorandum and Articles of Association of China Finance Online Co. Limited (incorporated by
reference to Exhibit&nbsp;3.1 from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities
and Exchange Commission on October&nbsp;4, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen ordinary share certificate (incorporated by reference to Exhibit&nbsp;4.1 from our Registration Statement on Form
F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen American depositary receipt of China Finance Online Co. Limited (Incorporated by reference to the
Registration Statement on Form&nbsp;F-6 (File No.&nbsp;333-119530) filed with the Securities and Exchange Commission with
respect to American depositary shares representing ordinary shares on October&nbsp;5, 2004.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incentive Stock Option Plan and form of option agreement (incorporated by reference to Exhibit&nbsp;10.1 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on
September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Option Agreement with outside consultants and strategic advisors (incorporated by reference to Exhibit&nbsp;10.2
from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on
September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase Option and Cooperation Agreement among China Finance Online Co. Limited, Jun Ning, Wu Chen and Fuhua
Innovation Technology Development Co., Ltd. dated May&nbsp;27, 2004 (incorporated by reference to Exhibit&nbsp;10.3 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on
September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Pledge Agreement among Jun Ning, Wu Chen and China Finance Online (Beijing) Co., Ltd. dated May&nbsp;27, 2004
(incorporated by reference to Exhibit&nbsp;10.4 from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed
with the Securities and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Proxy from Jun Ning to Linhai Ma dated May&nbsp;27, 2004 (incorporated by reference to Exhibit&nbsp;10.5 from our Registration
Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Proxy from Wu Chen to Jian Feng dated May&nbsp;27, 2004 (incorporated by reference to Exhibit&nbsp;10.6 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Equipment Lease Agreement between China Finance Online (Beijing) Co., Ltd. and Fuhua Innovative
Technology Development Co., Ltd. dated May&nbsp;27, 2004 (incorporated by reference to Exhibit&nbsp;10.7 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technical Support Agreement between China Finance Online (Beijing) Co., Ltd. and Fuhua Innovative
Technology Development Co., Ltd. dated May&nbsp;27, 2004 (incorporated by reference to Exhibit&nbsp;10.8 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Strategic Consulting Agreement between China Finance Online (Beijing) Co., Ltd. and
Fuhua Innovative Technology Development Co., Ltd. dated May&nbsp;27, 2004 (incorporated by reference to
Exhibit&nbsp;10.9 from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities
and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Domain Name Licensing Agreement between China Finance Online (Beijing) Co., Ltd. and Fuhua Innovative
Technology Development Co., Ltd. dated May&nbsp;27, 2004 (incorporated by reference to Exhibit&nbsp;10.10 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Domain Name Licensing Agreement among China Finance Online (Beijing) Co., Ltd., Fuhua Innovative
Technology Development Co., Ltd. and China Finance Online Co. Limited dated March&nbsp;20, 2005 (incorporated
by reference to Exhibit&nbsp;4.11 from our Annual Report on Form&nbsp;20-F (file no. 000-50975) filed with the
Securities and Exchange Commission on April&nbsp;28, 2005)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">79
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement between China Finance Online Co. Limited and Jun Ning dated May&nbsp;27, 2004 (incorporated by
reference to Exhibit&nbsp;10.11 from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with
the Securities and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement between China Finance Online Co. Limited and Wu Chen dated May&nbsp;27, 2004 (incorporated by
reference to Exhibit&nbsp;10.12 from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with
the Securities and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Securities Information Database Service Contract between China Finance Online (Beijing) Co., Ltd. and
Shenzhen Securities Information Co., Ltd. dated December&nbsp;9, 2004, and as amended on January&nbsp;31, 2005
(incorporated by reference to Exhibit&nbsp;4.18 from our Annual Report on Form&nbsp;20-F (file no. 000-50975) filed
with the Securities and Exchange Commission on April&nbsp;28, 2005)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.15
</DIV></TD>
<Td valign="top" align="left">*&#134;</td>
    <TD align="left" valign="top">Securities Information Operation
License Contract between China Finance Online (Beijing) Co., Ltd. and
Shanghai Stock Exchange Information Network Co., Ltd. dated March&nbsp;2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.16
</DIV></TD>
<Td valign="top" align="left">*&#134;</td>
    <TD align="left" valign="top">Contract for License of Proprietary Information of the Shenzhen Stock Exchange between China Finance
Online (Beijing) Co., Ltd. and Shenzhen Securities Information Co., Ltd. dated December&nbsp;31, 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.17
</DIV></TD>
<Td valign="top" align="left">*&#134;</td>
    <TD align="left" valign="top">Contract for Financial and Economic
Databank Services dated December&nbsp;15, 2004, as amended by the
Supplementary Agreement to the Contract for Financial and Economic
Databank Services dated January&nbsp;31, 2005, between China Finance Online (Beijing) Co., Ltd.
and Shenzhen Securities Information Co., Ltd.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease Agreement between Ping&#146;an Real Estate Development Co., Ltd. and China Finance Online (Beijing) Co.,
Ltd. dated June&nbsp;30, 2003 (incorporated by reference to Exhibit&nbsp;10.17 from our Registration Statement on
Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on September&nbsp;21, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease Agreement between Fortune Software (Beijing) Co., Ltd. and Li Jihong dated March&nbsp;22, 2005
(incorporated by reference to Exhibit&nbsp;4.20 from our Annual Report on Form&nbsp;20-F (file no. 000-50975) filed
with the Securities and Exchange Commission on April&nbsp;28, 2005)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.20
</DIV></TD>
<Td valign="top" align="left">*</td>
    <TD align="left" valign="top">Lease Contract for Housing Unit of Corporate Square dated January&nbsp;19, 2006 between China Finance Online
Co., Ltd. and China Galaxy Securities Company Limited</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.21
</DIV></TD>
<Td valign="top" align="left">*</td>
    <TD align="left" valign="top">Lease Contract for Housing Unit of Corporate Square datedJanuary&nbsp;19, 2006 between Fortune Software
(Beijing) Co. Ltd. and China Galaxy Securities Company Limited</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.22
</DIV></TD>
<Td valign="top" align="left">*</td>
    <TD align="left" valign="top">Lease Contract for Housing Unit of Corporate Square datedJanuary&nbsp;19, 2006 between Beijing Fuhua
Innovation Technology Co., Ltd. and China Galaxy Securities Company Limited</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of indemnification agreement for directors and officers (incorporated by reference to Exhibit&nbsp;10.18
from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of labor contract of China Finance Online (Beijing) Co., Ltd. (incorporated by reference to Exhibit
10.19 from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and
Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Labor Contract of Sam Qian dated March&nbsp;31, 2004 (incorporated by reference to Exhibit&nbsp;10.21 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.26
</DIV></TD>
<Td valign="top" align="left">*</td>
    <TD align="left" valign="top">Labor Contract of Zhao Zhiwei dated June&nbsp;21, 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Intellectual Property Rights, Confidentiality and Non-Competition Agreement of Jun Ning dated December
31, 1999 (incorporated by reference to Exhibit&nbsp;10.22 from our Registration Statement on Form&nbsp;F-1 (file
no. 333-119166) filed with the Securities and Exchange Commission on October&nbsp;4, 2004)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">80
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Intellectual Property Rights, Confidentiality and Non-Competition
Agreement of Sam Qian dated March&nbsp;31, 2004 (incorporated by reference to
Exhibit&nbsp;10.23 from our Registration Statement on Form&nbsp;F-1 (file no.
333-119166) filed with the Securities and Exchange Commission on September
21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.29
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Change in Control Agreement (incorporated by reference to Exhibit
10.1 from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166)
filed with the Securities and Exchange Commission on October&nbsp;4, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">8.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of subsidiaries (incorporated by reference to Exhibit&nbsp;21.1 from our
Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed with the
Securities and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consents of Deloitte Touche Tohmatsu CPA Ltd (incorporated by reference to
Exhibit&nbsp;23.1 from our Registration Statement on Form&nbsp;F-1 (file no.
333-119166) filed with the Securities and Exchange Commission on September
21, 2004, October&nbsp;4, 2004 and October&nbsp;13, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Jincheng and Tongda Law Firm (included in Exhibit&nbsp;5.2)
(incorporated by reference to Exhibit&nbsp;23.2 from our Registration Statement
on Form&nbsp;F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Taylor Nelson Sofres (incorporated by reference to Exhibit&nbsp;23.8
from our Registration Statement on Form&nbsp;F-1 (file no. 333-119166) filed
with the Securities and Exchange Commission on September&nbsp;21, 2004)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CEO Certification Pursuant to Rule&nbsp;13a-14(a) (17 CFR 240.13a-14(a)) or Rule&nbsp;15d-1(a) (17 CFR 240.15d-14(a))</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.2*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CFO Certification Pursuant to Rule&nbsp;13a-14(a) (17 CFR 240.13a-14(a)) or
Rule&nbsp;15d-1(a) (17 CFR 240.15d-14(a))</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CEO Certification Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.2*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CFO Certification Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Filed as an exhibit to this Form&nbsp;20-F</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">&#134;</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment requested with respect to redacted portions</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">81
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="left">
<A name="128"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>SIGNATURE</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">Date: May&nbsp;23, 2006</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">CHINA FINANCE ONLINE CO. LIMITED</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD colspan="3" valign="top" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/
Sam Qian</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sam Qian</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">82
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">CONTENTS</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">PAGE</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#300">Report of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 2&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">Consolidated Balance Sheets as of December&nbsp;31, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 3&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Consolidated Statements of Operations for the years ended December&nbsp;31, 2003,
2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 4&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Consolidated Statements of Shareholders&#146; Equity and Comprehensive Income
for the years ended December&nbsp;31, 2003, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 5&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Consolidated Statements of Cash Flows for the years ended December&nbsp;31, 2003,
2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 6&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Notes to the Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F - 7&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#306">Schedule&nbsp;1</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">F - 27</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F - 1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="300"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF<BR>
<U>CHINA FINANCE ONLINE CO. LIMITED</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated balance sheets of China Finance Online Co.
Limited and its subsidiaries (the &#147;Company&#148;) as of December&nbsp;31, 2004 and 2005 and the
related consolidated statements of operations, shareholders&#146; equity and comprehensive income, and cash flows for the years ended December&nbsp;31, 2003, 2004 and 2005, and related
financial statement schedule included in Schedule&nbsp;1. These financial statements and related
financial statement schedule are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these consolidated financial statements and
related financial statement schedule based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (PCAOB)&nbsp;in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Company&#146;s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December&nbsp;31, 2004 and 2005 and the
results of its operations and its cash flows for each of the three years ended December&nbsp;31,
2005 in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Deloitte Touche Tohmatsu CPA Ltd.<BR>
Beijing, China<BR>
April&nbsp;21, 2006

</DIV>

<P align="center" style="font-size: 10pt">F - 2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="left">
<A name="301"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED BALANCE SHEETS</B>

</DIV>
<DIV align="center" style="font-size: 10pt"><B>(In U.S. dollars, except share data)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70,596,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">46,168,385</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144,694</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax recoverable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">331,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,131,515</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax
assets &#151; current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,036</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,362,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,508,630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">417,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">512,179</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rental deposits </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,534</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">71,861,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,112,736</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities and shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>Current liabilities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,487,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,859,321</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses and other current liabilities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">285,696</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">381,693</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax payable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,762</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,772,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,281,776</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments (Note 13)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary shares ($0.00013 par value; 500,000,000 shares
authorized; shares issued and outstanding 99,329,933 in 2004
and 101,329,933 in 2005) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,077</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,175,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,564,534</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock, at cost (Nil shares and 10,708,030 shares in 2004
and 2005, respectively) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(325,221</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67,129</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated other comprehensive (loss)&nbsp;income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,122</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Retained earnings </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,225,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,849,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total shareholders&#146; equity </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,088,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,830,960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and shareholders&#146; equity </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">71,861,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,112,736</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of these consolidated financial statements.

</DIV>


<P align="center" style="font-size: 10pt">F - 3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONSOLIDATED BALANCE SHEETS</B>
</DIV>

<DIV align="left">
<A name="302"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B>

</DIV>
<DIV align="center" style="font-size: 10pt"><B>(In U.S. dollars, except share data)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross revenues </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,354,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,064,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,626,756</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Business tax </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(83,448</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47,914</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(144,590</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net revenues </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,270,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,016,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,482,166</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenues (including stock-based
compensation of $nil, $825 and $740,
respectively) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">297,719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482,068</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,973,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,622,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,000,098</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative
(including stock-based compensation of
$96,311, $286,089 and $365,949,
respectively) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">727,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,740,117</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Product development (including stock-based
compensation of $nil, $920 and $1,610,
respectively) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236,438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and marketing (including stock-based
compensation of $nil, $1,500 and $2,482,
respectively) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">801,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,794,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">833,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,701,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,771,124</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,139,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,920,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,228,974</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">293,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,486,276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other (expense)&nbsp;income, net </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,243</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,579</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">365,965</TD>
    <TD>&nbsp;</TD>
</TR>




<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"  style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income tax benefit (expense) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,213,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,081,215</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax
benefit (expense) &#151; Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(457,028</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on preference shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(351,489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to ordinary shareholders </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">838,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per share-basic </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"  style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per share-diluted </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares used in calculating basic
net income per share </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,124,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,912,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,341,061</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares used in calculating diluted
net income per share </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,562,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,092,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,781,492</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>





<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends
declared per preference share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of these consolidated financial statements.

</DIV>

<P align="center" style="font-size: 10pt">F - 4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<!-- LANDSCAPE -->


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="left">
<A name="303"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF SHAREHOLDERS&#146; EQUITY AND OTHER COMPREHENSIVE INCOME<BR>
(In U.S. dollars, except share data)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="26%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Retained</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Series A convertible</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Series B convertible</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Additional</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Deferred</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">comprehensive</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">earnings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">preference shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">preference shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Ordinary shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">paid-in</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">stock-based</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">income</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">shareholders&#146;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Comprehensive</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Treasury stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">compensation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(loss)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">deficit)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">equity</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">income</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of January&nbsp;1, 2003 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,315,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,833,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,784,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,997,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(142</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,059,156</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,946,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right"></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of ordinary shares to an employee </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,666,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of Series&nbsp;A convertible preference shares into
ordinary shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,672,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(216</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on preference shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(351,489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(351,489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on ordinary shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2003 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,643,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,833,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,123,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,093,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(371,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,731,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,190,258</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of ordinary shares to an employee </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">730,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options issued to non-employees </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">541,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(541,791</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of ordinary shares upon the initial public offering
(net of offering costs of $6,469,282) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,527,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,530,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of preference shares to ordinary shares upon
initial public offering </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,643,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,954</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,833,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,476,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distribution to the shareholders of Fuhua </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,299</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,299</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances as of December&nbsp;31, 2004 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,329,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,175,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(325,221</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,225,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,088,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,144</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repurchase
of ordinary shares as treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of
ordinary shares to an employee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options issued to non-employees </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2005 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,329,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">64,564,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(67,129</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">671,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,849,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,830,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,295,320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F - 5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="left">
<A name="304"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(In U.S. dollars)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income attributable to ordinary shareholders </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">838,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends on preference shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">351,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income to net cash
provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370,781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,833</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on disposal of property and equipment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,686</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(33,921</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(110,773</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income tax recoverable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(283,284</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other current assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(239,513</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(799,572</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred tax assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(386,325</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">322,289</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Rental deposits </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,161</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,657</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred revenue </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,209,155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,627,937</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued expenses and other current liabilities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,997</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income tax payable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,762</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,505,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,022,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,059,169</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition
of cost investment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,000,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property and equipment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,522</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(199,857</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(234,696</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,522</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(199,857</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,234,696</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repurchase
of ordinary shares as treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of ordinary shares to an employee </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from initial public offering, net of
offering costs of $6,469,282 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,530,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend paid </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(502,552</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distribution to the shareholders of Fuhua </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,299</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) financing activities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,967,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,923,418</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,354,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,790,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,427,812</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of year </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,450,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,805,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,596,197</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, end of year </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,805,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70,596,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">46,168,385</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental disclosure of cash flow information</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes paid </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">283,284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">93,977</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest paid </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental disclosures of non-cash financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of Series&nbsp;A and/or Series&nbsp;B convertible
preference shares into ordinary shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">325,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">67,129</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F - 6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="left">
<A name="305"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>ORGANIZATION AND PRINCIPAL ACTIVITIES</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>China Finance Online Co. Limited (the &#147;Company&#148;) was incorporated in Hong Kong on November
2, 1998. The Company and its subsidiaries including its variable interest entity are
principally engaged in the sale of online financial services analyzing financial and listed
company information in the People&#146;s Republic of China (&#147;PRC&#148;). The services are provided
through downloadable proprietary software research tools on their website www.jrj.com.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Details of the Company&#146;s subsidiaries and variable interest entity are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Place of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Date of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Ownership</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Company name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">incorporation</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">incorporation</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">interest</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China Finance Online (Beijing) Co., Ltd. (&#147;CFO Beijing&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Beijing, PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;9, 1998
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fortune Software (Beijing) Co., Ltd. (&#147;CFO Software&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Beijing, PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;7, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing Fuhua Innovation Technology
Investment Co., Ltd. *
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Beijing, PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;13, 2000
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Represents a variable interest entity</TD>
</TR>

</TABLE>



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PRC regulations prohibit direct foreign ownership of business entities providing internet
content services or ICP services in the PRC which included the Company&#146;s business of
providing financial information and data to Internet users as certain licenses are required
for the provision of such services. The Company and CFO Beijing are foreign or foreign
invested enterprises under PRC law and accordingly are ineligible for a license to operate
ICP services. In order to comply with these regulations, in December&nbsp;2000, the Company
established Beijing Fuhua Innovation Technology Investment Co., Ltd. (&#147;Fuhua&#148;), a variable
interest entity, through two designated shareholders who are PRC citizens and legally owned
Fuhua. There was a trust and pledge agreement between the shareholders of Fuhua and the
Company which provides that the shareholders of Fuhua hold the equity interests of Fuhua in
trust for the Company and that all benefits, rights, and power arising from the equity
interests in Fuhua accrue to the Company. In addition, the corporate management and
business operation of Fuhua is to be conducted by the Company. Upon the establishment of
Fuhua, Mr.&nbsp;Chen Wu, an employee of an entity affiliated with the majority shareholder of the
Company and Mr.&nbsp;Wang Xinzheng, one of the founding employees and existing employee and
shareholder of the Company were designated as the shareholders of Fuhua and held 55% and
45%, respectively, of Fuhua equity interests on behalf of the Company. On January&nbsp;21, 2003,
Mr.&nbsp;Ning Jun, former Chief Executive Officer of the Company, replaced Mr.&nbsp;Wang Xinzheng as
the 45% registered shareholder of Fuhua as Mr.&nbsp;Wang Xinzheng was no longer an employee of
the Company.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>ORGANIZATION AND PRINCIPAL ACTIVITIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2004, the Company replaced the trust and pledge agreement with the shareholders of
Fuhua and entered into a series of contractual arrangements with Fuhua and its shareholders.
Pursuant to these agreements, Fuhua has the exclusive right to use certain domain names of
the CFO Beijing, Fuhua leases a substantial majority of its operating assets from CFO
Beijing and CFO Beijing is the exclusive provider of technical support and other services to
Fuhua. In return, Fuhua is required to pay licensing and service fees for the use of the
domain name, operating leases and technical support and other services received.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2004, the Company made a loan to each of the shareholders of Fuhua to capitalize
Fuhua. Principal terms of the loan agreement and affiliated agreements provide that the
loans can only be repaid by transferring all of their interests in Fuhua to the Company or
to a third party designated by the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In addition, the Company has entered into an option agreement with Fuhua and its
shareholders that provide the Company with the substantial ability to control Fuhua.
Pursuant to these contractual agreements:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">The shareholders of Fuhua have granted the Company or someone designated
by the Company an irrevocable proxy to exercise all their rights as shareholders of
Fuhua, including the right to appoint directors, the general manager and other senior
management of Fuhua;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fuhua will not enter into any transactions that may materially affect its
assets, liabilities, equity or operations without prior written consent;</div></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fuhua cannot distribute any dividends;</div></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Company can purchase the entire equity interest in, or all of the
assets of Fuhua when and if such purchase is permitted by PRC law or the current
shareholders of Fuhua cease to be directors or employees of Fuhua;</div></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">The shareholders of Fuhua have pledged their equity interest in Fuhua to
CFO Beijing to secure the payment obligations of Fuhua under all of the contractual
agreements between CFO Beijing and Fuhua; and</div></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">The shareholders of Fuhua will not transfer, sell, pledge, dispose of or
create any encumbrance on their equity interests in Fuhua without prior written consent
of CFO Beijing.</div></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each of the contractual agreements with Fuhua and its shareholders can only be amended with
the approval of our audit committee or another independent body appointed by the Company&#146;s
Board of Directors.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>ORGANIZATION AND PRINCIPAL ACTIVITIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2003, the Financial Accounting Standards Board (&#147;FASB&#148;) issued Financial
Interpretation (&#147;FIN&#148;) No.&nbsp;46 which requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the ownership interest held by the
equity investors in the entity does not have characteristics of a controlling financial
interest or does not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN 46 was effective
for all new variable interest entities created or acquired after December&nbsp;15, 2003, the FASB
issued FIN 46 (revised), which provides for the deferral of the implementation date to the
end of the first reporting period after March&nbsp;15, 2004, unless the Company has a special
purpose entity, in which case the provisions must be applied for fiscal years ending
December&nbsp;31, 2003. However, the Company has elected to retroactively apply FIN 46 (revised)
and has consolidated Fuhua as its variable interest entity from its inception.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company is the primary beneficiary of the Fuhua because the Company holds all of the
variable interests in Fuhua through related parties. The only variable interests in Fuhua
not directly held by the Company are the shares held by the registered shareholders Mr.&nbsp;Chen
Wu (55%) and Mr.&nbsp;Ning Jun (45%). Each of these individuals is a related party as described
in FIN 46 (revised)&nbsp;either because they are management or acting as a defacto agent of the
Company. The defacto relationship is established through the contractual relationships
described above under which the individuals assign all their rights as shareholders of Fuhua
to the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Basis of presentation</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The consolidated financial statements of the Company have been prepared in accordance with
the accounting principles generally accepted in the United States of America (&#147;U.S. GAAP&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Basis of consolidation</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The consolidated financial statements include the financial statements of the Company, its
two subsidiaries, CFO Beijing and CFO Software, and a variable interest entity, Fuhua. All
inter-company transactions and balances have been eliminated upon consolidation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Cash and cash equivalents</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Cash and cash equivalents consist of cash on hand and highly liquid investments which are
unrestricted as to withdrawal or use, and which have maturities of three months or less when
purchased.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Use of estimates</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities
and revenue and expenses in the financial statements and accompanying notes. Significant
accounting estimates reflected in the Company&#146;s financial statements include the useful
lives and impairment for property and equipment, valuation allowance for deferred tax
assets, stock-based compensation expense and impairment of goodwill valuation. Actual
results could differ from those estimates.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Significant risks and uncertainties</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company participates in a dynamic high-technology industry and believes that changes in
any of the following areas could have a material adverse effect on the Company&#146;s future
financial position, results of operations, or cash flows: advances and trends in new
technologies and industry standards; stock market performance and public interest in the
Chinese stock market; competition from other competitors; changes in key suppliers; changes
in certain strategic relationships; regulatory or other factors; and risks associated with
the Company&#146;s ability to attract and retain employees necessary to support its growth.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Property and equipment, net</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Property and equipment, net are carried at cost less accumulated depreciation. Depreciation
is calculated on a straight-line basis over the following estimated useful lives:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Technology infrastructure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">5 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">5 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture, fixtures and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">5 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Motor vehicle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">5 years</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Impairment of long-lived assets</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may no longer be recoverable.
When these events occur, the Company measures impairment by comparing the carrying value of
the long-lived assets to the estimated undiscounted future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of the expected
undiscounted cash flow is less than the carrying amount of the assets, the Company would
recognize an impairment loss based on the fair value of the assets.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Goodwill</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The excess of the purchase price over the fair value of net assets acquired is recorded on
the consolidated balance sheet as goodwill.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>SFAS No.&nbsp;142 requires the Company to complete a two-step goodwill impairment test. The
first step compares the fair values of each reporting unit to its carrying amount, including
goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is
not considered to be impaired and the second step will not be required. If the carrying
amount of a reporting unit exceeds its fair value, the second step compares the implied fair
value of goodwill to the carrying value of a reporting unit&#146;s goodwill. The implied fair
value of goodwill is determined in a manner similar to accounting for a business combination
with the allocation of the assessed fair value determined in the first step to the assets
and liabilities of the reporting unit. The excess of the fair value of the reporting unit
over the amounts assigned to the assets and liabilities is the implied fair value of
goodwill. This allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any assets or liabilities.
An impairment loss is recognized for any excess in the carrying value of goodwill over the
implied fair value of goodwill.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of December&nbsp;31, 2005, the Company performed a goodwill impairment test by comparing the
book value to the fair value of each reporting unit. Based on the Company&#146;s assessment,
there was no impairment issue and thus no impairment charge was recorded.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Revenue recognition</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company generates revenue primarily from annual subscription fees from subscribers to
their financial data and information services including their downloadable proprietary
software research tools. The Company recognizes revenue under the provisions of Statement
of Position No 97-2 (&#147;SOP 97-2&#148;) entitled &#147;Software Revenue Recognition"(as amended by SOP
98-9). Accordingly, the Company recognizes revenues when all of the following criteria are
met: (1)&nbsp;persuasive evidence of an arrangement exists, (2)&nbsp;delivery has occurred, (3)&nbsp;the
fee is fixed or determinable and (4)&nbsp;collectibility is probable. Upon receipt of the
upfront cash payments from the subscriber, the Company will activate the subscribers account
and provide the subscriber the access code. This will commence the one-year subscription
period and the full payment will be deferred and recognized ratably over the one-year
subscription period. Since the Company does not have sufficient vendor specific objective
evidence to allocate the revenue to the various elements of the arrangement, the Company
recognizes revenue ratably over the life of the arrangement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Subscription-based revenue includes the benefit of the rebate of value added taxes on sale
of the downloaded software received from the Chinese tax authorities as part of the PRC
government policy of encouraging software development in the PRC. In 2003, 2004 and 2005,
the Company recognized $40,260, $613,050 and $708,613, respectively, in value added tax
refunds.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 11
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<br>(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Revenue recognition</U> &#151; continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company provides short messaging services (&#147;SMS&#148;) which are delivered primarily through
intermediary companies licensed to provide SMS services on behalf of mobile phone service
providers. The Company records the net amount of revenues received from the intermediary
company after deducting service and network fees. The Company evaluates the criteria
outlined in EITF No.&nbsp;99-19, &#147;Reporting Revenue Gross as Principal Versus Net as an Agent,&#148;
in determining whether it is appropriate to record the gross amount of revenues and related
costs or the net amount earned after deducting service and network fees paid to the mobile
phone service providers. Currently, the Company records the net amount billed to its
customers since the Company is the agent in these transactions primarily working through an
intermediary of the mobile phone service provider, has little latitude in establishing
prices, and is not involved in the determination of the service specifications.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company generally derives its advertising fees from advertising sales on their Website
principally for a fixed period of time, generally less than one year. Revenues from
advertising arrangements are recognized ratably over the period the advertising is
displayed.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Cost investment</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For investments in an investee over which the Company does not have significant influence,
the Company carries the investment at cost and recognizes income as any dividends received
from distribution of investee&#146;s earnings. The Company reviews the cost investments for
impairment whenever events or changes in circumstances indicate that the carrying value may
no longer be recoverable.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Foreign currency translation</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The functional currency of the Company&#146;s subsidiaries
and variable interest entity is Renminbi (&#147;RMB&#148;). Transactions
denominated in currencies other than RMB are translated into RMB at the exchange rates
quoted by the People&#146;s Bank of China (the &#147;PBOC&#148;) prevailing at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies are
translated into RMB using the applicable exchange rates quoted by the PBOC at the balance
sheet dates. The resulting exchange differences are included in the statement of
operations.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has determined that the U.S. dollar as its functional and reporting currency.
Accordingly assets and liabilities are translated using exchange rates in effect at each
year end and average exchange rates are used for the consolidated statements of operations.
Translation adjustments resulting from translation of these consolidated financial
statements are reflected as accumulated other comprehensive income in the
shareholders&#146; equity.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Foreign currency risk</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The RMB is not a freely convertible currency. The State Administration for Foreign
Exchange, under the authority of the People&#146;s Bank of China, controls the conversion of
Renminbi into foreign currencies. The value of the RMB is subject to changes in central
government policies and to international economic and political developments affecting
supply and demand in the China Foreign Exchange Trading System market. The cash and cash
equivalents of the Company included aggregate amounts of $10,200,804 at December&nbsp;31, 2004
and $42,676,039 at December&nbsp;31, 2005 which were denominated in RMB.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Product development expenses</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>These costs are expensed as incurred until technological feasibility has been established,
at which time any additional costs would be capitalized. To date, the Company has
essentially completed its development concurrently with the establishment of technological
feasibility, and, accordingly, no costs have been capitalized.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Advertising costs</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company expenses advertising costs as incurred. Total
advertising expenses were $70,942, $414,907, and $1,389,899 for the
years ended December&nbsp;31, 2003, 2004 and 2005, respectively and
have been included as part of sales and marketing expenses.</TD>
</TR>


<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Income taxes</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deferred income taxes are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements, net operating
loss carry forwards and credits by applying enacted statutory tax rates applicable to future
years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Current income taxes are provided for in accordance with the laws of
the relevant taxing authorities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Comprehensive income</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Comprehensive income includes foreign currency translation adjustments.
Comprehensive income is reported in the statements of shareholders&#146; equity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Fair value of financial instruments</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Financial instruments include cash and cash equivalents. The carrying values of cash and
cash equivalents approximate their fair values due to their short-term maturities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Stock-based compensation</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company grants stock options to its employees and certain non-employees. The Company
records a compensation charge for the excess of the fair value of the stock at the grant
date or any other measurement date over the amount an employee must pay to acquire the
stock in accordance with Accounting Principle Board Opinion
(&#147;APB&#148;) No.&nbsp;25 &#147;Accounting for Stock Issued to
Employees&#148;. The compensation expense is recognized over the applicable service period, which is
usually the vesting period. The Company accounts for stock-based awards to non-employees by
recording a charge for the services rendered by the non-employees using the Black-Scholes
option pricing model.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Stock-based compensation</U> &#151; continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Had compensation cost for options granted to employees under the Company&#146;s stock option plan
(the &#147;Plan&#148;) been determined based on the fair value at the grant dates, the Company&#146;s pro
forma net income would have been as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to ordinary
shareholders as reported: </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">838,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Stock-based compensation as reported </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,589</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Stock-based compensation determined
using the fair value method </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(256,947</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,935,649</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma income attributable to
ordinary shareholders </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">838,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,373,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,702,127</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">As reported </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pro forma </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">As reported </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pro forma </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The fair value of each option and share granted is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for grants during the
applicable period.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Option grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average risk-free rate of return </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.87</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.37</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected option life </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">2.41 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">2.94 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility rate </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">73.78</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">65.08</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend yield </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F - 14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Income per share</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basic income per share is computed by dividing net income by the weighted average number of
ordinary shares outstanding during the period. Diluted income per ordinary share reflects
the potential dilution that could occur if securities or other contracts to issue ordinary
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares were exercised or converted into ordinary shares.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Recently issued accounting standards</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In December&nbsp;2004, the FASB issued SFAS No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;SFAS
No.&nbsp;123(R)&#148;).This statement is a revision to SFAS No.&nbsp;123 and supercedes APB Opinion No.&nbsp;25.
This statement establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services, primarily focusing on the accounting
for transactions in which an entity obtains employee services in share-based payment
transactions. Entities are required to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during which an
employee is required to provide service, the requisite service period (usually the vesting
period), in exchange for the award. The grant-date fair value of employee share options and
similar instruments are to be estimated using option-pricing models. If an equity award is
modified after the grant date, incremental compensation cost will be recognized in an amount
equal to the excess of the fair value of the modified award over the fair value of the
original award immediately before the modification. This statement is effective as of the
beginning of the first interim or annual reporting period that begins after June&nbsp;15, 2005.
In accordance with the standard, the Company is required to adopt SFAS No.&nbsp;123(R) effective
January&nbsp;1, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Upon adoption, the Company has two application methods to choose from: the
modified-prospective transition approach or the modified-retrospective transition approach.
Under the modified-prospective transition method the Company would be required to recognize
compensation cost for share-based awards to employees based on their grant-date fair value
from the beginning of the fiscal period in which the recognition provisions are first
applied as well as compensation cost for awards that were granted prior to, but not vested
as of the date of adoption. Prior periods remain unchanged and pro forma disclosures
previously required by SFAS No.&nbsp;123 continue to be required. Under the
modified-retrospective transition method, the Company would restate prior periods by
recognizing compensation cost in the amounts previously reported in the pro forma footnote
disclosure under SFAS No.&nbsp;123. Under this method, the Company is permitted to apply this
presentation to all periods presented or to the start of the fiscal year in which SFAS No.
123(R) is adopted. The Company would follow the same guidelines as in the
modified-prospective transition method for awards granted subsequent to adoption and those
that were granted and not yet vested. The Company believes that the impact that the
adoption of SFAS No.&nbsp;123(R) will have on its financial position or results of operations
will approximate the magnitude of the stock-based employee compensation cost disclosed in
Note 2 pursuant to the disclosure requirements of SFAS No.&nbsp;148.</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F - 15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Recently issued accounting standards</U> &#151; continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In October&nbsp;2005, the FASB issued FSP FAS 123(R)-2, &#147;Practical Accommodation to the
Application of Grant Date as Defined in FASB Statement No.&nbsp;123(R)&#148;, which provides
clarification of the concept of mutual understanding between employer and employee with
respect to the grant date of a share-based payment award. This FSP provides that a mutual
understanding of the key terms and conditions of an award shall be presumed to exist on the
date the award is approved by management if the recipient does not have the ability to
negotiate the key terms and conditions of the award and those key terms and conditions will
be communicated to the individual recipient within a relatively short time period after the
date of approval. This guidance shall be applied upon initial adoption of SFAS 123(R). The
Company is currently evaluating the effect that the adoption of the FSP will have on its
consolidated results of operations and financial condition but does not expect it to have a
material impact.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, the FASB issued SFAS No.&nbsp;154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No.&nbsp;20 and FASB Statement No.&nbsp;3. SFAS No.&nbsp;154 provides guidance
on the accounting for and reporting of accounting changes and error corrections. It
establishes retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of the correction of
an error. SFAS No.&nbsp;154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December&nbsp;15, 2005. The Company does not expect the adoption
of SFAS No.&nbsp;154 on January&nbsp;1, 2006 to have a material impact on its results of operations
and financial condition.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2006, the Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS No.&nbsp;155,
&#147;Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No.&nbsp;133
and 140.&#148; SFAS No.&nbsp;155 amends SFAS No.&nbsp;133, &#147;Accounting for Derivative Instruments and
Hedging Activities&#148;, to permit fair value remeasurement for any hybrid financial instrument
with an embedded derivative that otherwise would require bifurcation, provided that the
whole instrument is accounted for on a fair value basis. SFAS No.&nbsp;155 amends SFAS No.&nbsp;140,
&#147;Accounting for the Impairment or Disposal of Long-Lived Assets&#148;, to allow a qualifying
special-purpose entity (SPE)&nbsp;to hold a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS No.&nbsp;155
applies to all financial instruments acquired or issued after the beginning of an entity&#146;s
first fiscal year that begins after September&nbsp;15, 2006, with earlier application allowed.
The Company does not expect the adoption of SFAS No.&nbsp;155 to have a material impact on its
consolidated results of operations and financial condition.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In March&nbsp;2005, the FASB issued FIN 47, &#147;Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement No.&nbsp;143&#148; (&#147;FIN 47&#148;), which requires an
entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liability&#146;s fair value can be reasonably estimated. FIN 47
is effective for fiscal years ending after December&nbsp;15, 2005. The Company does not expect
the adoption of FIN 47 will have a material impact on its results of operations and
financial condition.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F - 16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. PREPAID EXPENSES AND OTHER CURRENT ASSETS</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Prepaid expenses and other current assets consists of:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest receivable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">92,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">562,673</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepaid expenses </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">470,926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Staff advances and other receivables </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,612</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advances to suppliers </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,304</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">331,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,131,515</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. COST INVESTMENT</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In December&nbsp;2005, the Company purchased 9,800,000 Series&nbsp;B preferred shares in Moloon
International Inc. (&#147;Moloon&#148;) for $15,000,000, which represents a 25% interest of Moloon on
an if-converted basis. The Company does not exert significant influence over the operating
and financial activities of Moloon, and accordingly, this has been recorded as a cost
investment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. PROPERTY AND EQUIPMENT, NET</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Property and equipment, net consist of:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Technology infrastructure </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">569,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">626,188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer equipment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture, fixtures and equipment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,580</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Motor vehicle </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,288</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">837,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">890,625</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated depreciation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(420,285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(378,446</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">417,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">512,179</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. GOODWILL</B>
</DIV>





<P align="center" style="font-size: 10pt">F - 17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. GOODWILL &#151; continued</B>
</DIV>





<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Beginning fiscal 2002, with the adoption of SFAS 142 &#147;Goodwill and Other Intangible Assets&#148;,
goodwill was no longer amortized, but instead tested for impairment at least on an annual
basis or more frequently if events or changes in circumstances indicate that it may be
impaired.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES</B></TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Accrued expenses and other current liabilities consist of:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued expenses </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">189,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">262,889</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Value added tax payable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,612</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other taxes payable </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,303</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued welfare benefits </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,889</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">285,696</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">381,693</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. STOCK OPTIONS</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In January&nbsp;2004, the Company adopted the 2004 stock incentive plan (the &#147;Plan&#148;) which allows
the Company to offer a variety of incentive awards to employees, directors, officers and
other eligible persons of the Company. Options to purchase 5,688,488 ordinary shares are
authorized under the Plan. In September&nbsp;2004, the Company increased the total number of
ordinary shares that are available for issuance under the Plan by additional 5,000,000
shares. Therefore, there are in total 10,688,488 options to purchase ordinary shares
authorized under the Plan. Under the terms of the Plan, options are generally granted at
prices equal to the fair market value of the Company&#146;s shares listed on the Nasdaq National
Market. Prior to the Company&#146;s initial public offering the market value of the ordinary
shares underlying the stock option was determined by the Board of Directors. As of December
31, 2005, options to purchase 15,250,488 shares of ordinary shares were outstanding.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In February&nbsp;2005, the Company granted 4,053,000 stock options to directors, officers and
employees at an exercise price that equates the trading price of the stock upon the stock
option grant. In November&nbsp;2005, the Company granted 400,000 stock options to the CEO and
200,000 stock options to the Vice President. All the exercise prices equate the trading
price of the stock at the grant date of the stock option. The Company has not recognized a
compensation expense in the consolidated financial statements since the exercise prices were
equal to the fair market values at the date of grant.
</DIV>

<P align="center" style="font-size: 10pt">F - 18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>STOCK OPTIONS &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Options to non-employees</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company granted stock options to purchase up to 6,829,500 ordinary shares outside of the
stock option plan and 90,000 options to purchase ordinary shares under the plan to
consultants and strategic advisors in 2004. The Company also granted 350,000 options under
the plan to consultants and strategic advisors in 2005. The Company recorded a compensation
expense of approximately $72,764 and $112,689 for the years ended December&nbsp;31, 2004 and
2005, respectively, estimated using the Black-Scholes option pricing model as such method
provided a more accurate estimate of the fair value of services provided by the consultants
and strategic advisers.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following assumptions were used in the option pricing model:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options to non-employees:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Average risk-free rate of return </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.48</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average expected option life </DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">2 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">2.14 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Volatility rate </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">73.78</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">56.96</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend yield </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary
of the stock option activity for both employees and non-employees is follows:</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">exercise price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">exercise price</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,492,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,517,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,003,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,731,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(25,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(514,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Outstanding at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,492,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,250,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The weighted average per share fair value of options as of the grant date was as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.17</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F - 19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. STOCK OPTIONS &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The following table summarizes information with respect to stock options outstanding at
December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Options outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Options exercisable</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">remaining</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">contractual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">exercise</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">life</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">exercisable</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">price</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;&nbsp;$0.16 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,329,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>3.18 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,846,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;&nbsp;$1.04 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3.18 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;&nbsp;$1.31 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,951,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">9.14 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">980,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;&nbsp;$1.32 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">9.14 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;&nbsp;$1.12 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">9.88 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;&nbsp;$1.16 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">9.92 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,250,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,986,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">As of December&nbsp;31, 2005, options to purchase 536,000 ordinary shares were available for
future grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. INCOME TAXES</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The Company has not recorded a tax provision for Hong Kong tax purposes as the Company does
not have any assessable profit in Hong Kong.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The subsidiary of the Company, CFO Beijing, is subject to PRC income tax at a rate of 27%
(24% PRC state income tax plus 3% PRC local income tax). In accordance with the approval by
the tax authority in March&nbsp;2004, the subsidiary is exempted from PRC state income tax for
2001, 2002, 2003 and 2004 and entitled to a 50% tax relief commencing from 2005 to 2007; and
is entitled to exemption from PRC local income tax from 2003 to 2007 and 50% tax relief
commencing from 2008 to 2012. The income tax paid by CFO Beijing in 2003 before the notice
of tax exemption was received is recorded as income tax recoverable in the balance sheet.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Another subsidiary of the Company, CFO Software is also subject to PRC income tax at a rate
of 15%. In accordance with the local tax law, CFO Software is exempted for 3&nbsp;years from PRC
state income tax for 2005, 2006 and 2007 and entitled to a 50% tax relief commencing from
2008 to 2010.
</DIV>

<P align="center" style="font-size: 10pt">F - 20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. INCOME TAXES &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The variable interest entity, Fuhua, is subject to PRC income tax at a rate of 33%. For the
years ended December&nbsp;31, 2003, 2004 and 2005, income tax expense of Fuhua is nil, $2,048 and
nil.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The principal components of the deferred income tax assets are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue recognition </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">386,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">64,036</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net operating loss carryforwards </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">396,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,817</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation allowance </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,185</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,217</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47,781</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax
assets, net &#151; current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">386,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">64,036</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">No deferred tax assets related to revenue recognition and net operating loss for 2003 have
been recorded, as they are expected to reverse during the tax exemption period. As of
December&nbsp;31, 2004 and 2005, the accumulated effect of revenue recognition is $3,219,377 and
$533,633, respectively, which are expected to reverse in the following year at the income
tax rate of 12%. As a result, the Company recognized deferred tax asset of $386,325 and
$64,036, respectively. In 2004 and 2005, the Company has not recognized deferred tax assets
on the net operating loss which is related to the Company since it is more likely than not
that the deferred tax assets will not be realized.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">There are no deferred tax liability components for 2003, 2004 or 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">As of December&nbsp;31, 2005, the Company had loss carryforwards of approximately $273,032 with
no expiration date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">During the years ended December&nbsp;31, 2003, 2004 and 2005, if the Company&#146;s subsidiaries in
the PRC were neither in the tax holiday period nor had they been specifically allowed
special tax concessions, they would have recorded additional income tax expense of $60,175,
$1,230,873 and $1,448,866, respectively, and basic and diluted income per share would have
been decreased to $0.04, $0.09 and $0.03 and $0.01, $0.04 and $0.03 for the years ended
December&nbsp;31, 2003, 2004 and 2005, respectively.
</DIV>

<P align="center" style="font-size: 10pt">F - 21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. INCOME TAXES &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">A reconciliation between the provision for income tax computed by applying the PRC
enterprise income rate of 27% to income before income taxes and the actual provision for
income taxes is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">%</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PRC enterprise income tax </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax exemption and tax relief granted to
PRC subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(35.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. SHAREHOLDERS&#146; EQUITY</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In April&nbsp;2004 the Company issued 730,000 ordinary shares for $0.00013 per share which were
valued at $0.67 per share to the Company&#146;s chief financial officer. The Company recorded
deferred stock compensation of approximately $489,006 and compensation expense of $183,378
and $244,503 in 2004 and 2005, respectively. The fair value of the ordinary shares in April
2004 was determined based on the Company&#146;s internally developed valuation methodology with
reference to the valuation analysis conducted by an independent appraiser for the value of
the ordinary shares in January&nbsp;2004, the sale of preference shares by one of the Company&#146;s
shareholders to an unrelated third party in June&nbsp;2004, and the business developments of the
Company during the intervening period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In May&nbsp;2004, the Company paid $60,299 to the shareholders of Fuhua to return the same amount
of funds advanced by the shareholders of Funhua in order to capitalize Fuhua when Fuhua was
initially incorporated. This payment was recorded as a reduction to additional paid-in
capital.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In October&nbsp;2004, the Company offered 5,000,000 American Depositary Shares (&#147;ADS&#148;),
representing 25,000,000 ordinary shares, at $13 per ADS to the public.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Upon the Company&#146;s initial public offering in October of 2004, all of the outstanding Series
A convertible preference shares and the Series&nbsp;B convertible preference shares were
converted into an aggregate of 51,476,333 ordinary shares of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In October&nbsp;2005, the Company issued 2,000,000 ordinary shares to its American Depositary
Receipt bank and in exchange received 400,000 ADSs for purposes of future exercise of share
options by employees. As of December&nbsp;31, 2005, 346,300 ADSs of the above had been issued to
the employees and the remaining 53,700 ADSs continued to be held by the Company for purposes
of future issuances.
</DIV>

<P align="center" style="font-size: 10pt">F - 22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. SHAREHOLDERS&#146; EQUITY &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Conversion
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The holders of the preference shares shall have the right, at their sole discretion, to
convert all or any portion of the preference shares into ordinary shares at any time after
such preference shares have been issued. The initial conversion rate for the conversion of
preference shares into ordinary shares shall be one for one.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Voting rights
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Each preference share shall carry a number of votes equal to the number of ordinary shares
then issuable upon its conversion into ordinary shares. The preference shares shall
generally vote together with the ordinary shares and not as a separate class, except as
provided below under the heading &#147;protective provisions&#148;.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Dividends
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">No dividend, whether in cash, in property or in shares of the capital of the Company, shall
be allowed to be paid on any other class or series of shares of the Company unless and until
a dividend in like amount was first paid in full on the preference shares on an as-converted
basis. As of December&nbsp;31, 2003, the board of directors declared a dividend of US$0.0068 per
share, amounting to $502,552 of which was paid in 2004. The total declared dividend of
$502,552 comprises $351,489 preference share dividends and $151,063 ordinary share
dividends. In 2005, the board of directors did not declare any dividend.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Treasury stock
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In 2005, the Company repurchased 10.7&nbsp;million ordinary shares at a price from $1.13 to $1.41
per share, including brokerage commission, for a total consideration of $13.2&nbsp;million. The
10.7&nbsp;million ordinary shares purchased by the Company are no longer outstanding, and are
being held by the Company as treasury stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Liquidation preference
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In the event of any liquidation, dissolution or winding up of the Company, the holders of
the preference shares shall be entitled to receive, prior to any distribution to the holders
of the ordinary shares or any other class or series of shares, an amount per preference
share equal to the purchase price of such preference share plus all declared but unpaid
dividends thereon (the &#147;Preference Amount&#148;). After the full payment of the preference
amount on all outstanding preference shares has been paid, any remaining funds and assets of
the Company legally available for distribution to shareholders shall be distributed as
follows: (i)&nbsp;first, to the holders of the preference shares, amount for each preference
share equal to 50% of the purchase price of such preference share, and (ii)&nbsp;then any
remaining funds and assets of the Company legally available for distribution to shareholders
shall be distributed pro rata among the holders of the ordinary shares. If the Company had
insufficient funds or assets to permit payment of the preference amount in full to all
holders of preference shares, then such funds and assets of the Company shall be distributed
ratably to the holders of the preference shares in proportion to the preference amount each
such holder of preference shares shall otherwise be entitled to receive. A sale of all or
substantially all the Company&#146;s assets or business or a merger of the Company with or into
another company (except for a merger to reincorporate the Company in another jurisdiction)
shall each be deemed a liquidation, dissolution or winding up of the Company.
</DIV>

<P align="center" style="font-size: 10pt">F - 23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. INCOME PER SHARE</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The following table sets forth the computation of basic and diluted income per share for the
years indicated:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to ordinary
shareholders (numerator),
basic and diluted </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">838,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares (denominator):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average ordinary shares
outstanding used in computing
basic income per share </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,124,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,912,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,341,061</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plus: Weighted average
preference shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,438,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,505,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Incremental shares from assumed
conversions of stock options </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,674,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,440,431</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average ordinary shares
outstanding used in computing
diluted income per share </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,562,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,092,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,781,492</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per share-basic </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per share-diluted </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Ordinary share equivalents are calculated using the treasury stock method. Under the
treasury stock method, the proceeds from the assumed conversion of options are used to
repurchase ordinary shares using the average fair value for the years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Full time employees of the Company in the PRC participate in a government-mandated
multi-employer defined contribution plan pursuant to which certain pension benefits, medical
care, unemployment insurance, employee housing fund and other welfare benefits are provided
to employees. Chinese labor regulations require the Company to accrue for these benefits
based on certain percentages of the employees&#146; salaries. The total provisions for such
employee benefits were $13,931, $53,660 and $107,552 for the years ended December&nbsp;31, 2003,
2004 and 2005, respectively.
</DIV>

<P align="center" style="font-size: 10pt">F - 24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Pursuant to the laws applicable to the PRC&#146;s Foreign Investment Enterprises, the Company&#146;s
subsidiary in the PRC must make appropriations from after-tax profit to non-distributable
reserve funds as determined by the Board of Directors of the Company. These reserves
include a (i)&nbsp;general reserve, (ii)&nbsp;enterprise expansion fund and (iii)&nbsp;staff bonus and
welfare fund. Subject to certain cumulative limits, the general reserve fund requires
annual appropriations of 10% of after-tax profit (as determined under PRC GAAP at each
year-end); the other fund appropriations are at the Company&#146;s discretion. These reserve
funds can only be used for specific purposes and are not distributable as cash dividends.
Appropriations to the staff welfare and bonus fund are charged to general and administrative
expenses and amounted to $6,450, $24,165 and $26,889 in 2003, 2004 and 2005, respectively.
Appropriation to general reserve amounted to $64,503, $674,205 and $268,891 in 2003, 2004
and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. COMMITMENTS</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The Company leases certain office premises under non-cancelable leases, which expire in
2005. Rent expense under operating leases for 2003, 2004 and 2005 were $159,152, $191,789
and $242,765, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Future minimum lease payments under non-cancelable operating leases agreements were as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Year ending</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">115,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. SEGMENT AND GEOGRAPHIC INFORMATION</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The Company&#146;s chief operating decision maker has been identified as the Chief Executive
Officer, who reviews consolidated results when making decisions about allocating resources
and assessing performance of the Company. The Company believes it operates in one segment
and all financial segment information can be found in the consolidated financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">Geographic Information
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The Company operates in the PRC and all of the Company&#146;s long lived assets are located in
the PRC.
</DIV>

<P align="center" style="font-size: 10pt">F - 25
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS &#151; continued<BR>
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005<BR>
(In U.S. dollars)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>15. RESTRICTED NET ASSETS</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">PRC legal restrictions permit payments of dividends by the Company&#146;s PRC subsidiaries only
out of their retained earnings, if any, determined in accordance with PRC accounting
standards and regulations. The general reserve fund, which requires annual appropriations
of 10% of after-tax profit should be set aside prior to payment of dividends. As a result
of these PRC laws and regulations, the Company&#146;s PRC subsidiary and variable interest entity
are restricted in their abilities to transfer a portion of their net assets to the Company.
As of December&nbsp;31, 2005, the amount of restricted net assets was approximately $40,676,774.
</DIV>


<P align="center" style="font-size: 10pt">F - 26
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="306"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Schedule&nbsp;1</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This financial information has been prepared in conformity with accounting principles generally
accepted in United States.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED<BR>
Financial information of Parent Company<BR>
Balance sheets</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">(in U.S. dollars)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,745,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,782,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,026</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,824,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,819,053</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments in subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,857,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,111,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term investment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loans receivable from subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,990,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill, net </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,534</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">68,732,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,970,587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities and shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>Current liabilities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses and other current liabilities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">148,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">121,040</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount due to a subsidiary </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">644,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">139,627</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary shares ($0.00013 par value; 500,000,000 shares
authorized; shares issued and outstanding 99,329,933 in 2004
and 101,329,933 in 2005) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,077</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,175,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,564,534</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Treasury stock </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred stock compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(325,221</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67,129</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive (loss)&nbsp;income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,122</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,225,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,849,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total shareholders&#146; equity </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,088,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,830,960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and shareholders&#146; equity </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">68,732,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,970,587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F - 27
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED<BR>
Financial information of Parent Company<BR>
Statements of operations</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">(in U.S. dollars)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">692,453</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370,781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,063,234</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from operations </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(130,126</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(349,428</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,063,234</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">560,772</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in earnings of subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,320,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,761,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,126,649</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expense </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on preference shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(351,489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to ordinary shareholders </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">838,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F - 28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><!-- LANDSCAPE -->
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED<BR>
Financial information of Parent Company<BR>
Statements of shareholders&#146; equity and other comprehensive income</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Retained</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Series A convertible</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Series B convertible</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Additional</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Deferred</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">comprehensive</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">earnings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">preference shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">preference shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Ordinary shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">paid-in</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">stock-based</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">income</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">shareholders&#146;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Comprehensive</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Treasury stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">compensation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(loss)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">deficit)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">equity</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">income</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of January&nbsp;1, 2003 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,315,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,833,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,784,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,997,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(142</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,059,156</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,946,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">202,182</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of ordinary shares to an employee </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,666,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of Series&nbsp;A convertible preference shares into
ordinary shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,672,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(216</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on preference shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(351,489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(351,489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on ordinary shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2003 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,643,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,833,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,123,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,093,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(371,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,731,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,190,258</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of ordinary shares to an employee </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">730,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options issued to non-employees </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">541,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(541,791</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of ordinary shares upon the initial public offering
(net of offering costs of $6,469,282) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,527,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,530,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of preference shares to ordinary shares upon
initial public offering </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,643,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,954</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,833,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,476,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distribution to the shareholders of Fuhua </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,299</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,299</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances as of December&nbsp;31, 2004 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,329,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,175,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(325,221</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,225,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,088,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,144</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repurchase
of ordinary shares as treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of
ordinary shares to an employee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock option issued to non-employees </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2005 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">101,329,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">64,564,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(67,129</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">671,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,849,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,830,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,295,320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F - 29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHINA FINANCE ONLINE CO. LIMITED<BR>
Financial information of Parent Company<BR>
Statements of cash flows</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">(in U.S. dollars)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income attributable to ordinary shareholders </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">838,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends on preference shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">351,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,624,187</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370,781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity in earnings of subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,320,056</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,761,933</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,126,649</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other current assets </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76,040</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,226</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amount due from a subsidiary </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">271,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued expenses and other current liabilities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,234</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amounts due to subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(477,841</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in)
operating activities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,134,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">945,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(594,530</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investments in subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(500,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,500,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost investment </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,000,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net increase in loans to subsidiaries </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,990,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash
(used in) investing activities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(500,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49,490,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repurchase
of ordinary shares as treasury stock </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,200,394</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend from a subsidiary </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,373,183</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of ordinary shares to an employee </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from initial public offering,
net of offering cost of $6,469,282 </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,530,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend paid </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(502,552</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distribution to the shareholders of Fuhua </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,299</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) financing activities </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,967,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,550,236</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and
cash equivalents </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,135,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,413,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(56,963,633</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents,
beginning of the year </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,332,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,745,660</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, end of the year </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,332,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,745,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,782,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental disclosures of non-cash
financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of Series&nbsp;A and/or Series
B convertible preference shares into
ordinary shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred stock-based compensation </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">325,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">67,129</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F - 30
</DIV>

</BODY>
</HTML>
[{"type": "20-F", "sequence": "1", "filename": "h00544e20vf.htm", "description": "CHINA FINANCE ONLINE", "secsgml_size_bytes": 1023447}]
{"company-data": {"conformed-name": "China Finance Online Co. LTD", "cik": "0001297830", "assigned-sic": "7389", "irs-number": "000000000", "state-of-incorporation": "K3", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "20-F", "act": "34", "file-number": "000-50975", "film-number": "06860866"}, "business-address": {"street1": "RM 610B, 6/F, PING", "street2": "NO.23 FINANCIAL STREET, XICHENG DISTRICT", "city": "BEIJING", "state": "F4", "zip": "100032", "phone": "(86-10)6621-0631"}, "mail-address": {"street1": "RM 610B, 6/F, PING", "street2": "NO.23 FINANCIAL STREET, XICHENG DISTRICT", "city": "BEIJING", "state": "F4", "zip": "100032"}}
CHINA FINANCE ONLINE
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2005
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date
of event requiring this shell company
report _____________
For the transition period from
to
.
Commission file number:
000-50975
CHINA FINANCE ONLINE CO. LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Hong Kong
(Jurisdiction of incorporation or organization)
Room 610B, 6/F, Ping'an Mansion
No. 23 Financial Street
Beijing 100032, People's Republic of China
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
None
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
American Depositary Shares, each representing 5 ordinary shares,
par value HK$0.001 per share *
(Title of Class)
*Not for trading, but only in connection with the listing on the Nasdaq National Market of American
Depository Shares each representing 5 ordinary shares pursuant to the requirements of the
Securities and Exchange Commission
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common
stock as of the close of the period covered by the annual report: 101,329,933 ordinary shares, par
value HK$0.001 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
o
Yes
þ
No
If this report is an annual or transaction report, indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o
Yes
þ
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
þ
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
o
Yes
þ
No
Indicate by check mark which financial statement item the registrant has elected to follow:
o
Item 17
þ
Item 18
1
CHINA FINANCE ONLINE CO. LIMITED
TABLE OF CONTENTS
Page
INTRODUCTION
3
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
4
Item 2.
Offer Statistics and Expected Timetable
4
Item 3.
Key Information
4
Item 4.
Information on the Company
25
Item 5.
Operating and Financial Review and Prospects
43
Item 6.
Directors, Senior Management and Employees
57
Item 7.
Major Shareholders and Related Party Transactions
64
Item 8.
Financial Information
68
Item 9.
The Offer and Listing
69
Item 10.
Additional Information
70
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
76
Item 12.
Description of Securities Other than Equity Securities
76
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
76
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
76
Item 15.
Controls and Procedures
76
Item 16A.
Audit Committee Financial Expert
77
Item 16B.
Code of Ethics
77
Item 16C.
Principal Accountant Fees and Services
77
Item 16D.
Exemption from the Listing Standard for Audit Committees
77
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
77
PART III
Item 17.
Financial Statement
78
Item 18.
Financial Statements
78
Item 19.
Exhibits
78
EX-4.15 SECURITIES INFORMATION OPERATION LICENSE CONTRACT
EX-4.16 CONTRACT FOR LICENSE OF PROPRIETARY INFORMATION
EX-4.17 CONTRACT FOR FINANCIAL AND ECONOMIC DATABANK SERVICE, AS AMENDED
EX-4.20 LEASE CONTRACT FOR HOUSING UNIT
EX-4.21 LEASE CONTRACT FOR HOUSING UNIT
EX-4.22 LEASE CONTRACT FOR HOUSING UNIT
EX-4.26 LABOR CONTRACT
EX-12.1 CEO CERTIFICATION
EX-12.2 CFO CERTIFICATION
EX-13.1 CEO CERTIFICATION PURSUANT TO SECTION 906
EX-13.2 CFO CERTIFICATION PURSUANT TO SECTION 906
2
Table of Contents
INTRODUCTION
Except where the context otherwise requires and for purposes of this annual report only:
•
"we," "us," "our company" and "our" refer to China Finance Online Co. Limited, or CFO Hong Kong,
its subsidiaries, China Finance Online (Beijing) Co., Ltd., or CFO Beijing, and Fortune Software
(Beijing) Co., Ltd., or Fortune Software and, in the context of describing our operations, also
include our PRC-incorporated affiliate, Fuhua Innovation Technology Development Co., Ltd., or
Fuhua;
•
"shares" and "ordinary shares" refer to our ordinary shares, "preferred shares" refers to our
preferred shares, all of which were converted into our ordinary shares upon the completion of
our initial public offering on October 20, 2004, "ADSs" refers to our American depositary
shares, each of which represents five ordinary shares, and "ADRs" refers to the American
depositary receipts which evidence our ADSs;
•
"China" or "PRC" refers to the People's Republic of China, excluding Taiwan, Hong Kong and Macau;
•
"Hong Kong" refers to the Hong Kong Special Administrative Region of the People's Republic of
China; and
•
all references to "Renminbi," "RMB" or "yuan" are to the legal currency of China, all references
to "U.S. dollars," "dollars," "$" or "US$" are to the legal currency of the United States and
all references to "Hong Kong dollars" or "HK$" are to the legal currency of Hong Kong. Any
discrepancies in any table between totals and sums of the amounts listed are due to rounding.
We and certain selling shareholders of our company completed the initial public offering of
6,200,000 American Depositary Shares, each representing five of our ordinary shares, par value
HK$0.001 per share on October 20, 2004. On October 15, 2004, we listed our ADSs on the Nasdaq
National Market, or Nasdaq, under the symbol "JRJC."
FORWARD-LOOKING INFORMATION
This annual report on Form 20-F contains forward-looking statements that are based on our current
expectations, assumptions, estimates and projections about us and our industry. All statements
other than statements of historical fact in this annual report are forward-looking statements.
These forward-looking statements can be identified by words or phrases such as "may," "will,"
"expect," "anticipate," "estimate," "plan," "believe," "is /are likely to" or other and similar
expressions. The forward-looking statements included in this annual report relate to, among others:
•
our goals and strategies, including how we effect our goals and strategies;
•
our future business developments, business prospects, financial condition and results of operations;
•
our future pricing strategies or policies;
•
our plans to expand our service offerings;
•
our plans to diversify our sources of revenues, including by expanding our online advertising business;
•
competition in the PRC financial data and information services industry;
•
performance of China's securities markets;
•
the expected growth in the number of Internet users in China, growth of personal computer penetration
and developments in the ways most people in China access the Internet;
•
the future development of Internet consumers in China;
•
PRC governmental policies relating to the Internet and Internet content providers; and
3
Table of Contents
•
PRC governmental policies relating to the distribution of content, especially the distribution of
financial content over the Internet, or to the provision of advertising services over the Internet,
including PRC governmental pronouncements concerning a proposal by the PRC government to extend the
provision of advertising services to foreign invested enterprises.
These forward-looking statements involve various risks, assumptions and uncertainties. Although we
believe that our expectations expressed in these forward-looking statements are reasonable, we
cannot assure you that our expectations will turn out to be correct. Our actual results could be
materially different from and worse than our expectations. Important risks and factors that could
cause our actual results to be materially different from our expectations are generally set forth
in Item 3.D of this annual report, "Key information — Risk Factors" and elsewhere in this annual
report.
This annual report on Form 20-F also contains data related to the online financial data and
information services market and the Internet. This market data includes projections that are based
on a number of assumptions. The online financial data and information services market may not grow
at the rates projected by market data, or at all. The failure of these markets to grow at the
projected rates may have a material adverse effect on our business and the market price of our
ADSs. In addition, the relatively new and rapidly changing nature of the online financial data and
information services industry subjects any projections or estimates relating to the growth
prospects or future condition of our markets to significant uncertainties. Furthermore, if any one
or more of the assumptions underlying the market data turns out to be incorrect, actual results may
differ from the projections based on these assumptions.
The forward-looking statements made in this annual report relate only to events or information as
of the date on which the statements are made in this annual report. You should not place undue
reliance on these forward-looking statements and you should read these statements in conjunction
with the risk factors disclosed in Item 3.D of this annual report, "Key Information — Risk
Factors." We undertake no obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the occurrence of
unanticipated events.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
A.
Selected financial data
.
The following table presents the selected consolidated financial information for the Company. You
should read the following information in conjunction with Item 5, "Operating and Financial Review
and Prospects." The summary statement of operations data of the Company for the years ended
December 31, 2003, 2004 and 2005 and the summary balance sheet data of the Company as of December
31, 2004 and 2005 set forth below are derived from, and are qualified in their entirety by
reference to, the audited consolidated financial statements of the Company, including the notes
thereto, which are included in this annual report beginning on page F-1 below. The summary
statement of operations data for the years ended December 31, 2001 and 2002, and the summary
balance sheet data as of December 31, 2001, 2002 and 2003 set forth below are derived from audited
consolidated financial statements of the Company not included herein. Our consolidated financial
statements are prepared and presented in accordance with accounting principles generally accepted
in the United States, or U.S. GAAP.
For the year ended December 31,
(in thousands of U.S. dollars, except per share or per ADS data)(1)
2001
2002
2003
2004
2005
Consolidated statement of operations:
Gross revenues(2)
$
102
$
1,098
$
2,354
$
6,064
$
7,627
Business tax
(5
)
(48
)
(83
)
(48
)
(145
)
4
Table of Contents
For the year ended December 31,
(in thousands of U.S. dollars, except per share or per ADS data)(1)
2001
2002
2003
2004
2005
Net revenues
97
1,050
2,271
6,016
7,482
Cost of revenues
(265
)
(254
)
(298
)
(394
)
(482
)
Gross (loss) profit
(168
)
796
1,973
5,622
7,000
Operating expenses:
General and administrative
(258
)
(253
)
(400
)
(727
)
(1,740
)
Product development
(185
)
(157
)
(149
)
(173
)
(236
)
Sales and marketing
(128
)
(275
)
(284
)
(801
)
(1,795
)
Total operating expenses
(571
)
(685
)
(833
)
(1,701
)
(3,771
)
Income (loss) from operations
(738
)
111
1,140
3,921
3,229
Interest income
100
95
51
294
1,486
Interest expense
(6
)
—
—
—
—
Other income (expense)
—
(4
)
(1
)
(2
)
—
Exchange gain
—
—
—
—
366
Income
(loss) before income taxes benefit (expense)
(644
)
203
1,190
4,213
5,081
Income tax
benefit (expense) - current
—
—
384
(457
)
Net income (loss)
$
(644
)
$
203
$
1,190
$
4,597
$
4,624
Dividends on preference shares
—
—
(352
)
—
—
Income (loss) attributable to ordinary shareholders
$
(644
)
$
203
$
838
$
4,597
$
4,624
Income (loss) per share-basic
$
(0.04
)
$
0.01
$
0.04
$
0.12
$
0.05
Income (loss) per share-diluted
$
(0.04
)
$
0.00
$
0.01
$
0.05
$
0.04
Income per ADS equivalent-basic(3)
$
(0.18
)
$
0.06
$
0.21
$
0.59
$
0.25
Income per ADS equivalent-diluted(3)
$
(0.18
)
$
0.01
$
0.06
$
0.26
$
0.22
Dividends declared per ordinary share or preference shares
—
—
$
0.01
—
—
For the year ended December 31,
(in thousands of U.S. dollars)(1)
2001
2002
2003
2004
2005
Consolidated balance sheet data:
Cash and cash equivalents
$
3,487
$
4,451
$
5,806
$
70,596
$
46,168
Current working capital(4)
3,366
3,565
4,306
67,590
45,227
Total assets
3,994
4,929
6,606
71,861
63,113
Deferred revenue
186
934
1,278
3,487
1,859
Total current liabilities
249
982
1,875
3,773
2,282
Total shareholders' equity
$
3,745
$
3,947
$
4,731
$
68,088
$
60,831
(1)
For the results of operations for a specified period, all translations from Renminbi to U.S. dollars
were calculated at the average exchange rate for that period, calculated by using the average of the
exchange rates on the last day of each month during the period. For the years ended December 31,
2001, 2002, 2003, 2004 and 2005, all translations from Renminbi to U.S. dollars were calculated at
RMB8.2770, RMB8.2770, RMB8.2770, RMB8.2768 and RMB8.1472 per US$1.00, respectively.
For consolidated balance sheet data, all translations from Renminbi to U.S. dollars were calculated
at the exchange rate at the end of that year. The exchange rates as at December 31, 2001, 2002,
2003, 2004 and 2005 were RMB8.2766, RMB8.2800, RMB8.2769, RMB8.2765, and RMB8.0702 per US$1.00,
respectively.
(2)
We receive subscription fees at the beginning of the subscribers' subscription periods. Revenues
from the subscription fees are deferred and recognized ratably over the twelve month subscription
period.
(3)
Each ADS represents five ordinary shares.
(4)
Current working capital is the difference between total current assets and total current liabilities.
Exchange Rate Information
We have published our financial statements in U.S. dollars. Our business is primarily conducted in
China and denominated in Renminbi. Periodic reports will be made to shareholders and will be
expressed in U.S. dollars using the then-current exchange rates. The conversion of Renminbi into
U.S. dollars in this annual report is based on the noon buying rate in The City of New York for
cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New
York. Unless otherwise noted, all translations from Renminbi to U.S. dollars
5
Table of Contents
in this annual report
were made at $1.00 to RMB8.0702, which was the prevailing rate on December 31, 2005. The prevailing
rate on March 31, 2006 was $1.00 to RMB8.0270. We make no representation that any Renminbi or U.S.
dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case
may be, at any particular rate, the rates stated below, or at all. The PRC government imposes
controls over its foreign currency reserves in part through direct regulation of the conversion of
Renminbi into foreign exchange and through restrictions on foreign trade.
The People's Bank of China sets and publishes daily a base exchange rate. Until July 21, 2005, the
People's Bank of China set this rate with reference primarily to the supply and demand of Renminbi
against the U.S. dollar in the market during the prior day. Beginning on July 21, 2005, the
People's Bank of China has set this rate with reference primarily to the supply and demand of
Renminbi against a basket of currencies in the market during the prior day. The People's Bank of
China also takes into account other factors such as the general conditions existing in the
international foreign exchange markets. Although governmental policies were introduced in the PRC
in 1996 to reduce restrictions on 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 for Foreign
Exchange and other relevant authorities.
The following table sets forth various information concerning exchange rates between the Renminbi
and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience
and are not necessarily the exchange rates that we used in this annual report or will use in the
preparation of our periodic reports or any other information to be provided to you. The source of
these rates is the Federal Reserve Bank of New York.
Average(1)
High
Low
Period-end
(RMB per U.S.$1.00)
2001
8.2770
8.2786
8.2676
8.2766
2002
8.2770
8.2800
8.2669
8.2800
2003
8.2770
8.2800
8.2765
8.2769
2004
8.2768
8.2774
8.2764
8.2765
2005
8.1472
8.2765
8.0702
8.0702
November
8.0839
8.0877
8.0796
8.0796
December
8.0764
8.0808
8.0709
8.0709
2006
January
8.0668
8.0705
8.0608
8.0608
February
8.0500
8.0608
8.0420
8.0420
March
8.0345
8.0503
8.0170
8.0170
April
8.0155
8.0248
8.0040
8.0165
May (through May 15)
8.0067
8.0165
7.9982
7.9982
(1)
Annual averages are calculated from month-end rates. Monthly
averages are calculated using the average of the daily rates
during the relevant period.
B.
Capitalization and indebtedness.
Not Applicable.
C.
Reasons for the offer and use of proceeds.
Not Applicable.
D.
Risk factors.
Risks relating to our business
Our business is substantially dependent on the level of trading activity in China's securities
markets. Volatility and the lack of hedging instruments in China's securities markets could dampen
investors' interest in investing in China's securities markets and materially and adversely affect
our revenue and profitability.
6
Table of Contents
Our business is substantially dependent on user demand for market intelligence on China's
securities markets. Such demand has fluctuated with the level of trading activity in China's
securities markets. During the past several years, China's securities markets have experienced
significant volatility and decrease in value. The Shanghai Stock Exchange A-Share Index and the
Shenzhen Stock Exchange A-Share Index declined 38.8% and 51.8%, respectively, from January 2, 2001
to March 31, 2006. On June 6, 2005, the Shanghai Stock Exchange Index reached its lowest level
since March 1997. If China's securities markets weaken in the future, and investors' interest in
China's securities markets declines, our business could be materially and adversely affected.
China's securities market is further limited by a lack of hedging instruments that would assist
investors in hedging against market volatility. For example, investors are not permitted to sell
short in China's securities markets. Because our business is dependent on investors' interest in
China's securities markets, our business could be materially and adversely affected if market
volatility and the lack of hedging instruments continue to affect China's securities markets and
dampen investors' interest in China's securities markets.
Potential increases in inflation in China could dampen investors' interest in investing in China's
securities markets and materially and adversely affect our revenue and profitability.
In recent years, China has not experienced significant inflation, and thus inflation has not had a
significant effect on our business historically. According to the National Bureau of Statistics of
China, China's average national inflation rate, as represented by the change in the general
Consumer Price Index in China, was 1.2%, 3.9% and 1.8% in 2003, 2004 and 2005, respectively. In
response to the increased inflation rate during 2004, the Chinese government announced measures to
restrict lending and investment in China in order to reduce inflationary pressure on China's
economy; the inflation rate reduced in 2005. If China experiences increased inflation in future,
the Chinese government may introduce further measures intended to reduce the inflation rate in
China. Any such measures adopted by the Chinese government may not be successful in reducing or
slowing the increase in China's inflation rate. Sustained or increased inflation in China may have
an adverse impact on China's economy, which could lead to weak performance of China's stock markets
and, as a result, dampen investors' interest in investing in China's stock markets. Since our
business is substantially dependent on investors' demand for market intelligence on China's
securities markets, lack of investors' interest in China's securities markets may materially and
adversely affect our business and financial results.
Our revenues and profits could decline if we fail to attract sufficient numbers of subscribers to
our more comprehensive service packages or if we fail to retain our existing subscribers.
We depend on the sale of our more comprehensive service packages such as Grand Reference for a
significant portion of our total revenues. For the year ended December 31, 2005, subscription fees
generated from sales of Grand Reference were $3.6 million, representing 86% of our total
subscription fees during the same period. For the year ended December 31, 2005, we had a total of
approximately 11,011 subscribers to Grand Reference, representing 70% of our total number of
subscribers during the same period. As our service packages become more comprehensive and higher
priced, we expect that our future revenues and revenue growth will increasingly depend on sales of
our more comprehensive service packages to a much greater extent than sales of our other service
packages. If we fail to attract a sufficient number of subscribers to our more comprehensive
service packages, our revenues and profits could decline. Moreover, our financial success depends
on our ability to retain our subscribers and migrate them to newer, more comprehensive and higher
priced service packages. We may not be able to continue to develop newer and more comprehensive
service packages that our subscribers will be willing to purchase. Moreover, from time to time we
may offer discounts and promotional rates. For example, we launched a promotional program in
December 2005, in which, the existing subscribers can upgrade their services to Grand Reference V
at a promotion price. If we are unsuccessful at developing new service packages that are attractive
to our users, or if our users elect to renew existing service packages rather than purchase newer or
more comprehensive service offerings, our revenues and profits could decline.
We have a limited operating history, which may make it difficult for you to evaluate our business.
Our business was incorporated in November 1998, and our current operations were established in
April 2000. Our service offerings have only been commercially available since April 2001. Our
senior management and employees have worked together at our company for only a relatively short
period of time. Accordingly, we have a limited operating history upon which you can evaluate our
business and prospects.
7
Table of Contents
We may not be able to successfully implement our growth strategies, which could materially and
adversely affect our business, financial condition and results of operations.
We are pursuing a number of growth strategies, which will require us to expand our data and
information content and service offerings through internal development efforts and through
partnerships, joint ventures and acquisitions. Some of these strategies relate to new service
offerings for which there are no established markets in China, or relate to service offerings in
which we lack experience and expertise. We cannot assure you that we will be able to deliver new
service offerings on a commercially viable basis or in a timely manner, or at all.
In addition to our subscription-based service offerings, we also intend to increase our online
advertising revenue from our website by increasing the number of sponsors for some of our website
content and by developing other forms of Internet advertisement. Our current online advertising
business has been limited and, to date, we do not have significant experience with selling
Internet-based advertising. Moreover, we would need to hire additional employees and incur costs
relating to any efforts to increase our advertising revenues, which could adversely affect our
financial condition and operating results. We cannot assure you that we will be able to efficiently
or effectively implement and grow our online advertising business, or that online advertising on
our website will not detract from our users' experience and thereby adversely affect our brand name
or our subscription-based service offerings.
If we are unable to successfully implement our growth strategies, our revenue and profitability
will not grow as we expect, if at all, and our competitiveness may be materially and adversely
affected.
We rely principally on the acceptance of the Internet as a source of information and as a means to
perform investment research and analysis, and our success will depend on the continuation of this
trend.
The Internet, as a source of information and as a means to perform investment research and
analysis, has only recently begun to be accepted by users and investors in China. Our future
revenues and profits are substantially dependent upon the growth in acceptance by users and
investors of our service offerings and the use of Internet-based information and investment
research tools. We cannot assure you that our service offerings or the Internet as a means to
perform investment research and analysis will continue to experience growth in user acceptance, if
at all.
Our business could be materially and adversely affected if we fail to develop or introduce new
features and new research tools or if these new features and research tools are not accepted by
users.
We currently offer to our subscribers a small number of service packages with different features
and functionalities. If we introduce a new feature or a new research tool that is not favorably
received, our current subscribers may not continue to use our service as frequently as before. New
subscribers could also choose a competitive or different service offering over ours. We may also
experience difficulties that could delay or prevent us from introducing new research tools or
features. Furthermore, these research tools or features may contain errors that are discovered
after the services are introduced. We may need to significantly modify the design of these research
tools or features to correct these errors. Our business could be materially and adversely affected
if we experience difficulties or delays in introducing new features and research tools or if these
new features and research tools are not accepted by users.
Our business could be materially and adversely affected if our service package Tao of Wealth is not
accepted by middle class individuals and financial services professionals.
We launched Tao of Wealth, a new service package we developed to target middle class individuals
and financial service professionals such as financial advisers in China in August 2005. We have
invested significant resources into developing Tao of Wealth and expect to continue our efforts in
developing new editions of Tao of Wealth. If Tao of Wealth is not favorably received by our target
customers, if other service offerings not offered by us are
preferred by our target customers over Tao of Wealth, or if we experience difficulties that could
delay or prevent us from introducing new editions of Tao of Wealth, we may not be able to grow our
business in the personal finance market as we have projected and our business could be materially
and adversely affected.
We face significant competition which could adversely affect our business, financial condition and
results of operations
.
The online financial data and information services market in China is relatively new, has few
substantial barriers to entry and is competitive and rapidly changing. More broadly, the number of
financial news and information sources competing for consumers' attention and spending has
increased since we commenced operations and we
8
Table of Contents
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.
Some of the sponsors with which we currently maintain sponsorship arrangements could also become
our competitors in the future.
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 China, including us, 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.
Our business could be materially and adversely affected if the stock exchanges from which we
receive data and information fail to deliver us reliable data and price quotes or other trading
related information on a real-time basis, or if we cannot maintain our current business
relationships with our historical data providers on commercially reasonable terms.
We depend on two securities data providers associated with the Shanghai and Shenzhen Stock
Exchanges to provide us with real-time stock, bond and mutual fund quotes and other trading related
information. We primarily rely on contractual arrangements with Shanghai Stock Exchange Information
Network Co., Ltd., which is associated with the Shanghai Stock Exchange, and with Shenzhen
Securities Information Co., Ltd., which is associated with the Shenzhen Stock Exchange, pursuant to
which we pay fixed service fees in exchange for receiving real-time price quotes and other trading
related information through satellite communication. Our contract with Shanghai Stock Exchange
Information Network Co., Ltd. will expire on December 31, 2006, and our contract with Shenzhen
Securities Information Co., Ltd. will expire on March 1, 2007.
We also depend on other data and information providers to supply us with historical data and
information on listed companies, bonds and mutual funds, in accordance with our specifications and
requirements. The contractual arrangement we have with our current primary data provider, Shenzhen
Securities Information Co., Ltd., will expire in April 2007. The contractual arrangement we had
with our previous primary data provider, Shanghai Wind Information Co., Ltd., expired in September
2005. In addition, we have entered into raw data provision contracts with
Financial China Information & Technology Co., Ltd. and Shanghai Gildata Service Co., Ltd,
respectively, as alternative sources of historical data and information.
We cannot assure you that we will be able to enter into business arrangements with either of the
two securities data providers associated with the Shanghai and Shenzhen Stock Exchanges on
commercially reasonable terms, or at all, after our current contracts expire. We cannot assure you
that the two securities data providers will not charge us service fees substantially higher than
the service fees we are currently paying. Our business, financial condition and results of
operations could be materially and adversely affected if either of our two securities data
providers imposes on us service fees substantially higher than the service fees we are currently
paying. Even if we are able to
9
Table of Contents
maintain our current business arrangements for data on commercially
reasonable terms, either of the two securities data providers may fail to deliver us reliable price
quotes or other trading related information on a real-time basis. In either case, it would be
difficult for us to receive reliable real-time price quotes and other trading related information
from a different source, which could materially and adversely affect our business.
Additionally, we cannot assure you that we will be able to enter into or maintain our business
arrangements with our current primary and backup data providers on commercially reasonable terms or
at all. In this case, it could take time for us to locate alternative providers of comprehensive
historical data and information on commercially reasonable terms, which could cause disruptions to
our operations and adversely affect our business. Even if we are able to find alternative data
providers, they may fail to deliver to us reliable and comprehensive data and information in
accordance with our specifications and requirements, which could materially and adversely affect
our business.
We depend on establishing and maintaining sponsorship arrangements with high-traffic websites as
one of our primary means for attracting users. Our business could be adversely affected if we
cannot maintain these relationships or establish new relationships on commercially reasonable terms
or if these relationships do not result in increased use of our website.
We depend on establishing and maintaining sponsorship arrangements with high-traffic Internet
portals, search engines, online stock brokerage websites, and news and financial information
websites for a significant portion of our website traffic. We have established more than 72 such
sponsorship arrangements, whereby we place our website link on our sponsors' financial web pages
or, in some cases, provide our content directly on their web pages. There is intense competition
for website link placements on many of these sites, and we may not be able to enter into or
maintain such relationships on commercially reasonable terms or at all. If any of our sponsors
determines to enter into direct competition against us, we may lose its sponsorship. Even if we
enter into or are able to maintain sponsorship arrangements with these websites, these arrangements
may not attract significant numbers of users to our website. Our business could be adversely
affected if these relationships do not result in increased use of our website. Moreover, we may
have to pay significant fees to establish or maintain these relationships. Our business could be
adversely affected if we do not establish and maintain these relationships on commercially
reasonable terms.
Our business would be adversely affected if we do not continue to expand and maintain an effective
customer support force.
We market our service offerings through our website, as well as through our customer service
center, which as of March 31, 2006 had 35 full-time and trained customer support personnel. We
depend on our customer support force to explain our service offerings to our existing and potential
subscribers and resolve our subscribers' technical problems. Many of our customer support personnel
have only worked for us for a short period of time, and some of them may not have received
sufficient training or gained sufficient experience to effectively serve our customers. In
addition, we will need to further increase the size of our customer support force as our business
continues to grow. We may not be able to hire, retain, integrate or motivate additional customer
support personnel without any short-term disruptions of our operations. As a result, our business
could be adversely affected if we do not continue to expand and maintain an effective customer
support force.
We invested in a Chinese wireless technology and service company in December 2005. The financial
condition and operating performance of the company we invested in may be disappointing that will
negatively affect our business. Moreover in the future we may face difficulties implementing our
acquisition strategy, including identifying suitable opportunities and integrating them with our
existing operations, which could have a material adverse effect on our business, financial
condition and results of operations.
As part of our business strategy, we intend to use partnerships and acquisitions to facilitate the
introduction of new service offerings as well as to add capabilities that we do not currently have.
For example, we invested in Moloon International, Inc., or Moloon, a Chinese wireless technology
and service provider, in December 2005. We also entered into a strategic cooperation agreement with
Moloon in December 2005, pursuant to which we will work with Moloon to co-develop wireless
financial service products for Chinese mobile users. However, the financial condition and operating
results of Moloon may be disappointing which could negatively affect our business and financial
condition. Moreover, our cooperation with Moloon may not generate meaningful revenue or any at all.
In the future, we may also consider acquiring or entering into partnerships with companies that
specialize in non-
10
Table of Contents
exchange traded financial products in order to acquire their expertise in that
area which we believe are difficult to obtain otherwise.
Our ability to implement this strategy will depend on the availability of suitable acquisition
candidates at an acceptable cost, our ability to compete effectively to attract and reach agreement
with acquisition candidates or joint venture partners on commercially reasonable terms, the
availability of financing to complete larger acquisitions or joint ventures, as well as our ability
to obtain any required governmental approvals. In addition, the benefits of a partnership,
acquisition or joint venture transaction may take considerable time to develop, and we cannot
assure you that any particular partnership, acquisition or joint venture will produce the intended
benefits. For example, we may experience difficulties in integrating acquisitions with our existing
operations and personnel. The identification and completion of these transactions may require
significant management time and resources. Moreover, the partnership, acquisition and joint venture
strategies we pursue could also cause earnings or ownership dilution to our shareholders'
interests, which could result in losses to investors.
Our business could be materially and adversely affected if increased usage strains our server
systems or if we suffer from other system malfunctions.
In the past, our website has experienced significant increases in traffic when there are
significant business developments or financial news and activities. In addition, the number of our
users has continued to increase over time and we are seeking to further increase our user base.
Therefore, our website must accommodate a high volume of traffic to meet peak user demand and
deliver frequently updated information. Our website has in the past experienced and may in the
future experience slower response time or login delays for a variety of reasons. It is essential to
our success that our website is able to accommodate our users in an efficient manner so that our
users' experience with us is viewed favorably and without frequent delays.
We also depend on other Internet content providers, such as other financial information websites,
to provide data and information to our website on a timely basis. Our website could experience
disruptions or interruptions in service due to the failure or delay in the transmission or receipt
of this information. In addition, our users depend on Internet service providers, online service
providers and other website operators for access to our website. Each of them has experienced
significant outages in the past, and could experience outages, delays and other difficulties due to
system failures unrelated to our systems. These types of occurrences could cause users to perceive
our website as not functioning properly and therefore cause them to use other methods to obtain the
financial data and information services they need.
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.
We may be subject to, and may expend significant resources in defending against claims based on the
content and services we provide through our website and our research tools.
Due to the manner in which we obtain, collect, categorize and integrate content for our website,
and because our services, including our online bulletin boards and discussion forums, may be used
for the distribution of information and expression of opinions, claims may be filed against us for
defamation, subversion, negligence,
copyright or trademark infringement or other violations due to the nature and content of such
information. For example, our bulletin boards and online forums reflect the statements and views of
persons we do not control and we cannot be assured that such information is true and correct and is
not misleading. These persons may also have conflicts of interest in relation to their statements
or views regarding securities or other financial matters. Liability insurance for these types of
claims is not currently available in the PRC. While we do not take responsibility for statements or
views presented on our website, we may incur significant costs investigating and defending these
11
Table of Contents
types of claims even if they do not result in liability. Any such claim may also damage our
reputation if our users and subscribers do not view this content as reliable or accurate, which
could adversely affect our business.
We may be subject to intellectual property infringement claims, which may force us to incur
substantial legal expenses and, if determined adversely against us, may materially disrupt our
business.
We cannot be certain that our website content, online services and our research 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 we are found to have
violated the intellectual property rights of others, we may be enjoined 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.
Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.
We regard our copyrights, trademarks, trade secret and other intellectual property as critical to
our success. Unauthorized use of the intellectual property used in our business may adversely
affect our business and reputation. We rely on trademark and copyright law, trade secret protection
and confidentiality agreements with our employees, customers, business partners and others to
protect our intellectual property rights. Despite our precautions, it may be possible for third
parties to obtain and use our intellectual property without authorization. The validity,
enforceability and scope of protection of intellectual property in Internet-related industries are
uncertain and still evolving. In particular, the laws and enforcement procedures in the PRC do not
protect intellectual property rights to the same extent as do the laws and enforcement procedures
in the United States. Moreover, litigation may be necessary in the future to enforce our
intellectual property rights. Future litigation could result in substantial costs and diversion of
our resources, and could disrupt our business, as well as have a material adverse effect on our
financial condition and results of operations.
We depend on our key personnel and our business and growth prospects may be severely disrupted if
we lose their services.
Our future success is dependent upon the continued service of our key executives and employees. We
rely on their expertise in our business operations. If one or more of our key executives were
unable or unwilling to continue in their present positions, or if they joined a competitor or
formed a competing company in violation of their employment agreements, we may not be able to
replace them easily. As a result, our business may be significantly disrupted and our financial
condition and results of operations may be materially and adversely affected.
Furthermore, since our industry is characterized by high demand and intense competition for talent,
we may need to offer higher compensation and other benefits in order to attract and retain key
personnel in the future. Our employees are required to enter into one-year employment agreements
with us. We seek to enter into employment and non-competition agreements with our senior executives
for longer terms. We cannot assure you that we will be able to attract or retain the key personnel
that we will need to achieve our business objectives. We do not maintain key-man life insurance for
any of our key personnel.
Undetected programming errors or defects in our research tools could materially and adversely
affect our business, financial condition and results of operations.
Our research tools may contain programming errors or other defects that our internal testing did
not detect, which are commonly referred to as programming bugs. The occurrence of undetected errors
or defects in our research tools could disrupt our operations, damage our reputation and detract
from the experience of our users. As a result,
such errors and defects could materially and adversely affect our business, financial condition and
results of operations.
The discontinuation of any of the preferential tax treatments currently available to us in the PRC
could materially and adversely affect our business, financial condition and results of operations.
12
Table of Contents
Our PRC wholly-owned subsidiaries, CFO Beijing and Fortune Software, enjoy preferential tax
treatments, including reduced tax rates, tax holidays and tax refunds, provided by either the PRC
government or its local agencies or bureaus. For example, as a foreign invested software
development company, CFO Beijing was granted by the Beijing branch of the PRC tax bureau three tax
incentives that have the effect of:
•
Exempting the company from enterprise income tax for 2003 and 2004; and
•
Providing the company a preferential enterprise income tax rate of 12%
from 2005 to 2007, 25.5% from 2008 to 2012 and 27% for taxable years
thereafter, the rate currently applicable to wholly foreign-owned
enterprises based in Beijing and not subject to other tax holidays.
Similarly, in December 2004, we established our subsidiary Fortune Software in Beijing that was
classified by the Beijing local government as a foreign invested high-technology company. With the
classification of a foreign invested high-technology company, Fortune Software expects to receive
tax incentives provided to such companies from the Beijing branch of the PRC tax bureau that have
the effect of:
•
Exempting the company from enterprise income tax from 2005 to 2007; and
•
Providing the company a preferential enterprise income tax rate of
7.5% from 2008 to 2010, and 15% for taxable years thereafter, the rate
currently applicable to companies classified as high-technology
companies based in Beijing and not subject to other tax holidays.
In the absence of these incentives, CFO Beijing and Fortune Software would be subject to the
enterprise income tax rate of 33% applicable to domestic PRC companies generally. If CFO Beijing
and Fortune Software had not received these preferential tax treatments in 2004 and 2005 and was
required to pay enterprise income tax at the same rate as domestic PRC companies, our net incomes
for these two periods would have been $3.4 million and $3.2 million, respectively, representing
decreases of 27% and 31% from the reported amounts, respectively.
In addition, with respect to revenue generated from the sale of certain approved software products,
including our service packages, CFO Beijing and Fortune Software both obtain value-added-tax, or
VAT, refunds to reduce their effective VAT rates from 17% to 3%. We cannot assure you that we will
continue to enjoy any of these preferential tax treatments in the future. The discontinuation of
any of these preferential tax treatments could materially and adversely affect our financial
condition.
We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax
consequences to U.S. investors.
Depending upon the value of our shares and ADSs and the nature of our assets and income over time,
we could be classified as a passive foreign investment company, or PFIC, by the United States
Internal Revenue Service, or IRS, for U.S. federal income tax purposes. If we are classified as a
"PFIC" in any taxable year in which you hold our ADSs and you are a U.S. investor, you would
generally be taxed at higher ordinary income, rather than lower capital gain rates, if you dispose
of ADSs at a gain in a later year, even if we are not a PFIC in that year. In addition, a portion
of the tax imposed on your gain would be increased by an interest charge. Moreover, if we were
classified as a PFIC in any taxable year, you would not be able to benefit from any preferential
tax rate with respect to any dividend distribution that you may receive from us in that year or in
the following year. Finally, you would also be subject to special U.S. tax reporting requirements.
We believe that we were not a PFIC for the taxable year 2005. However, there can be no assurance
that we will not be a PFIC for the taxable year 2006 and/or later taxable years, as PFIC status is
re-tested each year and depends on the facts in such year. For example, we would be a PFIC for the
taxable year 2006 if the sum of our average market capitalization, which is our share price
multiplied by the total amount of our outstanding shares, and our liabilities over that taxable
year is not more than twice the value of our cash, cash equivalents, and other assets that are
readily converted into cash. In particular, the value of our ADSs have declined to $5.22 per ADS on
May 5, 2005 from our initial public offering price of $13.00 per ADS. If the value of our
outstanding stock were to continue to decrease for an extended period of time in which we hold
substantial cash and cash equivalents, we would likely become a PFIC. We could also be a PFIC for
any taxable year if the gross income that we and our subsidiaries earn from investing the portion
of the cash raised in our initial public offering in 2004 that exceeds the immediate
13
Table of Contents
capital needs
of our active online business is substantial in comparison with the gross income from our business
operations.
While we will continue to examine our results under the PFIC tests, we cannot assure you that we
will not be a PFIC for any future taxable year. For more information on the U.S. tax consequences
to you that would result from our classification as a PFIC please see "Taxation — United States
federal income taxation — U.S. Holders — Passive Foreign Investment Company."
Because there is limited business insurance coverage in China, any business disruption or
litigation we experience might result in our incurring substantial costs and the diversion of
resources.
The insurance industry in China is still at an early stage of development. Insurance companies in
China offer limited business insurance products and do not, to our knowledge, offer business
liability insurance. While business disruption insurance is available to a limited extent in China,
we have determined that the risks of disruption, cost of such insurance and the difficulties
associated with acquiring such insurance make having such insurance impractical for us. As a
result, except for directors and officers insurance we do not have any other business liability,
disruption or litigation insurance coverage for our operations in China. Any business disruption or
litigation might result in our incurring substantial costs and the diversion of resources.
Risks relating to our industry
The Internet infrastructure in China, which is not as well developed as in the United States or
other more developed countries, may limit our growth.
The Internet infrastructure in China is not as well developed as in the United States or other more
developed countries. In particular, we depend significantly on the PRC government and fixed line
telecommunications operators in China to establish and maintain a reliable Internet infrastructure
to reach a growing base of Internet users in China. We cannot assure you that the Internet
infrastructure in China will support the demands associated with the continued growth of the
Internet industry in China. If the necessary infrastructure standards or protocols, or
complementary products, services or facilities are not developed in China on a timely basis or at
all by these enterprises, our business, financial condition and results of operations could be
materially adversely affected.
The limited use of personal computers in China and the relatively high cost of Internet access with
respect to per capita gross domestic product may limit the development of the Internet in China and
impede our growth.
Although the use of personal computers in China has increased in recent years, the penetration rate
for personal computers in China is much lower than in the United States. In addition, despite a
decrease in the cost of Internet access in China due to a decrease in the cost of personal
computers and the introduction and expansion of broadband access, the cost of Internet access
remains relatively high in comparison to the average per capita income in China. The limited use of
personal computers in China and the relatively high cost of Internet access may limit the growth of
our business. Furthermore, any Internet access or telecommunications fee increase could reduce the
number of users that use our online services. Any fee or tariff increase could further decrease our
user traffic and our ability to derive revenues from transactions over the Internet, which could
have a material adverse effect on our business, financial condition and results of operations.
We depend largely on the infrastructure of the telecommunications operators in China, and any
interruption of their network infrastructure may result in severe disruptions to our business.
Although private Internet service providers exist in China, substantially all access to the
Internet in China is maintained through the telecommunications operators, under the administrative
control and regulatory supervision of the Ministry of Information Industry, or MII. In addition,
local networks connect to the Internet through a government-owned international gateway. We rely on
this infrastructure and to a lesser extent, certain other Internet data centers in China to provide
data communications capacity primarily through local
telecommunications lines. In the event of a large-scale infrastructure disruption or failure, we
may not have access to alternative networks and services, on a timely basis or at all.
We may not be able to lease additional bandwidth from the telecommunications operators in China on
acceptable terms, on a timely basis or at all. In addition, we may not have means of getting access
to alternative networks and services on a timely basis or at all in the event of any disruption or
failure of the network.
14
Table of Contents
Unexpected network interruptions, security breaches or computer virus attacks could have a material
adverse effect on our business, financial condition and results of operations.
We have limited backup systems and have previously experienced system failures, which have
disrupted our operations. Any failure to maintain the satisfactory performance, reliability,
security and availability of our network infrastructure may cause significant harm to our
reputation and our ability to attract and maintain users. Major risks involved in such network
infrastructure include:
•
Any break-downs or system failures resulting in a sustained shutdown
of all or a material portion of our servers, including failures which
may be attributable to sustained power shutdowns, or efforts to gain
unauthorized access to our systems causing loss or corruption of data
or malfunctions of software or hardware; and
•
Any disruption or failure in the national backbone network, which
would prevent our users from logging on to our website or accessing
our services.
Our network systems are also vulnerable to damage from fire, flood, power loss, telecommunications
failures, computer virus, hackings and similar events. Any network interruption or inadequacy that
causes interruptions in the availability of our services or deterioration in the quality of access
to our services could reduce our user satisfaction and competitiveness. In addition, any security
breach caused by hackings, which involve efforts to gain unauthorized access to information or
systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or
other computer equipment, and the inadvertent transmission of computer viruses could cause our
users to question the safety or reliability of our website and our services and could have a
material adverse effect on our business, financial condition and results of operations. In
addition, unauthorized access by third parties to our network could result in theft of personal
user information, which could have an adverse effect on our reputation.
Concerns about the security and confidentiality of information on the Internet may increase our
costs, reduce the use of our website and impede our growth.
A significant barrier to confidential communications over the Internet has been the need for
security. To date, there have been several well-publicized compromises of security as a result of
global virus outbreaks. We may incur significant costs to protect against the threat of security
breaches or to alleviate problems caused by these breaches. If unauthorized persons are able to
penetrate our network security, they could misappropriate proprietary information, including
personal information regarding our subscribers, or cause interruptions in our services. As a
result, we may be required to incur substantial costs and divert our other resources to protect
against or to alleviate these problems. Security breaches could have a material adverse effect on
our reputation, business, financial condition and results of operations.
Risks relating to regulation of our business and to our structure
We rely on contractual arrangements with Fuhua, our PRC-incorporated affiliate, and its
shareholders for our China operations, which may not be as effective in providing operational
control as direct ownership. If Fuhua fails to perform its obligations under these contractual
arrangements, we may have to legally enforce such arrangements and our business, financial
condition and results of operations may be materially and adversely affected if these arrangements
cannot be enforced.
We rely on
contractual arrangements with Fuhua, our PRC-incorporated affiliate, and its shareholders
for operating our website and conducting our advertising business. These contractual arrangements
may not be as effective in providing us with control over Fuhua as direct ownership.
If we had direct ownership of Fuhua, we would be able to exercise our rights as shareholders to
effect changes in the board of directors, which in turn could effect changes, subject to any
applicable fiduciary obligations, at the management level. However, under the current contractual
arrangements, as a legal matter, if Fuhua fails to perform its obligations under these contractual
arrangements, we may have to (i) incur substantial costs and resources to enforce such
arrangements, and (ii) rely on legal remedies under PRC law, which we cannot be sure would be
effective.
15
Table of Contents
These contractual arrangements are governed by PRC law and provide for the resolution of disputes
through either arbitration or litigation in the PRC. Accordingly, these contracts would be
interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC
legal procedures. If Fuhua fails to perform its obligations under these contractual arrangements,
we may have to rely on legal remedies under PRC law, including seeking specific performance or
injunctive relief, and claiming damages, which we cannot be sure would be effective. In addition,
the legal environment in the PRC is not as developed as in other jurisdictions, such as the United
States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these
contractual arrangements. In the event that we are unable to enforce these contractual
arrangements, our business, financial condition and results of operations could be materially and
adversely affected.
If the PRC government finds that the financial data and information services we provide do not
comply with Chinese laws and regulations relating to the provision of securities investment
advisory services, we may suffer severe disruption to our business operations and lose
substantially all of our revenue.
PRC laws require entities providing securities investment advisory services to the public to obtain
a securities advisory business permit from the China Securities Regulatory Commission, or the CSRC.
On May 30, 2002, we received a notice from the CSRC requesting that we stop promotional activities
of our service offerings involving investment advisory content and alter the relevant content of
our website and offerings so that we are no longer deemed to be providing investment advisory
related offerings. Promptly after receipt of such notice, we entered into a business cooperation
agreement with a securities advisory company licensed to provide securities advisory services,
pursuant to which we receive modeling advice and data processing advice for the development of all
of our research tools. We subsequently filed a written report with the CSRC on July 18, 2002,
explaining our business arrangements with the securities advisory company. Since that time, we have
entered into similar business cooperation agreements with five other licensed securities advisory
companies. We have not received any further notices from the CSRC since the filing and have been
providing financial data and information services under this business framework since that time. We
cannot assure you that the CSRC will not revisit this issue and take a position contrary to our
interests.
If we, CFO Beijing, Fortune Software or Fuhua are found to be in violation of Chinese laws and
regulations relating to the provision of securities investment advisory services, the relevant PRC
regulatory authorities would have broad discretion in dealing with such violations, including
imposing monetary penalties on us, ordering us to shut down our website or forcing us to pursue
alternative business objectives other than offering financial data and information services. We may
alternatively seek to apply for a securities advisory permit, but we cannot be sure that we will be
able to secure one. As a result of the possible penalties imposed on us, if the CSRC were to
conclude that we provide securities investment advisory services, we could suffer severe disruption
to our business operations and lose substantially all of our revenue.
If the PRC government finds that the agreements that establish the structure for operating our
China business do not comply with PRC government restrictions on foreign investment in the online
financial data and information service industry or the online advertising service industry, we
could be subject to severe penalties
.
PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which include operating financial data and information services through the Internet, to
be no more than 50%. PRC regulations also limit foreign ownership of advertising agencies that
provide online advertising services to be no more than 70%. Accordingly, foreign and wholly
foreign-owned enterprises are currently not able to apply for the required licenses for operating
such services in China. We are a Hong Kong company. We conducted our operations in China solely
through CFO Beijing, our wholly owned subsidiary from April 2000 to December 2004. In December
2004, we established Fortune Software as a foreign invested high-technology company, and currently
conduct our operations in China through both CFO Beijing and Fortune Software. We are a foreign
enterprise and each of CFO Beijing and Fortune Software is a wholly foreign-owned enterprise under
PRC law, and accordingly, neither we, CFO Beijing nor Fortune Software is eligible to apply for
licenses to operate our website or to provide online advertising services. In order to comply with
foreign ownership restrictions, we operate our website in China through Fuhua, which holds the
licenses required to be an Internet information content provider and the licenses and approvals
required to provide online advertising services under the relevant PRC laws. Wu Chen, a financial
manager at International Data Group China, Ltd., a PRC company affiliated with IDG Technology
Venture Investment, Inc. and IDG Technology Venture Investments, LP, two of our principal
shareholders, and Jun Ning, our former chairman and Chief Executive Officer, hold 55% and 45% of
the equity interests in Fuhua, respectively. We have been and are expected to continue to be
dependent on Fuhua to host our website,
16
Table of Contents
www.jrj.com
, and to provide online advertising services through our website. We have entered into
contractual arrangements with Fuhua, pursuant to which we provide operational support to Fuhua. In
addition, we have entered into agreements with Fuhua and Wu Chen and Jun Ning, the shareholders of
Fuhua, which provide us with the substantial ability to control Fuhua. Jun Ning is expected to
transfer his holdings in Fuhua to Zhiwei Zhao, our current Chief Executive Officer and a member of
our board of directors, later this year. When he receives Jun Ning's holdings in Fuhua, Zhiwei Zhao
is expected to replace Jun Ning as a party to all of the agreements we have entered into with Jun
Ning in connection with his holdings in Fuhua and the operation of Fuhua.
There are, however, substantial uncertainties regarding the interpretation and application of
current or future PRC laws and regulations. Accordingly, we cannot assure you that the PRC
regulatory authorities will not ultimately take a view that our arrangements with Fuhua comply with
PRC law.
If we, CFO Beijing, Fortune Software or Fuhua are found to be in violation of any existing or
future PRC laws or regulations or fail to obtain or maintain any of the required permits or
approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such
violations, including:
•
Revoking CFO Beijing's, Fortune Software's or Fuhua's business and operating licenses;
•
Discontinuing or restricting our, CFO Beijing's, Fortune Software's or Fuhua's operations;
•
Imposing conditions or requirements with which we, CFO Beijing, Fortune Software or
Fuhua may not be able to comply;
•
Requiring us, CFO Beijing, Fortune Software or Fuhua to restructure the relevant
ownership structure or operations;
•
Restricting or prohibiting our use of the proceeds of our initial public offering in
2004 to finance our business and operations in China; or
•
Taking other regulatory or enforcement actions, including levying fines, that could be
harmful to our business.
Any of these actions could cause our business, financial condition and results of operations to
suffer and the price of our ADSs to decline.
Our contractual arrangements with Fuhua may be subject to scrutiny by the PRC tax authorities and
create a potential double layer of taxation for our revenue-generating services conducted by Fuhua.
We could face material and adverse tax consequences if the PRC tax authorities determine that the
contracts between CFO Beijing and Fuhua were not entered into based on arm's-length negotiations.
Although we based these contractual arrangements on those of similar businesses, if the PRC tax
authorities determine that these contracts were not entered into on an arm's-length basis, they may
adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A
transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes,
of expense deductions recorded by CFO Beijing, which could adversely affect us by increasing the
tax liabilities of CFO Beijing without reducing the tax liabilities of Fuhua, because Fuhua
currently does not operate profitably. If we are successful in growing our online advertising
business, a transfer pricing adjustment could also result in a reduction, for PRC tax purposes, of
expense deductions recorded by Fuhua, which could adversely affect us by increasing the tax
liabilities of Fuhua as Fuhua derives increased revenue from advertising fees, without reducing the
tax liabilities of CFO Beijing. These increased tax liabilities could further result in late
payment fees and other penalties to CFO Beijing and Fuhua for under-paid taxes.
Moreover, our corporate structure and arrangements with Fuhua result in a 5% PRC business tax being
levied on both Fuhua's revenues derived from online advertising and CFO Beijing and Fortune
Software's revenues derived from its contractual arrangements with Fuhua. As a result, if our
advertising business were to increase, we could be subject to double taxation on our revenues from
online advertising.
17
Table of Contents
We rely principally on dividends and other distributions on equity paid by our wholly-owned
operating subsidiaries to fund any cash and financing requirements we may have.
We are a holding company, and we rely principally on dividends and other distributions on equity
paid by CFO Beijing or Fortune Software for our cash requirements, including the funds necessary to
service any debt we may incur. If CFO Beijing or Fortune Software incurs debt on its own behalf in
the future, the instruments governing the debt may restrict CFO Beijing's and Fortune Software's
ability to pay dividends or make other distributions to us. In addition, PRC tax authorities may
require us to amend the contractual arrangements CFO Beijing currently has in place with Fuhua in a
manner that would materially and adversely affect CFO Beijing's ability to pay dividends and other
distributions to us. Furthermore, PRC legal restrictions permit payments of dividends by CFO
Beijing or Fortune Software only out of their net income, if any, determined in accordance with PRC
accounting standards and regulations. Under PRC law, CFO Beijing and Fortune Software are also
required to set aside a portion of their net income each year to fund specified reserve funds.
These reserves are not distributable as cash dividends. Any limitation on the ability of CFO
Beijing or Fortune Software to make dividends to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay
dividends, or otherwise fund and conduct our business.
The PRC government may prevent us from distributing, and we may be subject to liability for,
content that it believes is inappropriate.
China has enacted laws and regulations governing Internet access and the distribution of news,
information or other content, as well as products and services, through the Internet. In the past,
the PRC government has stopped the distribution of information through the Internet that it
believes violates PRC law. The Ministry of Information Industry, or MII, the State Press and
Publication Administration and the Ministry of Culture recently promulgated new regulations which
prohibit information from being distributed through the Internet if it contains content that is
found to, among other things, propagate obscenity, gambling or violence, instigate crimes,
undermine public morality or the cultural traditions of the PRC, or compromise State security or
secrets.
In addition, the MII has published regulations that subject website operators to potential
liability for content included on their websites and the actions of users and others using their
systems, including liability for violations of PRC laws prohibiting the distribution of content
deemed to be socially destabilizing. The PRC's Ministry of Public Security has the authority to
order any local Internet service provider, or ISP, to block any Internet website maintained outside
China at its sole discretion. Periodically, the Ministry of Public Security has stopped the
distribution over the Internet of information which it believes to be socially destabilizing. The
PRC's State Secrecy Bureau, which is directly responsible for the protection of State secrets of
the PRC government, is authorized to block any website it deems to be leaking State secrets or
failing to meet the relevant regulations relating to the protection of State secrets in the
distribution of online information.
Under applicable PRC regulation, we may be held liable for any content we offer or will offer
through our website, including information posted on bulletin boards and online forums which we
host and maintain on our website. Furthermore, we are required to delete any content we transmit
through our website if such content clearly violates PRC laws and regulations. Where any content is
considered suspicious, we are required to report such content to PRC governmental authorities.
It may be difficult to determine the type of content that may result in liability for us. If any
financial data and information services we offer or will offer through our website were deemed to
have violated any of such content restrictions, we would not be able to continue such offerings and
could be subject to penalties, including confiscation of income, fines, suspension of business and
revocation of licenses for operating online financial data and information services, which would
materially and adversely affect our business, financial condition and results of operations.
Moreover, if any information posted on our bulletin boards or online forums were deemed to have
violated any of the content restrictions, we could be subject to similar penalties that materially
and adversely affect our business, financial condition and results of operations.
Risks relating to the People's Republic of China
Substantially all of our assets are located in China and substantially all of our revenues are
derived from our operations in China. Accordingly, our business, financial condition, results of
operations and prospects are subject, to a significant extent, to economic, political and legal
developments in China.
18
Table of Contents
The PRC's economic, political and social conditions, as well as government policies, could affect
the financial markets in China and our business.
The PRC economy differs from the economies of most developed countries in many respects, including
the amount of government involvement, level of development, growth rate, control of foreign
exchange and allocation of resources. While the PRC economy has experienced significant growth in
the past twenty years, growth has been uneven, both geographically and among various sectors of the
economy. The PRC government has implemented various measures to encourage economic growth and guide
the allocation of resources. Some of these measures benefit the overall PRC economy, but may also
have a negative effect on us. For example, our financial condition and results of operations may be
adversely affected by government control over capital investments or changes in tax regulations
that are applicable to us.
The PRC economy has been transitioning from a planned economy to a more market-oriented economy.
Although the PRC government has implemented measures since the late 1970s emphasizing the
utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the PRC government. In
addition, the PRC government continues to play a significant role in regulating industry
development by imposing industrial policies. The PRC government also exercises significant control
over China's economic growth through the allocation of resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy and providing preferential treatment to
particular industries or companies. These actions, as well as future actions and policies of the
PRC government, could materially affect the financial markets in China and our business and
operations.
The PRC legal system embodies uncertainties which could limit the legal protections available to
you and us.
The PRC 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. In 1979, the PRC
government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general. The overall effect of legislation over the past 26 years has significantly
enhanced the protections afforded to various forms of foreign investment in China. Our PRC
operating subsidiaries, CFO Beijing and Fortune Software, respectively, are wholly foreign-owned
enterprises, which are enterprises incorporated in China and wholly-owned by foreign investors. CFO
Beijing and Fortune Software are subject to laws and regulations applicable to foreign investment
in China in general and laws and regulations applicable to wholly foreign-owned enterprises in
particular. However, these laws, regulations and legal requirements are constantly changing, and
their interpretation and enforcement involve uncertainties. These uncertainties could limit the
legal protections available to us and other foreign investors, including you. In addition, we
cannot predict the effect of future developments in the PRC legal system, particularly with regard
to the Internet, including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement thereof, or the preemption of local regulations by national laws.
Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
Substantially all of our revenues and operating expenses are denominated in Renminbi. Renminbi is
currently convertible under the "current account," which includes dividends, trade and service
related foreign exchange transactions, but not under the "capital account," which includes foreign
direct investment and loans. Currently, CFO Beijing and Fortune Software (Beijing) Co. Ltd, or
Fortune Software (our new wholly owned subsidiary in China), may purchase foreign exchange for
settlement of ''current account transactions,'' including payment of dividends to us and payment of
license fees and service fees to foreign licensors and service providers, without the approval of
the State Administration for Foreign Exchange. CFO Beijing and Fortune Software may also retain
foreign exchange in their current accounts to satisfy foreign exchange liabilities or to pay
dividends. However, we cannot assure you that the relevant PRC governmental authorities will not
limit or eliminate our ability to purchase and retain foreign currencies in the future. Since a
significant amount of our future revenues will be in the form of Renminbi, the existing and any
future restrictions on currency exchange may limit our ability to utilize revenues generated in
Renminbi to fund our business activities outside China, if any, or expenditures denominated in
foreign currencies.
Fluctuations in exchange rates could result in foreign currency exchange losses.
19
Table of Contents
Because our earnings and cash from operations are denominated in Renminbi, fluctuations in exchange
rates between U.S. dollars and Renminbi will affect our balance sheet and earnings per share in
U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to
the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations. The People's Bank of
China sets and publishes daily a base exchange rate. Until July 21, 2005, the
People's Bank of China set this rate with reference primarily to the supply and demand of Renminbi
against the U.S. dollar in the market during the prior day; beginning on July 21, 2005, the
People's Bank of China has set this rate with reference primarily to the supply and demand of
Renminbi against a basket of currencies in the market during the prior day, and the People's Bank
of China also takes into account other factors such as the general conditions existing in the
international foreign exchange markets. The PRC government may further adjust the exchange rate
between the Renminbi and the U.S. dollar and other foreign currencies, and may further amend its
policy of using a fixed-rate regime to govern foreign currency transactions, although the PRC
government has not committed itself to take any such action currently. Fluctuations in the exchange
rate will also affect the relative value of any dividend we issue which will be exchanged into U.S.
dollars, the value of any U.S. dollar denominated investments we make in the future and any
earnings on such investments.
Very limited hedging transactions are available in China to reduce our exposure to exchange rate
fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our
exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions
in the future, the availability and effectiveness of these hedges may be limited and we may not be
able to successfully hedge our exposure at all. In addition, our currency exchange losses may be
magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into
foreign currency.
The recurrence of SARS in China, the potential outbreak of avian flue in China, or similar adverse
public health developments, and concerns over the spread of these diseases in China and elsewhere
may materially and adversely affect our business and operating results
.
From December 2002 to June 2003, China and certain other countries experienced an outbreak of a new
and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or
SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been
contained. Since September 2003, however, a number of isolated new cases of SARS have been
reported, most recently in central China in April 2004. During May and June of 2003, many
businesses in China were closed by the PRC government to prevent transmission of SARS. Recently,
concerns have been raised with respect to the spread of avian flu in various regions in China. Any
recurrence of the SARS outbreak, outbreak of avian flu, or the development of a similar health
hazard in China, may adversely affect our business and operating results. For instance, a
recurrence of SARS, outbreak of avian flu or any other epidemic may reduce the level of economic
activity in affected areas and negatively impact China's stock markets, which may lead to dampened
investors' interest in the stock markets and, as a result, have a material and adverse effect on
our business. In addition, health or other government regulations may require temporary closure of
our offices, or the offices of our advertisers, content providers or sponsors, which will severely
disrupt our business operations and have a material adverse effect on our financial condition and
results of operations.
Risks relating to our shares and ADSs
Stock prices of Internet-related companies, particularly companies with business operations
primarily in China, have fluctuated widely in recent years, and the trading prices of our ADSs are
likely to be volatile, which could result in substantial losses to investors.
The trading prices of our ADSs have been volatile and could fluctuate widely in response to factors
beyond our control. Since the completion of our initial public offering in October 2004, the
trading prices of our ADSs have ranged between a high of $15.99 per ADS to a low of $5.22 per ADS.
The market prices of the securities of Internet-related companies have generally been especially
volatile.
In particular, the performance and fluctuation of the market prices of other technology companies
with business operations mainly in China that have listed their securities in the U.S. may affect
the volatility in the price of and trading volumes for our ADSs. Recently, a number of PRC
companies have listed their securities, or are in the process of preparing for listing their
securities, on U.S. stock markets. Some of these companies have experienced significant volatility,
including significant price declines in connection with their initial public offerings. The
20
Table of Contents
trading
performances of these Chinese companies' securities at the time of or after their offerings may
affect the overall investor sentiment towards PRC companies listed in the U.S. and consequently may
impact the trading performance of our ADSs. These broad market and industry factors may
significantly affect the market price and volatility of our ADSs, regardless of our actual
operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly
volatile for business specific reasons. Factors such as variations in our revenue, earnings and
cash flow, announcements of new investments, cooperation arrangements or acquisitions, and
fluctuations in market prices for our services could cause the market price for our ADSs to change
substantially. Any of these factors may result in large and sudden changes in the volume and price
at which our ADSs will trade. We cannot give any assurance that these factors will not occur in the
future.
If we grant employee share options and other share-based compensation in the future, our net income
could be materially and adversely affected.
We adopted the 2004 Stock Incentive Plan, or the Plan, in January 2004, and amended the Plan in
September 2004. As of March 31, 2006, we had granted options under the Plan with the right to
purchase a total of 10,691,488 ordinary shares, of which 972,600 unvested options had been returned
to the pool of our ungranted options as a result of resignation from employment by a few former
employees. We had also granted share options to purchase up to 6,829,500 ordinary shares in January
2004, under option agreements that were independent of the Plan, to other consultants and business
advisors of the company. Until December 31, 2005 we accounted for options granted to our directors
and employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," or APB 25, and its related interpretations, which require us to recognize
compensation expenses for share options we grant where the exercise price is less than the deemed
fair value of our ordinary shares on the date of the grant. However, the Financial Accounting
Standards Board, or the FASB, has issued Statement No. 123 (Revised 2004), "Share-Based Payments,"
or SFAS 123(R), which requires all companies to recognize, as an expense, the fair value of share
options and other share-based compensation to employees at the beginning of the first annual or
interim period after June 15, 2005. As a result, beginning on January 1, 2006, we account for
compensation costs for all share options including share options granted to our directors and
employees using a fair-value based method and recognize expenses in our consolidated statement of
operations in accordance with the relevant rules under U.S. GAAP, which may have a material and
adverse effect on our reported earnings. Moreover, the additional expenses associated with
share-based compensation may reduce the attractiveness of such incentive plan to us. However, if we
reduce the scope of the Plan, we may not be able to attract and retain key personnel, as share
options are an important employee recruitment and retention tool. If we grant employee share
options or other share-based compensation in the future, our net income could be adversely
affected.
The sale or availability for sale of substantial amounts of our ADSs could adversely affect their
market price.
Sales of substantial amounts of our ADSs in the public market in the future, or the perception that
these sales could occur, could adversely affect the market price of our ADSs and could materially
impair our future ability to raise capital through offerings of our ADSs.
There were 104,329,933 of our ordinary shares and 12,078,734 ADSs (representing 60,393,670 of those
ordinary shares) outstanding as of March 31, 2006. In addition, there are outstanding options to
purchase an additional 14,685,888 ordinary shares, including options to purchase 11,535,680
ordinary shares that are vested and immediately exercisable. Their ordinary shares, once issued,
are exchangeable for our ADSs for trading in the public market. The 82,837,921 ordinary shares that
were outstanding prior to our initial public offering are "restricted securities" as defined in
Rule 144 and may not be sold in the absence of registration other than in accordance with Rule 144
under the Securities Act or another exemption from registration. These "restricted securities" are
available for sale subject to volume and other restrictions as applicable under Rule 144 of the
Securities Act. To the extent ordinary shares are sold to the market, the market price of our ADSs
could decline.
A significant percentage of our outstanding ordinary shares is held by a small number of our
shareholders, and these shareholders may have significantly greater influence on us and our
corporate actions by nature of the size of their shareholdings relative to our public shareholders.
21
Table of Contents
As of March 31, 2006, five of our existing shareholders, including IDG Technology Venture
Investments, LP, IDG Technology Venture Investment, Inc., Vertex Technology Fund (III) Ltd., Ling
Zhang and Jianping Lu, beneficially owned, collectively, approximately 55.29% of our outstanding
ordinary shares. We believe that each of these five shareholders is currently an affiliate within
the meaning of the U.S. securities laws, due to the size of their respective shareholdings in us
after the initial public offering. As of March 31, 2006, IDG Technology Venture Investments, LP and
IDG Technology Venture Investment, Inc. together have one board representative on our five-director
board, and beneficially own, collectively, approximately 26.17% of our outstanding ordinary
shares. Accordingly, these shareholders have had, and may continue to have, significant influence
in determining the outcome of any corporate transaction or other matter submitted to the
shareholders for approval, including mergers, consolidations and the sale of all or substantially
all of our assets, election of directors and other significant corporate actions. In addition,
without the consent of these shareholders, we could be prevented from entering into transactions
that could be beneficial to us.
Provisions in our charter documents and Hong Kong law, and change in control agreements we have
entered into with each of our chief executive officer and chief financial officer, may discourage
our acquisition by a third party, which could limit your opportunity to sell your shares at a
premium.
Our constituent documents and Hong Kong law include provisions that could limit the ability of
others to acquire control of us, modify our structure or cause us to engage in change in control
transactions, including, among other things, the following:
•
Our articles of association provide for a staggered board, which means that our
directors, excluding our chief executive officer, are divided into two classes, with half
of our board, excluding our chief executive officer, standing for election every two years.
Our chief executive officer will at all times serve as a director, and will not retire as a
director, so long as he remains our chief executive officer. This means that, with our
staggered board, at least two annual shareholders' meetings, instead of one, are generally
required in order to effect a change in a majority of our directors. Our staggered board
can discourage proxy contests for the election of our directors and purchases of
substantial blocks of our shares by making it more difficult for a potential acquirer to
take control of our board in a relatively short period of time.
•
Hong Kong law permits shareholders of a company to remove directors by a shareholders'
resolution. Our articles of association require any shareholder who wishes to remove a
director in this way to give us at least 120 days' notice of the resolution, making it more
difficult and time consuming for a potential acquirer who has accumulated a substantial
voting position to obtain control of our board by removing opposing directors.
•
Our articles of association provide that our board can have no less than five and no
more than nine directors. Our board currently has five directors. Any increase in the
maximum number of directors on our board beyond nine directors can only be accomplished by
amending our articles of association, which under Hong Kong law requires a shareholders'
supermajority vote of 75% and at least 21 days' notice. These restrictions can make it
more difficult for a potential acquirer who has accumulated a majority of our shares to
take control of us by promptly increasing the size of our board and appointing new
directors that are its nominees.
•
Hong Kong does not have merger laws that permit Hong Kong companies to merge in the same
way as U.S. companies could in the U.S. However, the Hong Kong Companies Ordinance has
provisions that facilitate arrangements for the reconstruction and amalgamation of
companies. The arrangement must be approved by a majority in number of each class of
shareholders and creditors with whom the arrangement is to be made, representing
three-fourths in value of each such class of shareholders or creditors that are present and
voting either in person or by proxy at meetings convened by the High Court of Hong Kong.
The arrangements must be sanctioned by the High Court of Hong Kong after shareholders or
creditors approve it at the court-convened meeting.
•
Our shareholders have authorized our board of directors, without any further action by
shareholders, to issue additional shares. Under Hong Kong law, the authority granted by our
shareholders will remain valid until the conclusion of our next annual general meeting, or
the time when our next annual general meeting is required to be held. For as long as this
approval remains effective, or is renewed, our board of directors will have the power to
issue additional ordinary shares (including ordinary shares represented by ADSs) and
22
Table of Contents
preference shares without any further action by shareholders.
In addition, our obligations under change in control agreements we entered into with each of our
chief executive officer and chief financial officer could discourage an acquisition by a third
party that you may consider favorable. Under the change in control agreements, if after a change in
control of our company has occurred, the executive is terminated without cause or resigns for good
reason, we are obligated to provide severance benefits to that executive. The current severance
benefits under the change in control agreements amount to approximately $6 million, which could
discourage or limit the ability of potential third party acquirers to engage in change in control
transactions with us. Furthermore, in the event any of the severance payments would be deemed to
give rise to "excess parachute payments" under section 280G of the U.S. Internal Revenue Code for
any of our executives subject to U.S. tax, we would be required under the change in control
agreements to gross-up the payments to such executive to take account of any such excess parachute
payments. This gross-up payment obligation could further discourage potential third-party
acquirers. In addition, these executives may determine that their severance benefits provide better
economic alternatives than their continued employment with us and, as such, they may be
incentivized by these severance benefits to encourage the company to enter into transactions
involving a change in control of our company which may not be as favorable as other strategic
alternatives available to us.
These provisions and obligations could have the effect of depriving you of an opportunity to sell
your ADSs at a premium over prevailing market prices by discouraging third parties from seeking to
acquire control of us in a tender offer or similar transactions.
We are a Hong Kong company and because the legal and procedural protections afforded minority
shareholders under Hong Kong law differ from those under U.S. law, you may have difficulty
protecting your interests as our shareholder relative to shareholders of corporations organized in
the U.S.
We are a Hong Kong company and are subject to the laws of Hong Kong. The fiduciary responsibilities
of our directors, and the ability of minority shareholders to take successful legal action in Hong
Kong against us or our directors, are governed by the laws and court procedures of Hong Kong.
Shareholders of a Hong Kong company would not be able to bring class action lawsuits against that
company or its directors in a Hong Kong court in the same way that shareholders of a U.S.
corporation might be able to bring such lawsuits in a U.S. court. In addition, professional conduct
rules applicable to Hong Kong lawyers generally prohibit Hong Kong lawyers from accepting
contingency fee arrangements, where a lawyer representing the plaintiffs is paid a fee only if the
lawsuit is successful. Without contingency fee arrangements or the ability to bring class action
lawsuits, our shareholders may find it more costly and difficult to take legal action against us or
our directors in the Hong Kong courts. The Hong Kong courts are also unlikely:
•
to recognize or enforce against us judgments of courts of the United
States based on the civil liability provisions of U.S. securities
laws; or
•
to allow original actions brought in Hong Kong, based on the civil
liability provisions of U.S. securities laws that are penal in nature.
In addition, there is no automatic statutory recognition in Hong Kong of judgments obtained in the
United States. Moreover, Hong Kong companies may not have standing to initiate a shareholder
derivative action in a federal court of the United States.
As a result of all of the above, minority public shareholders may have more difficulty in
protecting their interests in the face of actions taken by management, directors or controlling
shareholders than they would as minority public shareholders of a U.S. corporation. Moreover,
substantially all of our assets are located outside of the United States and all of our current
operations are conducted in the PRC. In addition, most of our directors and officers are nationals
and 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.
The voting rights of holders of ADSs must be exercised in accordance with the terms of the deposit
agreement, the American depositary receipts, and the procedures established by the depositary. The
process of voting through the depositary may involve delays that limit the time available to you to
consider proposed shareholders' actions and also may restrict your ability to subsequently revise
your voting instructions.
23
Table of Contents
A holder of ADSs may exercise its voting rights with respect to the underlying ordinary shares only
in accordance with the provisions of the deposit agreement and the American depositary receipts. We
do not recognize holders of ADSs representing our ordinary shares as our shareholders, and instead
we recognize the ADS depositary as our shareholder.
When the depositary receives from us notice of any shareholders meeting, it will distribute the
information in the meeting notice and any proxy solicitation materials to you. The depositary will
determine the record date for distributing these materials, and only ADS holders registered with
the depositary on that record data will, subject to applicable laws, be entitled to instruct the
depositary to vote the underlying ordinary shares. The depositary will also determine and inform
you of the manner for you to give your voting instructions, including instructions to give
discretionary proxies to a person designated by us. Upon receipt of voting instructions of a holder
of ADSs, the depositary will endeavor to vote the underlying ordinary shares in accordance with
these instructions. Although Hong Kong law requires us to call annual shareholders' meetings by not
less than 21 days' notice in writing, and all other shareholders' meeting by not less than 14 days'
notice in writing, these minimum notice requirements can be shortened or completely waived by the
consent of all holders of our ordinary shares entitled to attend and vote (in the case of annual
shareholders' meetings) or a majority in number of the holders of our ordinary shares representing
at least 95% in nominal value of the shares giving the right to attend and vote (in the case of all
other shareholders' meetings). If the minimum notice periods are shortened or waived, you may not
receive sufficient notice of a shareholders' meeting for you to withdraw your ordinary shares and
cast your vote with respect to any proposed resolution, as a holder of our ordinary shares. In
addition, the depositary and its agents may not be able to send materials relating to the meeting
and voting instruction forms to you, or to carry out your voting instructions, in a timely manner.
We cannot assure you that you will receive the voting materials in time to ensure that you can
instruct the depositary to vote your shares. The additional time required for the depositary to
receive from us and distribute to you meeting notices and materials, and for you to give voting
instructions to the depositary with respect to the underlying ordinary shares, will result in your
having less time to consider meeting notices and materials than holders of ordinary shares who
receive such notices and materials directly from us and who vote their ordinary shares directly. If
you have given your voting instructions to the depositary and subsequently decide to change those
instructions, you may not be able to do so in time for the depositary to vote in accordance with
your revised instructions.
The depositary and its agents will not be responsible for any failure to carry out any instructions
to vote, for the manner in which any vote is cast or for the effect of any such vote.
You may not receive distributions on our ordinary shares or any value for them if such distribution
is illegal or if any required government approval cannot be obtained in order to make such
distribution available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions
(which may include securities or rights distributions) it or the custodian for our ADSs receives on
our ordinary shares or other deposited securities after deducting its fees and expenses. You will
receive these distributions in proportion to the number of our ordinary shares your ADSs represent.
However, the depositary is not responsible to make a distribution available to any holders of ADSs
if it decides that it is unlawful to make such distribution. For example, it would be unlawful to
make a distribution to holder of ADSs if it consisted of securities that required registration
under the Securities Act but that were not properly registered or distributed pursuant to an
applicable exemption from registration. The depositary is not responsible for making a distribution
available to any holders of ADSs if any government approval or registration required for such
distribution cannot be obtained after reasonable efforts made by the depositary. We have no
obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights
or anything else to holders of our ADSs. This means that you may not receive the distributions we
make on our ordinary shares or any value for them if it is unlawful or unreasonable from a
regulatory perspective for us to make them available to you. These restrictions may have a material
adverse effect on the value of your ADSs.
You may be subject to limitations on transfer of your ADSs.
Your ADSs represented by American Depositary Receipts are transferable on the books of the
depositary. However, the depositary may close its books at any time or from time to time when it
deems expedient in connection with the performance of its duties. The depositary may close its
books from time to time for a number of reasons, including in connection with corporate events such
as a rights offering, during which time the depositary needs to maintain an exact number of ADS
holders on its books for a specified period. The depositary may also close its books in
24
Table of Contents
emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or
register
transfers of our ADSs generally when the books of the depositary are closed, or at any time if we
or the depositary thinks it is advisable to do so because of any requirement of law or any
government or governmental body, or under any provision of the deposit agreement, or for any other
reason.
Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our
securities. However, we cannot make rights available to our ADS holders in the United States unless
we register the rights and the securities to which the rights relate under the Securities Act or an
exemption from the registration requirements is available. In addition, the deposit agreement
provides that the depositary bank will not make rights available to you unless the distribution to
ADS holders of both the rights and any related securities are either registered under the
Securities Act or exempted from registration under the Securities Act. We are under no obligation
to file a registration statement with respect to any such rights or securities or to endeavor to
cause such a registration statement to be declared effective. Moreover, we may not be able to
establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be
unable to participate in our rights offerings and may experience dilution in their holdings.
In addition, if the depositary is unable to sell rights that are not exercised or not distributed
or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which
case you will receive no value for these rights.
ITEM 4. INFORMATION ON THE COMPANY
A.
History and development of the company.
China Finance Online Co., Ltd. was incorporated in Hong Kong in November 1998. Prior to April 2000,
we did not conduct any business operations. In April 2000, we purchased all of the equity interests
of Fortune Software (Beijing) Limited and renamed it China Finance Online (Beijing) Co., Ltd., or
CFO Beijing, whereby we acquired our website,
www.jrj.com.cn,
and commenced our online financial
and listed company data and information operations. In October 2004, we purchased another domain
name,
www.jrj.com,
and commenced operating our business under this domain name in March 2005. We
maintain the same content under both domain names.
From the
commercial launch of our service offerings in April 2001 to
December 2004, we conducted substantially
all of our operations in China through our wholly-owned subsidiary, CFO Beijing.
In December 2004, we incorporated a new wholly foreign-owned enterprise, Fortune Software (Beijing)
Co., Ltd., or Fortune Software. Since then, we have conducted substantially all of our operations
in China through those two wholly-owned subsidiaries. As wholly foreign-owned enterprises, CFO
Beijing and Fortune Software are not permitted under PRC law to provide Internet information
content, which requires special licenses from the Ministry of Information Industry or its local
branches. In order to comply with foreign ownership restrictions, we operate our website in China
through Beijing Fuhua Innovation Technology Co., Ltd., or Fuhua, which holds the licenses required
to be an Internet information content provider under the relevant PRC laws. Fuhua also holds the
licenses and approvals required to operate our online advertising service business. Wu Chen, a
financial manager of International Data Group China, Ltd., a PRC limited liability company
affiliated with IDG Technology Venture Investment, Inc. and IDG Technology Venture Investments, LP,
two of our principal shareholders, and Jun Ning, our former chairman and chief executive officer,
hold 55% and 45% of the equity interests in Fuhua, respectively. Jun Ning is expected to transfer
his holdings in Fuhua to Zhiwei Zhao, our current Chief Executive Officer and a member of our board
of directors, later this year. We have been and are expected to continue to be dependent on Fuhua
to host our website.
In October 2004, we completed the initial public offering of our ADSs, each of which represents
five of our ordinary shares, and listed our ADSs on Nasdaq.
In December 2005, we purchased a minority interest in Moloon International, Inc., or Moloon, for
$15 million. Moloon is a provider of mobile stream media technology and services, including
technology permitting mobile phone users to receive live video broadcasts, located in Beijing,
China. We also entered into a strategic cooperation agreement with Moloon in December 2005,
pursuant to which we will work with Moloon to develop financial
25
Table of Contents
services products to be available
to mobile phone users in China. In April 2006 we redeemed a portion of our equity interest in
Moloon for $1.25 million.
Our principal executive offices are located at Room 610B, 6/F, Ping'an
Mansion, No. 23 Financial Street, Xicheng District, Beijing 100032, People's Republic of China, and
our telephone number is (8610) 6621-4728. Each of CFO Beijing, Fortune Software and Fuhua have
entered into lease contracts for premises at the 9
th
Floor of Tower C, Corporate Square,
No. 35 Financial Street, Xicheng District, Beijing 100032, China and we expect to move to new
principal executive offices in this premises later this year. Our telephone number at our new
principal executive offices will be changed and will be announced when we move to these new
principal executive offices. We have appointed CT Corporation System, 111 Eighth Avenue, New York,
NY 10011, as our agent for service of process in the United States.
Our principal capital expenditures for 2003, 2004 and 2005 consisted of primarily purchases of
servers, workstations, computers, computer software, and other items related to our network
infrastructure for a total of approximately $152,000, $200,000 and $235,000, respectively.
We spent approximately $53,000 from January 1, 2006 to March 31, 2006, principally on work stations
and computers. For the remainder of 2006, we plan to spend approximately $704,000 primarily on
expenses associated with furnishing and outfitting the new principal executive offices we will move
into later this year. Capital expenditures in 2006 have been funded through operating cash flows
and through our existing capital resources.
In March 2005, our board of directors approved a stock repurchase program pursuant to which we
were authorized to repurchase up to US$10 million worth of our American Depositary Shares, or
ADSs. In May and June of 2005 we repurchased a total of 1,659,442 ADSs, representing 8,297,210
ordinary shares, at an average cost of $5.98 per ADS for a total consideration of approximately
US$10 million, including a brokerage commission of US$0.05 per ADS. In August 2005, our board
of directors approved another stock repurchase program pursuant to which we were authorized to
repurchase up to an additional US$10 million worth of our ADSs. In December 2005, we repurchased
a total of 482,164 ADSs, representing 2,410,820 ordinary shares, at an average cost of US$6.60 per
ADS for a total consideration of approximately US$3.2 million, including a brokerage commission of
US$0.05 per ADS.
B.
Business overview.
We are one of the leading companies that specialize in providing online financial and listed
company data and information in China. We offer subscription-based services based on a single
information platform that integrates data and information from multiple sources with features and
functions such as data and information search, retrieval, delivery, storage and analysis. We
deliver these features and functions using software tools we have developed, which we refer to as
research tools. Our research tools combine:
•
financial analysis tools which permit users to calculate and analyze quantitatively financial data;
•
current and historical financial data and information for China's listed company stocks, bonds and
mutual funds;
•
categorized news and research reports; and
•
Personal finance tools such as book keeping, financial report and payment alert with comprehensive
real time personal wealth management product information and news;
•
online forums and bulletin boards,
and, together with our screen layout and menu options, display them in a manner designed for ease
of use. The content and technology comprising our integrated information platform is also designed
to be adaptable so that as we develop new research tools and adopt new content and features, these
new research tools, content and features can be easily integrated with our existing platform.
Our service offerings permit users to subscribe to one or more of the eleven service packages we
currently offer. Each service package contains one or more research tools. Our research tools
include a number of features and functions that, we believe, are innovative and are not widely
available in financial markets outside of China. Our service offerings can be accessed using our
research tools and through our website at
www.jrj.com
or
www.jrj.com.cn
. "JRJ" is the abbreviation
of "Jin Rong Jie", which means financial industry in Chinese. As of
26
Table of Contents
March 31, 2006, we had a total
of approximately 2.8 million registered users, and during the twelve months ended March 31, 2006,
we had approximately 7,992 new subscribers and 8,729 repeat subscribers. Our registered users
are Internet users who maintain a registered account with our website, and our subscribers are our
registered users who also subscribe to one of our subscription-based services for a fee. New
subscribers for a specified period are subscribers who subscribed to any of our service packages
during that period who were not subscribers at the beginning of that period. Repeat subscribers for
a specified period are subscribers who either have purchased more than one service package from us
during that period, or have purchased our service packages in the past and have purchased at least
one service package during that period.
Our service offerings to users are used by and targeted at a broad range of investors in China,
including individual investors managing their own money, professional investors such as
institutional investors managing large sums of money on behalf of their clients and high net worth
individuals, other financial professionals such as investment bankers, stock analysts and financial
reporters, and middle class individuals. In August 2005, we launched a new subscription service
offering, Tao of Wealth. The package combines personal finance tools such as book keeping,
financial reports and payment alerts with comprehensive real time personal wealth management
product information and news. The new service offering is targeted at middle class individuals and
financial professionals such as financial advisors. All of our research tools are designed for and
tailored toward investors in China, allowing them to make informed investment decisions with
respect to all of China's listed company stocks, bonds and mutual funds according to specifications
and analyses determined by them. As a result of our efforts to develop and offer more comprehensive
service packages to our subscribers, we have created a customer base of high-end subscribers,
determined by us as subscribers who pay us an annual subscription fee of RMB2,400 (US$297) or more.
High-end subscribers tend to require our more comprehensive service packages and we have
increasingly focused our product development efforts at high-end subscribers' complex needs. The
number of our high-end subscribers with active subscriptions decreased by approximately 56% from
approximately 5,700 for the twelve months ended March 31, 2005 to approximately 2,500 for the
twelve months ended March 31, 2006.
Our website users are not charged for visiting our website and obtaining basic financial
information such as real-time quotes and historical financial information for all of China's listed
company stocks, bonds and mutual funds, financial news and research reports. Our integrated
information platform, which allows users to select from a range of downloadable and web-based
research tools, is available only through subscription. We categorize, process and, through our
subscription-based research tools and our website content, present data and research results to our
subscribers, allowing them to make informed investment decisions. Our service offerings are
designed to enhance our users' and subscribers' experience based on a number of factors:
Comprehensive.
We offer a broad range of data and information regarding China's listed company stocks, bonds and
mutual funds. We offer more than basic financial data such as price and trading information and
provide our subscribers with breaking economic and financial news, detailed historical data and
information, financial analysis tools, market coverage and listed company analysis and online
forums that facilitate our subscribers' own investment analysis efforts. We believe we have built a
comprehensive database of historical financial data and information on China's listed companies,
bonds and mutual funds with data and information dating back to December 1990, when the Shanghai
and Shenzhen Stock Exchanges first opened for trading.
Integrated.
Our information platform integrates data and information from multiple sources with features and
functions such as data and information search, retrieval, delivery, storage and analysis. Our
platform integrates all of the research tools, data and other information we have developed or
gathered and, together with our screen layout and menu options, displays them in a manner designed
for ease of use. The content and technology comprising our integrated information platform is also
designed to be adaptable so that as we develop new research tools, content and features, these new
research tools, content and features can be easily integrated with our existing platform. Depending
on the service package chosen by the subscriber, a subscriber can have different levels of access
privileges to financial analysis tools, real-time and historical data, news, research reports and
online forums.
Interactive.
27
Table of Contents
We have established online bulletin boards and discussion forums where users can share with each
other views on stocks and trends in the financial markets in China. In addition, we have introduced
stock alert services that send messages to our users' mobile phones alerting them of changes in
stock prices and other trading related
information of their interest, according to their pre-set query parameters, allowing them to extend
their experience with our services beyond the Internet.
Timely.
We provide our subscribers and users access to real-time stock quotes, breaking news and updated
research reports to allow them to stay current with the latest market developments. We receive
real-time stock, bond and mutual fund quotes and other trading related information directly from
the Shanghai and Shenzhen Stock Exchanges. During an average trading day, we update our web pages
within five seconds of receipt of new data and information from the stock exchanges. We also
receive current news headlines from financial news websites and publishers and distributors of
traditional media. We also have provided our subscribers and users with up-to-date personal finance
news and wealth management products that we received from banks, trust companies, insurance
companies and other financial institutions.
Unbiased.
Our website presents third-party content, analysis and commentary, and computer generated
quantitative analysis to provide our subscribers and users with a broad view of the financial
markets in China. We do not formulate or publish views on this content, analysis or commentary.
Because we are not motivated to convince them to buy or sell any securities or to invest in any
specific investments, we believe our subscribers and users view us as an unbiased provider of
financial information.
Easy to use.
Our research tools and our website are designed with a screen layout, menu options and displays
that we believe any user familiar with a computer will find easy to use. From our basic web page,
our users can choose a variety of financial data and information topics that interest them. Through
our research tools, our subscribers have access to a large pool of historical financial data and
information, which they can categorize and analyze as they determine. We have a product development
team directed at working closely with our customer support personnel to update and develop
information and presentation formats that our subscribers view as enhancing ease of use and
increasing the informative power of our research tools and our website. Our website is also
designed to accommodate low bandwidth access to the Internet.
We attract our users and subscribers through establishing and maintaining sponsorship arrangements
with high-traffic Chinese Internet portals such as
sohu.com
,
netease.com, 21cn.com, tfol.com,
china.com
and
tom.com
, search engines such as
baidu.com
and
sogou.com
, online stock brokerage
websites and news and financial information websites. Through these sponsorship arrangements, we
place our website link on the financial web pages of our sponsors. In some cases, our website
content is directly presented on their web pages. When users click for additional information on
these financial web pages, they are redirected to our website. We believe that as we develop brand
awareness of our website and service offerings, we will be able to increasingly attract users
directly to our website.
To assist us in the delivery of comprehensive, timely and easy to use service offerings, we have
developed a technology platform that utilizes the capabilities of the Internet. Our technology
platform allows us to retrieve real-time stock quotes from both the Shanghai and Shenzhen Stock
Exchanges, historical financial data and information on listed companies, bonds and mutual funds
from data providers, research reports from 60 securities advisory companies, 38 futures companies
and 49 securities brokerage companies licensed to provide securities advisory services,
commentaries from approximately 340 licensed individual securities advisors and news feeds from 235
news publishers and media companies.
We also maintain a personal finance database that includes wealth management products from 19
financial institutions including banks, trust companies and insurance companies.
Our non-institutional subscribers pay us annual subscription fees ranging from RMB188 (US$23) for
our most basic service package to RMB14,900 (US$1,846) for our most comprehensive service package,
depending on the service package and features selected by the subscriber. Our subscription price
for each of the ten current service
28
Table of Contents
packages available to our non-institutional subscribers varies
between these amounts. In August 2005, we launched our new subscription service offering, Tao of
Wealth, which has an annual subscription fee of RMB188(US$23).
A substantial portion of our revenue is derived from annual subscription fees for our service
offerings. We receive subscription fees at the beginning of the subscribers' subscription periods.
Revenues from the subscription fees are deferred and recognized ratably over the twelve month
period.
Growth Strategy
Our goal is to become the leading provider of comprehensive financial data and information relating
to securities and other financial instruments traded on China's securities exchanges. We intend to:
•
increase our subscriber base by expanding distribution channels such as banks, mutual
funds and brokerage firms;
•
upgrade our existing service offerings and expand our present service offerings to
include data and information relating to other financial instruments such as
currencies, futures and commodities, and personal finance;
•
continue to encourage our subscribers to migrate to newer, more comprehensive and
higher priced service offerings; and
•
utilize our brand name and website traffic to increase our online advertising revenues.
Our Services
We collect, process and, through our research tools and our website content, provide to our
subscribers financial analysis tools, real-time and historical data, news, research reports and
online forums in one integrated information platform, allowing them to make informed investment
decisions with respect to all of China's listed company stocks, bonds and mutual funds according to
specifications and analyses determined by them. In August, 2005, we launched a new subscription
service offering, Tao of Wealth, which includes new personal finance tools such as book keeping,
financial report and payment alert with comprehensive real time personal wealth management product
information and news.
Our features
Through our integrated information platform, our subscribers have access to and can make use of
each of our main content features: financial analysis tools, real-time and historical data, news,
research reports and online forums.
Financial analysis tools.
Our financial analysis tools are research tools that provide subscribers with the ability to
quantitatively calculate and analyze financial data, which include:
•
fundamental analysis tools, which are designed to enable investors to
analyze data based on company fundamentals; and
•
technical analysis tools, which are designed to enable investors to
analyze data based on trends formulated by historical trading data.
These tools allow our subscribers to perform fundamental and technical analysis on companies, bonds
and mutual funds listed on the Shanghai and Shenzhen Stock Exchanges, based on current and
historical financial data and information, trading volumes and other user specifications.
Real-time and historical data.
Our integrated information platform offers subscribers interactive charts, quotes, reports and
indicators on over 1,400 company stocks, bonds and mutual funds listed on China's Shanghai and
Shenzhen Stock Exchanges. Users can search by company name or ticker symbol for real-time stock
quotes of these securities. Trading data is
29
Table of Contents
provided to us on a real-time basis by each of the
Shanghai and Shenzhen Stock Exchanges. We collect, categorize, organize and index trading data
provided to us to allow searches, sorting and analysis by user specification and allow our
subscribers to access and analyze the data, using our financial analysis tools and other research
tools.
We also offer our subscribers detailed historical data and information on listed companies, mutual
funds and bonds. This information is available for our subscribers to download from our website and
is available on compact diskettes but are not accessible to general viewers. We have entered into
agreements with third parties to provide us with this historical data and information, according to
specifications and requirements set by us. For example, for each listed company, our historical
data and information providers provide us with the names of the principal shareholders and their
historical trading volume, as well as information such as biographical information of company
directors and the management team. We collect the data received from our historical data and
information providers, process this information and, through our research tools, allow our
subscribers to retrieve critical data and information they select.
News.
Our news feature allows users to search and view breaking economic and financial news and
information from China and around the world. We do not report news ourselves. We have a team of
editorial staff who compile on daily basis economic and financial news and information reported by
other public sources that are relevant to China's financial markets. Our editorial staff further
indexes them according to topics and categories for the convenience of our users. Through our
research tools and website content, our subscribers can access timely and customized financial
information and reports, categorized and integrated into topics and sub-topics that they select,
based on their investment and analysis needs. The financial data and information presented on our
website or through our research tools is gathered from other financial information content
providers and intermediaries with whom we have contractual arrangements.
Research reports.
Through our integrated information platform, our users can view financial news letters and
analytical reports from a number of China's prominent securities professionals. We draw market
research reports and commentaries from 60 securities advisory companies, 38 futures companies and
49 securities brokerage companies licensed to provide securities advisory services, commentaries
from approximately 340 licensed individual securities advisors. For our subscribers, we categorize
these reports and commentaries based on topics, industry sector and other customary
categorizations.
Online forums.
We host several online bulletin boards on our website by which Chinese licensed securities advisors
offer their views on a variety of topics ranging from macroeconomic conditions to performance of
individual stocks, bonds and mutual funds. We do not support, comment on or advocate any views
presented by any such securities advisors. We also maintain several online forums on our website,
enabling our users to participate in the discussions on specific financial topics we believe will
be of interest to them. The online forums are moderated by third party moderators approved by us.
We believe the online bulletin boards and discussion forums enhance our users' experience and,
through our active monitoring, allow us to better understand our users' behavior and needs.
Personal portfolio tracking service.
We also offer users a free personal portfolio tracking service that allows users to compile and
store personal financial information in their personal accounts maintained on our website. This
service allows our users to better manage their portfolio of investment securities through
systematic record keeping of portfolio composition and trading history, facilitating their trading
decisions. We do not provide any advice to individual customers as to the management of their
investment portfolio.
Our website
Our website content and our research tools are the key components of our information platform. Our
website has four primary functions:
30
Table of Contents
•
to attract visitors and market our subscription based service offerings;
•
to store content and serve as an integral part of our information platform;
•
to serve as a download platform for our service offerings; and
•
to display online advertisements.
In order to attract visitors to our website, we offer a significant portion of our website content
free of charge. This free content includes real-time stock quotes, trading volumes, pricing
indicators for listed companies in China and market news from the Shanghai and Shenzhen Stock
Exchanges. Through our website, users can also participate in online forum discussions and bulletin
boards. Our website also has an important marketing function for our subscription based service
offerings. We provide examples to our visitors on our website of the various premium content and
features they can access and receive by becoming a subscriber to our service offerings.
Our premium content and features are accessible through our research tools, some of which are
web-based and others are computer-based. Subscribers to our web-based research tools are required
to register and maintain personal accounts with our website. These subscribers can store important
information they viewed and analytical results they obtained in their personal accounts maintained
at our website, and later review that information and results using the same screen layouts and
menu options our website provides.
Subscribers to computer-based research tools can download from our website the packages they
selected to their computers.
We believe our website is designed for ease of use and to accommodate low bandwidth access to the
Internet.
As our website grows in popularity and the number of visitors to our website increases, our revenue
from advertising has increased from $544,000 in 2004 to $1,752,000 in 2005, a 222% growth. We
intend to further increase our online advertising revenue by hiring more sales persons and selling
more unobtrusive advertising space on our website. For example, we intend to increase the number of
website sponsors for some of our website content, co-branding arrangements we have with online
advertisers in China, and the number of banner advertising and direct-link arrangements we have
with mutual funds and securities brokerage companies in China.
Our research tools
Subscribers to our service can elect to use a number of different research tools we have developed
to access and utilize our premium content and features. We currently offer eleven different service
packages incorporating some or all of our research tools to our users. Through our research tools,
our subscribers can access and analyze our content, including our real-time and historical data,
news and research reports, in one integrated platform, allowing our subscribers to make informed
investment decisions with respect to all of China's listed company stocks, bonds and mutual funds
according to specifications and analyses determined by them. Some of our research tools are
web-based and others require download from our website and are computer-based. Our subscribers pay
us a subscription fee for the use of our subscription services for a one-year period.
We offer subscribers a variety of research tools designed to provide information and analysis,
including financial analysis, as well as the ability to search and sort out data and information,
based on subscribers' needs and preferences. For example, we make available services that permit
subscribers to analyze our content using some or all of the following research tools:
•
Categorized macro information
. This feature allows subscribers to
search and sort up-to-date and comprehensive news and information
relating to the broader financial markets or a specific financial
topic or industry sector. We have a dedicated team of professional
editors who collect, organize, categorize and index macro-economic and
financial market information on a daily basis, according to user
feedback and classification methods that we believe are accepted
practice in securities markets in China.
•
Industry sector analysis
. Many investors in China seek to distinguish
between listed companies with investment potential and those prone to
financial trouble by analyzing listed companies' financial data
published in their financial statements and comparing such data among
companies within the same industry sector. We collect and process
listed company financial data and information according to
classification
31
Table of Contents
methods set by relevant PRC regulatory authorities, and
allow subscribers to view the relative standings of listed companies
in the same industry sector or geographical locations based on market
accepted performance parameters such as price-to-earnings ratios and
profit margins.
•
Fundamental analysis
. Historical and real-time financial information
are important to investors because they provide insight into company
fundamentals. This research tool integrates the historical and
real-time trading information we maintain in our database, as well as
fundamental financial information such as earnings-per-share,
shareholdings and other related data and information. Our subscribers
can receive fundamental financial and trading information organized by
their specifications and display these results on a graphical
interface that we designed to be easy to visualize and navigate.
•
Mutual fund analysis
. Our mutual fund research tool focuses on
categorizing information relating to the portfolio holdings of mutual
funds. This feature allows subscribers to study the collective effect
of large market players on individual stocks. This feature also offers
information relating to the performance of individual mutual funds,
allowing subscribers to assess the risks and rewards of investing in
mutual funds.
•
Technical analysis
. This feature allows investors interested in trends
formulated by historical trading data to perform technical analysis on
listed companies. With over 60 market accepted technical indicators
and a complete database of historical data and information on all of
China's listed company stocks, our subscribers can perform extensive
chart analysis and pattern recognition on any stock listed on China's
stock exchanges.
In August 2005, we launched a new personal finance research tool which provides an integrated
platform for the users to analyze, search and sort out data and information related to personal
finance and wealth management products. We expect to provide additional research tools as our
services expand. We expect that as we introduce data and information on commodities, we would
include a separate research tool for that purpose. We view the migration of existing subscribers
and the attraction of new subscribers to our service offerings with more comprehensive research
tools as one of our most important growth strategies.
Our securities service packages
The following table outlines our securities service packages by research tools and access methods.
Categorized
Industry
Fundamental
Mutual
Technical
Macro
sector
analysis
fund
analysis
Access
Information
analysis
tools
analysis
tools
method
CFO Pro
ü
ü
ü
ü
ü
Computer-based
Grand Reference V
ü
ü
ü
ü
ü
Computer-based
Storm
ü
ü
ü
ü
Computer-based
Stock Finder
ü
ü
ü
ü
Computer-based
Momentum Tracer
ü
ü
ü
Computer-based
Stock Radar
ü
ü
Web-based
Sidekick X
ü
Web-based
Analyst Scoreboard
ü
ü
ü
Web-based
Arbitrager
ü
Web-based
Quick Winner
ü
ü
Web-based
Our
subscribers can select one or more of the eleven different securities service packages we
currently offer. Some of these service packages are available in different versions, which reflect
different levels of comprehensiveness:
•
CFO Pro.
CFO Pro is the first service package we developed to target
sophisticated institutional investors. It is a single service platform
aggregating up-to-date financial news, market commentaries, industry
reports and comprehensive Chinese financial information and databases.
It also contains a database of macro-economic data, including industry
information and statistics such as changes in productivity levels,
foreign investment amounts, and costs of goods and services in China.
•
Grand Reference V.
Grand Reference V is an upgrade of our previous
Grand Reference packages and is the most comprehensive service package
we offer to our non-institutional subscribers, both in terms of
content
32
Table of Contents
and functionality. Grand Reference V includes all of our
current research tools. Content and functionality of other service
packages we offer to our non-institutional subscribers are derived
from Grand Reference V. Compared to the other Grand Reference
packages, Grand Reference V has a new interface that is, we believe,
more user-friendly and an upgraded database structure that allows
faster data transmission than the other Grand Reference packages. We
offer different versions of Grand Reference at different subscription
prices. Each version of Grand Reference includes all of our research
tools, but only Grand Reference V allows users to gain access to the
new interface and upgraded database structure.
•
Storm.
Storm is designed for Chinese investors who demand up-to-date
and comprehensive news and information relating to specific topics and
listed companies. Storm contains fundamental analysis tools but not
technical analysis tools.
•
Stock Finder.
Stock finder is designed for Chinese investors who favor
technical analysis tools as the primary methods to select stocks.
•
Momentum tracer.
Momentum tracer is a new analysis tool designed for
the active investors. It tracks and analyzes the most active stocks.
The users can see the results and updates real time if they log onto
our system.
•
Stock Radar.
Stock Radar is designed for Chinese investors that prefer
to conduct technical analysis as the basis for their investment
research. Stock Radar is a web-based, simplified version of Stock
Finder. Stock Radar's technical analysis tools are simpler to use than
the more advanced technical analysis tools offered by Stock Finder.
•
Sidekick X.
This package, which is an upgrade of our previous package
named China Securities Reference, is for subscribers who do not
necessarily have stock investment needs but want to receive up-to-date
and comprehensive news and information relating to a specific topic or
listed company.
•
Analyst Scoreboard.
Analyst Scoreboard is designed for subscribers who
desire to research or track the performance of specific securities
firms. This package provides weekly, monthly and annual performance
rankings of securities firms based on the profits or losses of the
trades they recommend.
•
Arbitrager.
Arbitrager is designed for subscribers who desire to
review the investment returns selected by the top traders of the daily
best stock market performers. Arbitrager uses statistical analysis
tools to identify top performing stocks on a daily basis, and allows
subscribers to identify the top traders of these investments.
Subscribers may also examine other investments that have been traded
by such investors.
•
Quick Winner.
Quick winner is designed for subscribers who prefer to
examine top performers by industry. Quick Winner identifies top
performing stocks, by industry, and allows subscribers to track the
top traders of these investments and the other investments made by
such traders.
Personal Finance package
Tao of Wealth is our new service package that is aimed at middle class individuals and financial
professionals such as financial advisors. It is a downloadable software platform that integrates
our comprehensive financial news, information with proprietary personal wealth management product
database and personal finance tools such as book keeping, financial reports and payment alert. The
package's functions and tools are modulized so that our users can customize and select specific
modules and functions for their services. We believe that Tao of Wealth is, to date, the leading
personal finance service package available in China.
Pricing policy
We price our service packages based on the research tools included and their level of
comprehensiveness, as well as on market demand. For example, Grand Reference V, which is the most
comprehensive service package in terms of features and functionality, is the most expensive of our
non-institutional subscriber service packages. Therefore, we focus on enhancing and upgrading the
available features and functions of our research tools and continue to introduce updated versions
of our service packages. We encourage all of our users to upgrade to newer versions of our service
packages or more comprehensive service packages.
33
Table of Contents
We may, from time to time, offer discounts or promotions, depending on our perceived need in
accordance with our pricing policy. Any of such discounts or promotions could apply to new or
repeat subscribers as we may
determine. For example, we launched a promotional program in December 2005, where the existing
subscribers can upgrade their services to Grand Reference V at a promotion price or the active
subscribers of Grand Reference V can buy Quick Winner and Arbitrager at a discount package price
of RMB1,000.
Our new service features
We place significant emphasis on refining and upgrading our information platform, and on creating
new and innovative features to meet the changing needs of our customers and utilizing the latest in
technology and innovation. We believe that we are one of the few online financial information
service providers in China that have in-house software development capabilities. Our ability to
develop software internally allows us to broaden our service offerings, while keeping development
costs at a minimum. For example, our new personal finance package, Tao of Wealth, which is targeted
at Chinese middle class individuals and financial professionals such as financial advisors,
includes a new feature we developed that provides subscribers with comprehensive information about
personal finance news and wealth management products.
Customer support
Our customer support center provides our subscribers real-time and personal support and is staffed
by a team of 35 trained full-time customer support personnel. Our customer support center currently
operates from 8:30 a.m. to 10:00 p.m. on weekdays and 9:30 a.m. to 5:30 p.m. on weekends and
holidays. Our customer support personnel, in addition to their sales and marketing functions, help
our existing and prospective subscribers to resolve any technical problems they may have. We have
an in-house training program for our customer support personnel, which includes training courses on
China's securities markets, our service features and functionalities, technical problem solving
skills in respect of our research tools and general customer service guidelines.
Our content providers
We draw content from the Shanghai and Shenzhen Stock Exchanges, which provide us with real-time
stock, bond and mutual fund pricing and other information, and our data providers, which provide us
with historical financial data and information on listed companies, bonds and mutual funds,
according to our parameters, specifications and requirements. We also draw content from
approximately 60 securities advisory companies, 38 futures companies and 49 securities brokerage
companies each licensed to provide securities advisory services, approximately 340 licensed
individual securities advisors, and 235 news publishers and media companies, as well as 19
financial institutions, such as banks, trust companies and insurance companies.
Shanghai and Shenzhen Stock Exchanges
We receive real-time stock, bond and mutual fund quotes and other trading related information
directly from the Shanghai and Shenzhen Stock Exchanges. We have entered into an information
service agreement with each of the stock exchanges pursuant to which we pay the stock exchanges
fixed service fees in exchange for receiving real-time price quotes and other trading related
information through satellite communication. We also have cable links to both exchanges to serve as
back-ups to satellite communication data feeds. During an average trading day, we update our web
pages within five seconds of receipt of new data and information from the stock exchanges.
Our agreement with Shanghai Stock Exchange Information Network Co., Ltd., which is associated with
the Shanghai Stock Exchange, will expire in December 2006, and our agreement with Shenzhen
Securities Information Co., Ltd., which is associated with the Shenzhen Stock Exchange, will expire
in March 2007. We aim to enter into a new agreement with each of these companies under
substantially the same terms prior to the expiration of the existing agreements. Under these
agreements, we may distribute the financial data and information we receive to our users, but not
to other vendors or distributors. Each of these two data providers can terminate its respective
agreement with us if we breach the terms of the agreement, such as a delay in our payment of fees.
Data providers
We have entered into agreements with third parties to provide us with historical data and
information on listed companies, bonds and mutual funds for input into our information platform.
These data providers send information to us in accordance with our parameters, specifications and
requirements. This information includes historical
34
Table of Contents
financial information for listed companies,
significant corporate events such as mergers and acquisitions and significant changes in the
shareholdings of listed companies, information concerning major shareholders of listed
companies, biographical information for directors and management of listed companies, as well as
financial news and other data and information. The updates provided by our data providers range
from several times a day to once a month depending on the type of information. The contractual
arrangement we had with our current primary data provider, Shenzhen Securities Information Co.,
Ltd., will expire in April 2007. In addition, we entered into the raw data provision contract with
Financial China Information & Technology Co., Ltd. and Shanghai Gildata Service Co., Ltd,
respectively, as alternative sources of historical data and information. The contractual
arrangement we had with our previous primary data provider, Shanghai Wind Information Co., Ltd.,
expired in September 2005.
Securities advisors and stock brokers
We have entered into cooperation arrangements with 60 securities advisory companies, 38 futures
companies and 49 securities brokerage companies, each licensed to provide securities advisory
services. Under these arrangements, we have the right to extract market commentary and research
notes taken from their websites, and to store, reproduce, market and deliver such information to
our customers by means of our information platforms. We upload financial content from these
websites on a regular basis. In addition, we have entered into cooperation arrangements with
approximately 340 licensed individual securities advisors to receive through email and other means
their published articles and commentaries covering a range of topics from macroeconomic conditions
to performance of individual stocks, bonds and mutual funds. Many of these individual securities
advisors have dedicated columns or bulletin boards maintained on our website for which they are
responsible for maintenance.
Banks, insurance companies and trust companies
We have entered into cooperation contracts with 19 financial institutions, including banks,
insurance and trust companies. According to these contracts, they will provide the personal finance
information and product updates directly to us.
News and media conglomerates
We also draw content in the form of breaking headlines and other news information from publishers
and distributors of traditional media. We have entered into cooperation arrangements with 235
Chinese news publishers and media companies. We are permitted under these arrangements to extract
financial news, reports and information taken from their print publication channels, and to store,
reproduce, market and deliver such information to our users through our website. We rely on our
editorial staff to compile, for publication on our website, publicly available financial news,
reports and information received from these sources that are relevant to China's financial markets.
Sales and marketing
We market our website through establishing and maintaining sponsorship arrangements with
high-traffic Internet portals such as
netease.com, sohu.com, 21cn.com, tfol.com, china.com
and
tom.com
, search engines such as
baidu.com
and
sogou.com
, as well as websites of online stock
brokerages and news and financial information websites. We have more than 75 sponsorship
arrangements with such Internet portals, search engines and websites. Through these sponsorship
arrangements, we place our website link on the financial web pages of our sponsors, including some
of China's top Internet portals such as
netease.com, sohu.com, 21cn.com, tfol.com, china.com
and
tom.com
. In some cases, our website content is directly presented on their web pages. When users
click for additional information on these financial web pages, they are redirected to our website.
We derive a significant portion of our website traffic from these sponsorships. We also derive a
portion of our website traffic through the word-of-mouth of the investing community.
We market our service offerings through our website, as well as through 35 customer support
personnel at our customer service center. Our website provides detailed descriptions of our service
offerings while our customer support personnel are available to explain to callers the various
features of our offerings and to resolve our subscribers' technical problems. We also market our
service offerings through banks, mutual funds and stock brokerage firms.
We charge our subscribers a subscription fee for the use of our service packages for a one-year
period. Our subscribers either pay us by cash, by money order via post, by online bank transfer or
by direct wiring of cash.
35
Table of Contents
Upon receipt of cash payment, we promptly activate our subscribers'
accounts with us. Since we accept cash as the
only payment method, we do not take any credit risk of our subscribers. We do not have a refund
policy and generally do not offer refunds to our subscribers.
Online advertisement
Our
website
www.jrj.com
is one of the most popular financial websites in China. The average number
of our daily user sessions increased by 44% to approximately 2.3 million during the twelve month
period ended March 31, 2006 from approximately 1.6 million during the twelve month period ended
March 31, 2005. We believe our internet community is an attractive demographic target for
advertisers because it represents an affluent, educated and technically sophisticated market. In
2005, we enhanced our effort to sell online advertisements and advertising related services. We
have a dedicated 3 person sales team that cooperates with 11 advertising agents. Our primary target
client base for advertisers consists of global and domestic corporations whose target customer base
is established middle class Chinese. Our online advertising revenue has increased from $544,000 in
2004 to $1,752,000 in 2005. The number of advertisers has increased from 12 in 2004 to 40 in 2005.
A partial list of our advertising clients includes: Nissan, China International Fund Management
Co., Ltd., Panasonic, Mercedes-Benz, Audi, Lenovo, E*trade and Industrial and Commercial Bank of
China.
Product development
Our product development team of 27 personnel is responsible for the creation and upgrading of our
web pages and the design and enhancement of features contained in our service packages. Our product
development team works as an integral part of our overall service offering efforts. For example, we
require our product development team to conduct frequent meetings with our sales and marketing team
to discuss the feasibility of new service offerings and the progress of existing product
development efforts. Our product development team works closely with our customer support team to
develop features and content that are based on feedback we received from our subscribers and users.
We expect product development to remain an important part of our business as the online financial
data and information services industry in China becomes increasingly sophisticated. In order to
remain competitive, we expect to continue to expand our product development efforts:
•
to increase the breadth of our service offerings through the addition of new features and
functions to our service packages;
•
to enhance our subscribers' experience by improving the quality of our research tools and website;
•
to develop additional research tools, features and content specifically targeting the high-end
subscribers; and
•
to design and build new financial instrument service products that fit our strategies.
As an example of our recent product development efforts that we believe will broaden our customer
base, in August 2005 we launched our new service package, Tao of Wealth, which we specifically
target middle class individuals and financial professionals such as financial advisors. We have
also developed and recently launched other new service packages such as Momentum Tracer.
Furthermore, we continue to develop and add new features to our existing service packages.
Technology and infrastructure
Our internally developed technology infrastructure is designed to maximize the number of concurrent
users we can serve, while minimizing information retrieval time for our users. We deliver
electronically real-time and historical financial data and analysis tools to our users through our
internally developed technology platform, which is designed specifically for our web-based and
computer-based software services. Our technology platform, which consists of web server technology,
database technology and a data aggregation engine, enables us to enhance performance, reliability
and scalability in handling bursts of high-volume data requests during peak time, allowing users to
quickly retrieve the information that they search for even during periods of high concurrent use.
We own all of our servers. Our servers are capable of accommodating three times the number of
peak-hour concurrent users
36
Table of Contents
and five times our required bandwidth as measured during peak hours for
the twelve months ended December 31, 2005.
Web server technology.
Our web server technology enables us to quickly develop and deploy information services
dynamically. Our web server technology includes features that are designed to optimize the
performance of our online services. For example, we developed a special feature that maximizes the
time during which client-server connections are kept open, based on current server load, thereby
increasing user navigation and website access speed.
Database technology.
We have developed database technology to address the specific requirements of our information
services. Our database design and search techniques allow for efficient data retrieval within the
unique operating parameters of the Internet. For example, our dynamic index traversal technology
utilizes users' inputted search parameters to determine the appropriate database index (from among
multiple indices) in parallel, thereby efficiently locating the data requested. Further, we use an
index compression mechanism to achieve an efficient balance between disk space and
compression/decompression for various database activities.
Remote data aggregation engine.
Our remote data aggregation engine allows us to retrieve, process and present data as a single
virtual database result from a variety of sources, either in real-time or at predetermined
intervals. We developed a template-driven profiling system that catalogs the data on each source
site. We also store data results internally in order to reduce network traffic and deliver the
results to our users as quickly as possible.
Competition
The online financial data and information service market in China is relatively new, has few
substantial barriers to entry and is competitive and rapidly changing. The number of online
financial news and information sources competing for users' attention and spending has increased
since we commenced operations and we expect that competition will continue to intensify. More
broadly, we also compete, directly and indirectly, for users and subscribers with companies in the
business of providing financial data and information services, including:
•
publishers and distributors of traditional media, including print, radio and television,
such as China Securities News, Shanghai Securities News, International Financial Times,
21st Century Economic Reports, as well as radio and television programs and news focused
on financial news and information;
•
Internet portals providing information on business, finance and investing, such as
sina.com.cn and sohu.com;
•
financial information web pages offered by websites such as hexun.com and stockstar.com.cn;
•
personal stock research software vendors, such as Shanghai Qian Long High Tech
Corporation, that develop and market stock research software through stock brokerage
companies; and
•
stock brokerage companies, especially stock brokerage companies with online trading
capabilities, such as Haitong Securities.
Our ability to compete depends on many factors, including the comprehensiveness, timeliness and
trustworthiness of our content, the market acceptance, pricing and sophistication of our analytical
tools, the ease of use of our information platform 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 adopt our business
model and devote greater resources than we can to the development and promotion of products and
services similar to or better 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
37
Table of Contents
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
service packages, reduced margin or loss of market share, any of which could materially adversely
affect our business, results of operations and financial condition.
Intellectual property
Our intellectual property is an essential element of our business operations. We rely on copyright,
trademark, trade secret and other intellectual property law, as well as non-competition,
confidentiality and license agreements with our employees, suppliers, business partners and others
to protect our intellectual property rights. Our employees are generally required to sign
agreements to acknowledge that all inventions, trade secrets, works of authorship, developments and
other processes generated by them on our behalf are our property, and to assign to us any ownership
rights that they may claim in those works. Despite our precautions, it may be possible for third
parties to obtain and use intellectual property that we own or license without consent.
Our PRC subsidiaries, CFO Beijing and Fortune Software, are the registered owners of 14 software
copyrights, each of which has been registered with the State Copyright Bureau of the PRC.
We have also registered one domain name relating to our website,
www.jrj.com.cn
, with the China
Internet Network Information Center, a domain name registration service in the PRC. In October,
2004, we purchased another domain name relating to our website,
www.jrj.com
, from a U.S. company.
We have assigned Fuhua the right to use our website domain names to enable it to host our website
on our behalf.
We do not currently have any trademarks registered with the China Trademark Office, but we have
filed applications for trademark registration of "Financial
Street Fuhua" in Chinese and three
other Chinese variations of "Financial Street Fuhua" with the Trademark Bureau of the State
Administration for Industry and Commerce of China.
Regulation
We operate our business in China under a legal regime that consists of the State Council, which is
the highest authority of the executive branch of the PRC central government, and several ministries
and agencies under its leadership, including:
•
the Ministry of Information Industry;
•
the China Securities Regulatory Commission;
•
the Ministry of Culture;
•
the State Press and Publications Administration;
•
the State Copyright Bureau;
•
the State Administration of Industry and Commerce;
•
the Ministry of Public Security; and
•
the Ministry of Commerce.
The State Council and these ministries and agencies have issued a series of rules that regulate a
number of different substantive areas of our business, which are discussed below.
Foreign ownership restriction on Internet content provision businesses
PRC regulations currently limit foreign ownership of companies that provide Internet content
services, including our business of providing financial information and data to Internet users, to
50%. In order to comply with this foreign ownership restriction, we operate our website in China
through Fuhua, which is wholly owned by Wu Chen, a financial manager at International Data Group
China, Ltd., a PRC company affiliated with IDG Technology
38
Table of Contents
Venture Investment, Inc. and IDG
Technology Venture Investments, LP, two of our principal shareholders, and Jun Ning, our former
chairman and chief executive officer, who are both PRC citizens. Jun Ning is expected to transfer
his holdings in Fuhua to Zhiwei Zhao, our current Chief Executive Officer and a member of our board
of directors, later this year. Under PRC law, we cannot hold the licenses and approvals necessary
to operate our website because those licenses and approvals can not be held by foreign entities or
majority foreign-owned entities. We, as a company incorporated in Hong Kong, SAR, are a foreign
entity for this purpose. CFO Beijing and Fortune Software cannot hold such licenses and approvals
because they are wholly foreign-owned enterprises.
There are, however, substantial uncertainties regarding the interpretation and application of
current or future PRC laws and regulations. Accordingly, we cannot assure you that the PRC
regulatory authorities will not ultimately take a view that is contrary to the opinion of our PRC
legal counsel. If the PRC government finds that the agreements that establish the structure of our
operations in China do not comply with PRC government restrictions on foreign investment in our
industry, we could be subject to severe penalties.
Licenses and permits
There are a number of aspects of our business which require us to obtain licenses from a variety of
PRC regulatory authorities.
In order to host our website, Fuhua is required to hold an Internet content provider, or ICP,
license issued by the Ministry of Information Industry or its local offices. Fuhua currently holds
an ICP license issued by Beijing Communications Administration, a local office of the Ministry of
Information Industry.
Each ICP license holder that engages in supply of analysis and research information relating to
stocks and other securities must obtain a securities advisory permit from China Securities
Regulatory Commission, or the CSRC. We currently do not hold a securities advisory permit. We
receive securities analysis and research information from licensed securities advisors that hold
securities advisory permits, and we have clearly stated on our websites and in our software the
source of such information as required by the CSRC.
A recent regulation issued by the Ministry of Information Industry requires short message, or SMS,
content providers to obtain an SMS license from the Ministry of Information Industry or its local
offices. We have obtained the required SMS license for the delivery of our financial short message
content.
Furthermore, the Ministry of Information Industry has promulgated rules requiring ICP license
holders that provide online bulletin board services to register with, or obtain an approval from,
the relevant telecommunications authorities. Fuhua has obtained such approval from Beijing
Communications Administration, the government agency in charge of this matter in Beijing.
Regulation of Internet content
The PRC government has promulgated measures relating to Internet content through a number of
ministries and agencies, including the Ministry of Information Industry, the Ministry of Culture
and the State Press and Publications Administration. These measures specifically prohibit Internet
activities, which include provision of financial information through the Internet, that result in
the publication of any content which is found to, among other things, propagate obscenity, gambling
or violence, instigate crimes, undermine public morality or the cultural traditions of the PRC, or
compromise State security or secretes. If an ICP license holder violates these measures, the PRC
government may revoke its ICP license and shut down its websites.
Fuhua's ICP license expressly states that it is not allowed to publish news, among other things, in
relation to its Internet content provision. Specifically, the Press Office of Beijing People's
Government, the government authority regulating news publication, confirmed with us that so long as
we do not provide general news on politics, society or culture, or establish a "news column," or
provide such information under express heading of "news," we are not required to obtain a license
to publish financial or economic related news content. However, on September 25, 2005, the Press
Office of the State Council and the Ministry of Information Industry jointly promulgated the
Provisions for the Administration of Internet News Information Services, in which the authorities
provided an applicable definition of internet news information services and require that internet
content providers that provide internet news information services within such definition must apply
for a license. Fuhua is now planning to procure such a license.
39
Table of Contents
Regulation of information security
Internet content in China is also regulated and restricted by the PRC government to protect State
security. The National People's Congress, China's national legislative body, has enacted a law that
may subject to criminal punishment in China any effort to: (1) gain improper entry into a computer
or system of strategic importance; (2) disseminate politically disruptive information; (3) leak
State secrets; (4) spread false commercial information; or (5) infringe intellectual property
rights.
The Ministry of Public Security has promulgated measures that prohibit use of the Internet in ways
which, among other things, result in a leakage of State secrets or a spread of socially
destabilizing content. The Ministry of Public Security has supervision and inspection rights in
this regard, and we may be subject to the jurisdiction of the local security bureaus. If an ICP
license holder violates these measures, the PRC government may revoke its ICP license and shut down
its websites.
Intellectual property rights
The State Council and the State Copyright Bureau have promulgated various regulations and rules
relating to protection of software in China. Under these regulations and rules, software owners,
licensees and transferees should register their rights in software with the State Copyright Bureau
or its local offices and obtain software copyright registration certificates. Although such
registration is not mandatory under PRC law, software owners, licensees and transferees are
encouraged to go through the registration process and registered software rights may receive better
protections. We have registered all of our self-developed software with the State Copyright Bureau.
PRC law requires owners of Internet domain names to register their domain names with qualified
domain name registration agencies approved by the Ministry of Information Industry and obtain a
registration certificate from such registration agencies. A registered domain name owner has an
exclusive use right over its domain name.
Unregistered domain names may not receive proper legal protections and may be misappropriated by
unauthorized third parties. We have registered our primary domain name,
www.jrj.com.cn
, with CNNIC,
a domain name registration agency approved by the Ministry of Information Industry and obtained a
registration certificate for this domain name and have registered another domain name,
www.jrj.com
,
with the Internet Corporation for Assigned Names and Numbers, or ICANN, and obtained a certificate
for this domain name. ICANN is an internationally organized, non-profit corporation that has
responsibility for Internet Protocol (IP) address space allocation, protocol identifier assignment,
generic (gTLD) and country code (ccTLD) Top-Level Domain name system management, and root server
system management functions. These services were originally performed under U.S. Government
contract by the Internet Assigned Numbers Authority, or IANA, and other entities. ICANN now
performs the IANA function.
Website name
PRC law requires entities and individuals operating commercial websites to register their website
names with the State Administration of Industry and Commerce, or the SAIC, or its local offices and
obtain a commercial website name registration certificate. If any entity or individual operates a
commercial website without obtaining such certificate, it may be charged a fine or imposed other
penalties by the SAIC or its local offices. We have registered our website name, "JRJ Investment
and Finance Network," with, and received a commercial website name registration certificate from,
Beijing municipal SAIC.
Privacy protection
PRC law does not prohibit Internet content providers from collecting and analyzing personal
information from their users. We require our users to accept a user agreement whereby they agree to
provide certain personal information to us. PRC law prohibits Internet content providers from
disclosing to any third parties any information transmitted by users through their networks unless
otherwise permitted by law. If an Internet content provider violates these regulations, the
Ministry of Information Industry or its local offices may impose penalties and the Internet content
provider may be liable for damages caused to its users.
Advertising regulation
40
Table of Contents
PRC law requires entities conducting advertising activities to obtain an advertising permit from
the SAIC's local offices. Entities conducting advertising activities without such permit may be
charged a fine or imposed other penalties by the SAIC's local offices. Currently, foreign investors
cannot own more than 70% equity interest in an
advertising agency in China. We hold our advertising permit through Fuhua, a PRC domestic company
wholly owned by Wu Chen and Jun Ning. Jun Ning is expected to transfer his holdings in Fuhua to
Zhiwei Zhao, our current Chief Executive Officer and a member of our board of directors, later this
year.
C.
Organizational structure.
We conduct substantially all of our business through our wholly owned subsidiaries in China, CFO
Beijing and Fortune Software. In addition, we are dependent on Fuhua to host our websites.
The following table sets forth the details of our subsidiaries:
Country of
Ownership
Name
Incorporation
Interest
China Finance Online (Beijing) Co., Ltd.
China
100
%
Fortune Software (Beijing) Co., Ltd.
China
100
%
The following diagram illustrates our corporate and share ownership structure:
(1)
Jun Ning is our former chairman and chief executive officer.
41
Table of Contents
(2)
Wu Chen is a financial manager at International Data Group China,
Ltd., a PRC company affiliated with IDG Technology Venture Investment,
Inc. and IDG Technology Venture Investments, LP, two of our principal
shareholders.
PRC regulations currently limit foreign ownership of companies that provide Internet content
provider services, or ICP services, which include our business of providing financial information
and data to Internet users, to 50%. PRC regulations also limit foreign ownership of advertising
agencies that provide online advertising services to be no more than 70%. We are a Hong Kong
company and we conduct our operations solely in China through CFO Beijing and Fortune Software, our
wholly owned subsidiaries. We are a foreign enterprise and CFO Beijing and Fortune Software are
foreign invested enterprises under PRC law and accordingly, neither we, CFO Beijing or Fortune
Software is eligible for a license to operate ICP services or provide online advertising services.
In order to comply with foreign ownership restrictions, in December 2000, we formed our affiliated
Chinese entity, Fuhua, with Wu Chen and Xinzheng Wang, who later transferred his holdings in Fuhua
to Jun Ning, our former chairman and chief executive officer. Both Wu Chen and Jun Ning are PRC
citizens and own 55% and 45% of the equity interests in Fuhua, respectively. Jun Ning has resigned
from his positions with us and is expected to transfer his holdings in Fuhua to Zhiwei Zhao, our
current Chief Executive Officer and a member of our board of directors, later this year. Fuhua
holds the licenses and approvals that are required to operate our website, CFO Beijing owns our
www.jrj.com.cn
domain name, and we own our
www.jrj.com
domain name. Fuhua also holds the licenses
and approvals required to operate our online advertising business. We and CFO Beijing have entered
into a series of contractual arrangements with Fuhua and its shareholders, and Zhiwei Zhao is
expected to replace Jun Ning as a party to these contractual arrangements when he receives Jun
Ning's holdings in Fuhua later this year. As a result of these contractual arrangements, we are
considered the primary beneficiary of Fuhua and accordingly, we consolidate Fuhua's results of
operations in our financial statements.
Pursuant to our contractual arrangements with Fuhua, we provide equipment, services and domain name
licenses to Fuhua in exchange for fees. The principal equipment lease, services and domain name
license agreements that we have entered into with Fuhua include:
•
an equipment leasing agreement, pursuant to which Fuhua leases a
substantial majority of its operating assets from CFO Beijing;
•
a technical support agreement, pursuant to which CFO Beijing provides
technical support for Fuhua's operations;
•
an amended and restated strategic consulting agreement, pursuant to
which CFO Beijing provides strategic consulting services to Fuhua,
including consulting services in relation to Fuhua's online
advertising business;
•
a domain name licensing agreement, pursuant to which CFO Beijing
licenses to Fuhua its domain name,
www.jrj.com.cn
; and
•
a domain name licensing agreement, pursuant to which we license to
Fuhua our domain name,
www.jrj.com
.
We made a loan to each of the shareholders of Fuhua, Wu Chen and Jun Ning, solely for the purposes
of capitalizing Fuhua. Pursuant to the loan agreements, Wu Chen and Jun Ning can only repay the
loans by transferring all of their interests in Fuhua to us or a third party designated by us.
Zhiwei Zhao is expected to replace Jun Ning as a party to the loan agreements when he receives Jun
Ning's holdings in Fuhua later this year. While Hong Kong law limits the maximum interest payment
chargeable under a loan to 60% of the total principal amount per annum, we do not believe this
limitation will have a material adverse effect on our business and operations, or will result in a
material amount being paid to the shareholders of Fuhua if and when they are permitted to transfer
their interests in Fuhua to us. In addition, we have entered into agreements with Fuhua and its
shareholders that provide us with the substantial ability to control Fuhua. Pursuant to these
contractual arrangements:
•
the shareholders of Fuhua have granted us or individuals designated by
us an irrevocable proxy to exercise all their voting rights as
shareholders of Fuhua, including the right to appoint directors, the
general manager and other senior management of Fuhua;
•
Fuhua will not enter into any transaction that may materially affect
its assets, liabilities, equity or operations
42
Table of Contents
without our prior
written consent;
•
Fuhua will not distribute any dividends;
•
we may purchase the entire equity interest in, or all the assets of,
Fuhua when and if such purchase is permitted by PRC law or the current
shareholders of Fuhua cease to be directors or employees of Fuhua;
•
the shareholders of Fuhua have pledged their equity interest in Fuhua
to CFO Beijing to secure the payment obligations of Fuhua under the
equipment leasing agreement, the technical support agreement and the
amended and restated strategic consulting agreement between CFO
Beijing and Fuhua; and
•
the shareholders of Fuhua will not transfer, sell, pledge, dispose of
or create any encumbrance on their equity interest in Fuhua without
the prior written consent of CFO Beijing.
Each of the contractual arrangement with Fuhua and its shareholders can only be amended with the
approval of our audit committee or another independent body of our board of directors. The
shareholders of Fuhua are not deriving any material personal benefits from these arrangements and
are not expected to receive any consideration, other than cancellation of the existing loans, upon
future transfer of their entire equity interests in, or all of the assets of, Fuhua to us.
D.
Property, plants and equipment.
Our principal executive offices, customer service center and principal sales, marketing and
development facilities are currently located at Room 610B, 6/F, Ping'an Mansion, No. 23 Financial
Street, Beijing, People's Republic of China 100032, where our subsidiaries, CFO Beijing and Fortune
Software, as well as Fuhua, leases 971 square meters under a lease that expires on July 3, 2006.
Fortune Software's registered offices are located at 12B11, Qingyun Dangdai Building, No. 43 North
Third Ring Road West, Hai Dian District, Beijing, where Fortune Software leases 74.4 square meters
under a lease that expires on March 31, 2007. We intend to seek additional office space as required
for our operations as needed on commercially reasonable terms. We believe that we will be able to
obtain adequate facilities, principally through the leasing of appropriate properties, to
accommodate our future expansion plans.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and
should be read in conjunction with our consolidated financial statements and their related notes
included in this annual report on
Form 20-F
. This report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, including, without limitation, statements regarding our expectations, beliefs,
intentions or future strategies that are signified by the words "expect", "anticipate", "intend",
"believe", or similar language. All forward-looking statements included in this annual report are
based on information available to us on the date hereof, and we assume no obligation to update any
such forward — looking statements. Actual results could differ materially from those projected in
the forward — looking statements. In evaluating our business, you should carefully consider the
information provided under the caption "Risk Factors" in this annual report on
Form 20-F
. We
caution you that our businesses and financial performance are subject to substantial risks and
uncertainties.
A.
Operating Results
We are one of the leading companies that specialize in providing online financial and listed
company data and information in China. We offer subscription-based services based on a single
integrated information platform that combines financial analysis tools, real-time and historical
data, news, research reports and online forums. Our service offerings can be accessed using our
research tools and through our website at
www.jrj.com
. Our service offerings are used by and
targeted at a broad range of investors in China, including individual investors managing their own
money, professional investors such as institutional investors managing large sums of money on
behalf of their clients and high net worth individuals, other financial professionals such as
investment bankers, stock analysts and financial reporters, and middle class individuals. As a
result of our efforts to develop and offer more comprehensive service packages to our subscribers,
we have created a customer base of high-end subscribers, determined by us as subscribers who pay us
an annual subscription fee of RMB2,400 (US$297) or more. High-end subscribers tend to require our
more comprehensive service packages and we have increasingly focused our
43
Table of Contents
product development
efforts at high-end subscribers' complex needs. The number of our high-end subscribers with active
subscriptions decreased by approximately 56% from approximately 5,700 for the twelve months ended
March 31, 2005 to approximately 2,500 for the twelve months ended March 31, 2006. We believe this
decrease was primarily due to the significant volatility and the decline in value experienced by
Chinese stock markets during the past several years, which have dampened the individual investors'
interests in investing in the Chinese stock markets, resulting in reduced user demand for stock
market intelligence services including our service offerings.
Our net revenues increased by 24.4% to $7.5 million in 2005 from $6.0 million in 2004. Our net
income increased by 0.5% to $4.62 million in 2005 from $4.60 million in 2004. We receive
subscription fees at the beginning of the subscribers' subscription periods. Revenues from the
subscription fees are deferred and recognized ratably over the twelve month period. Our deferred
revenues were $1.9 million as of December 31, 2005, representing a 46.7% decrease from our deferred
revenues of $3.5 million as of December 31, 2004.
Key factors affecting our operating results and financial condition
Some of the key factors affecting our operating results and financial condition include the
following:
•
performance of China's securities markets, and user demand for market intelligence on China's securities
markets, as well as the overall performance of China's economy;
•
contribution of alternative revenue resources such as revenues from online advertising;
•
seasonality associated with the level of activity of our users and subscribers and the trading activities
of China's securities markets;
•
tax refund from the PRC tax authorities for value-added-taxes we are required to pay on the sale of
subscriptions to our service packages;
•
other tax incentives we receive from PRC tax authorities resulting from CFO Beijing being a foreign
invested software development company and Fortune Software being a foreign invested high-technology
company;
•
our cost structure, including, in particular, our cost for raw data; and
•
the desirability of our service packages relative to other products and offerings available in the market.
We derive revenues primarily from annual subscription fees from subscribers to our financial data
and information services. Our subscription service is substantially dependent on user demand for
market intelligence on China's securities markets. Such demand has fluctuated with the level of
trading activity in China's securities markets. During the past several years, China's securities
markets have experienced volatility and decrease in value. The Shanghai Stock Exchange A-Share
Index and the Shenzhen Stock Exchange A-Share Index declined 38.8% and 51.8%, respectively, from
January 2, 2001 to March 31, 2006. On June 6, 2005, the Shanghai Stock Exchange Index reached its
lowest level since March 1997. If China's securities markets weaken in the future, and if
investors' interest in China's securities markets declines, our business could be materially and
adversely affected.
To a lesser extent, we also derive revenues through advertisement sales on our website, which
contributed $1.8 million in 2005, representing a 222% increase from the $544,000
contributed in 2004. Revenues from advertising accounted for 23% of our gross revenues in 2005. We
plan to enhance our ability to place unobtrusive advertisements on our website in order to increase
our revenues from online advertisement sales.
Our gross revenues also include the benefit of a refund from the PRC tax authorities for
value-added-taxes, or VAT, we are required to pay on the sale of subscriptions to our service
packages. We receive these refunds from the PRC tax authorities as part of the PRC government's
policy of encouraging software development in the PRC. There is generally a one-month lapse between
the time we complete a sale and pay the VAT on that sale and the time we receive the refund. We
recognized approximately $709,000 in revenue for VAT refunds in 2005.
Gross revenues
44
Table of Contents
We generate subscription fee revenues mostly from the sales of the service packages we currently
offer, which are comprised of downloadable and web-based research tools. Depending on the research
tools and premium features selected by our subscribers, our subscribers pay us a subscription fee
ranging from RMB188 (US$23) for the most
basic service we offer to as much as RMB14,900 (US$1,846) for our most comprehensive service
package we offer to our non-institutional subscribers. Our subscription price for each of these ten
service packages varies between these amounts, depending on the package. A subscription permits the
subscriber to use the selected service package for a one-year period.
The most significant factors that affect our subscription revenues are:
•
the number of registered users to our website;
•
the number of new subscribers purchasing our subscription services;
•
the number of our repeat subscribers; and
•
the service packages selected by our subscribers.
Although users of our website are not charged for visiting our website and obtaining basic
financial information, such as real-time stock quotes and historical financial information for all
of China's listed company stocks, bonds and mutual funds, financial news and research reports,
these users are our primary source of existing and potential subscribers. As users frequent our
website and rely on our offerings, we expect that a number of them will opt to purchase our
subscription services. A substantial portion of our revenues are currently derived from our
subscription services. New subscribers for a specified period are subscribers who subscribed to any
of our service packages during that period who were not subscribers at the beginning of that
period. The number of new subscribers in a period is a measure of our revenue growth in that period
attributable to the expansion of our customer base. Repeat subscribers for a specified period are
subscribers who either have purchased more than one service package from us during that period, or
have purchased our service packages in the past and have purchased at least one service package
during that period. We view increases in repeat subscribers as a measure of market acceptance and
customer loyalty to our service offerings.
We generally encourage our subscribers to migrate to newer, more comprehensive and higher priced
service offerings. Because we charge more for our newer and more comprehensive service packages, as
the number of subscribers for a given period selecting one of our more comprehensive service
packages increases, our average subscription fee per subscriber, or ASF, would be expected to
increase for that period. We price our service packages based on the research tools included and
their level of comprehensiveness, as well as on market demand. From time to time, we may offer
discounts to and promotional rates for our service packages, which may be offered to new
subscribers or repeat subscribers. For example, we launched a promotional program in December 2005,
where our existing subscribers can upgrade their services to Grand Reference V at a promotion price
or the active subscribers of Grand Reference V can buy Quick Winner and Arbitrager at a discount
package price of RMB1,000. If the number of repeat subscribers in a period electing to subscribe to
one of our more comprehensive service packages at discount or promotional rates increases, ASF for
that period would be expected to decrease.
Net revenues
Our net revenues reflect a deduction from our gross revenues for business taxes and related
surcharges incurred in connection with our China operations. Because CFO Beijing, Fortune Software
and Fuhua operate in China, their gross revenues from sales that are not subject to VAT are subject
to a business tax at a rate of 5%. We expect to pay business tax in the PRC on online advertising
revenues we expect to generate in the future. Accordingly, we expect our business tax payments to
increase in line with the increase in our advertising revenues in future periods.
Revenue recognition
We charge our subscribers a subscription fee for the right to use our service packages for a
one-year period. Since we accept cash as the only payment method, our subscription fee is paid in
full prior to the delivery of our service packages. Therefore, we do not take any credit risk with
respect to our subscribers. Upon receipt of payment in full, we activate our subscriber's account,
marking the start of the one-year subscription period, and promptly provide the subscriber with
that account's access code. We begin to recognize subscription fees as revenue upon activation of
the subscriber's account and then ratably over the twelve month period corresponding with the
subscriber's
45
Table of Contents
subscription period. Subscription fees that have been paid but not yet recognized are
accounted for as deferred revenue on our balance sheets. Deferred revenue is reduced
proportionately as revenue is recognized ratably over the twelve month service period.
We derive advertising fees from advertising sales on our website principally for fixed periods of
time, which are generally less than one year. We recognize advertising fees ratably over the
periods during which the advertisements are displayed on our website.
Cost of revenues
Our cost of revenues consists of expenses directly related to the offering of our software
subscription services. Our cost of revenues primarily consists of cost of data, cost of bandwidth,
salary and compensation, depreciation and rent. Cost of revenues accounted for 13%, 7% and 6% of
our net revenues in 2003, 2004 and 2005, respectively. We believe our relatively low ratio of cost
of revenues to net revenues is primarily due to competitive labor expenses in China and, to a less
extent, the efficiency of our web content and database personnel. We expect our cost of revenues
will increase both in absolute amount and as a percentage of our net revenues in 2006. We believe
this increase will partly be attributable to contribution from stock-based compensation incurred in
2006 as a result of our adoption of SFAS 123(R), which requires us to recognize all share-based
payments to employees including grants of employee stock options based on the grant-date fair
values commencing January 1, 2006.
Cost of data.
Our cost of data consists of bandwidth fees, which we pay to Internet Data
Center (IDC) and fees we pay to the stock exchanges and our other data providers pursuant to our
commercial agreements with those parties. These contracts are typically for a fixed rate, without
regard to the level of use, for a term, typically between one and three years, depending on the
provider. Our cost of data is the largest component of our cost of revenues, constituting 52% of
our cost of revenues in 2005, and is likely to be our most variable element of cost of revenues.
Our cost of data is expected to increase (1) if we enter into additional commercial agreements for
purchasing data from new sources or if we obtain different or additional data from existing sources
or (2) due to rate increases we may experience in the future upon renewal of our existing
agreements.
Salary and compensation.
Salary and compensation expenses include wages, bonuses and other
benefits, including welfare benefits. Salary and compensation included in our cost of revenues
relate to our web content and database personnel. We expect that our salary and compensation
expenses will increase in the future as we intend to increase our customer service performance as
our business further grows and expands.
Rent.
Rent attributable to cost of revenues reflects that portion of our rent expense that we
believe is directly used in the provision of our web content and database services. We allocate
rent to cost of revenues to the extent the space is occupied by our web content and database
personnel.
Depreciation.
Depreciation consists of depreciation of property and equipment, primarily our
network and servers. We include depreciation within cost of revenues when the relevant assets are
directly related to the provision of our web content and database services.
Operating expenses
Our operating expenses consist of general and administrative expenses, product development
expenses, sales and marketing expenses and stock-based compensation expenses. Our operating
expenses have increased as a percentage of net revenues for 2005 due to the expansion of our
advertising business and the increase in the cost of professional services and other related costs
associated with our being publicly listed in the U.S. The most significant factors affecting our
operating expenses are:
•
advertising expenses relating to our sponsorship arrangements with portals, search engines and
other websites;
•
salary and benefits for our employees, particularly our sales and marketing personnel and our
management team; and
•
Professional services and other related costs associated with being publicly listed in the U.S.
46
Table of Contents
We expect our operating expenses will continue to increase for the foreseeable future, but the
rate of such increase will depend primarily on our personnel needs, our advertising needs and our
computer, network and server capacity, including efforts we may undertake to expand our online
advertising business.
General and administrative expenses.
General and administrative expenses primarily consist of
salary and compensation for our general management, finance and administrative personnel, rent,
professional expenses and other expenses, including travel and other general business expenses,
office supplies and general office furniture and equipment. We expect our general and
administrative expenses to increase in 2006 and for the foreseeable future as we adopt SFAS 123(R)
to recognize all share-based payments to employees including grants of employee stock options in
our income statement based on the grant-date fair values commencing January 1, 2006. Among some of
the general administrative expenses we expect to incur are expenses incurred in connection with our
compliance with the Sarbanes-Oxley Act of 2002.
Product development expenses.
Our product development expenses primarily consist of salary and
compensation expenses of personnel engaged in the research, development and implementation of our
new service offerings, rent and depreciation of equipment attributable to our product development
efforts. We expect that our product development expenditures will remain relatively flat for at
least the next twelve months, which we believe will be sufficient to meet our expected product
development needs during that period.
Sales and marketing expenses.
Our sales and marketing expenses primarily consist of salary and
compensation for our sales and marketing personnel and advertising expenses that we pay to portals,
search engines and other websites that we view as important for attracting users for our services.
Growth in our sales and marketing expenses will depend on the ability of our advertising department
to reach agreements with additional portals and websites and the rate such third parties will
charge us to advertise on their websites. We expect to continue to increase our sales and marketing
efforts in the foreseeable future, including our plan to hire up to ten additional sales and
marketing personnel to focus on online advertising sales for our website.
Stock-based compensation expenses.
In December 2004, the Financial Accounting Standards Board ("FASB" or the "Board") issued Statement
of Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment". SFAS No. 123(R) is a revision
of SFAS No. 123, and supersedes Accounting Principal Board Opinion No. 25 ("APB 25"). Among other
items, SFAS 123(R) eliminates the use of APB 25 and the intrinsic value method of accounting, and
requires companies to recognize in the financial statements the cost of employee services received
in exchange for awards of equity instruments, including stock option grants, based on the grant
date fair value of those awards on the grant date. We were required to adopt SFAS No. 123(R)
effective January 1, 2006. We expect that the adoption of SFAS 123(R) will result in additional
amortization of stock based compensation expense and a reduction of our operating income for 2006.
Stock option plan and option agreements
We adopted the 2004 Stock Incentive Plan, or the Plan, in January 2004, under which we could issue
share options with the right to purchase up to 5,688,488 ordinary shares to our directors,
officers, employees, individual consultants and advisors. We amended the Plan in September 2004 to
permit the issuance of options to purchase up to an additional 5,000,000 ordinary shares. We
granted options under the Plan with the right to purchase a total of 5,688,488 ordinary shares
(including 90,000 options to eligible individual consultants and advisors) in 2004. As of March 31,
2006, 449,000 of these options granted in 2004 but unvested options were returned to the pool of
our ungranted options as a result of resignation from employment by a few former employees. In
2005, we granted additional options under the Plan with the right to purchase a total of 5,003,000
ordinary shares to selected directors, officers, employees, individual consultants and advisors. As
of March 31, 2006, 523,600 of these options granted in 2005 but unvested options were returned to
the pool of our ungranted options as a result of resignation from employment by a few former
employees. As a result, we may in the future grant options to purchase up to an additional 969,600
ordinary shares under the Plan. We also granted share options to purchase up to 6,829,500 ordinary
shares in January 2004, under option agreements that were independent of the Plan, to other
consultants and business advisors of the company.
We had a
total number of 11,695,680 options that are vested and immediately exercisable for
ordinary shares as of March 31, 2006. All of the options we granted in January 2004 have an
exercise price of $0.16 per share and expire on March 5, 2009, the options we granted in June 2004
have an exercise price of $1.04 per share and expire
47
Table of Contents
on March 5, 2009, the options we granted in February 2005 have an exercise price of $1.31 per share
and expire on February 18, 2015 and the 400,000 and 200,000 options we granted in November 2005
have per share exercise prices of $1.12 and $1.16, respectively, and they expire on November 15,
2015. All of the options granted under the Plan to our directors and managers have a vesting period
of one to four years, while options granted under the Plan to our other employees vest over a
period of three to five years. The options we granted to consultants and advisers vested
immediately upon grant or from two to three years after grant.
Critical accounting policies
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities on the date of the financial statements and the reported amounts
of revenues and expenses during the financial reporting period. We continually evaluate these
estimates and assumptions based on the most recently available information, our own historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our accounting policies require
higher degrees of judgment than others in their application. We consider the policies discussed
below to be critical to an understanding of our financial statements as their application places
the most significant demands on our management's judgment.
Income taxes.
We record a valuation allowance to reduce our deferred tax assets to the amount that
we believe is more likely than not to be realized. In the event we were to determine that we would
be able to realize our deferred tax assets in the future in excess of their recorded amount, an
adjustment to our deferred tax assets would increase income in the period such determination was
made. Likewise, should we determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to
income in the period such determination was made.
Stock-based
compensation.
Prior to 2006, we issued stock option grants to our employees, and
recorded a compensation charge for the excess of the fair value of the stock at the grant date or
any other measurement date over the amount an employee must pay to acquire the stock, under APB 25.
The compensation expense is recognized over the applicable service period, which is usually the
vesting period. We account for stock-based awards to non-employees by recording a charge for the
services rendered by the non-employees using the Black-Scholes option pricing model.
Commencing
January 1, 2006 we will adopt SFAS 123(R) to recognize all
stock-based payments to employees, including grants of employee stock
options, in our income statement based on the grant-date fair value.
We will estimate the fair value of stock options granted using the
Black-Scholes Merton option pricing formula and a single option
award approach. The fair value is then amortized on a straight-line basis
over the requisite service periods of the awards, which is generally
the vesting period. This option-pricing model requires the input of
highly subjective assumptions, including the option's expected life,
estimated forfeitures and the price volatility of the underlying
stock.
Results of operations
The following table sets forth certain information relating to our results of operations, and our
consolidated statements of operations as a percentage of net revenues, for the periods indicated:
For the year ended December 31,
(in thousands of U.S. dollars, except as % of net revenues)(1)
2003
2004
2005
Consolidated
statement of operations data:
Gross revenues(2)
$
2,354
103.7
%
$
6,064
100.8
%
$
7,627
101.9
%
Business tax
(83
)
(3.7
)
(48
)
(0.8
)
(145
)
(1.9
)
Net revenues
2,271
100
%
6,016
100
%
7,482
100
%
Cost of revenues
(298
)
(13.1
)
(394
)
(6.5
)
(482
)
(6.4
)
Gross profit
1,973
86.9
5,622
93.5
7,000
93.6
Operating expenses:
General and administrative
(400
)
(17.6
)
(727
)
(12.1
)
(1,740
)
(23.3
)
Product development
(149
)
(6.6
)
(173
)
(2.9
)
(236
)
(3.2
)
Sales and marketing
(284
)
(12.5
)
(801
)
(13.3
)
(1,795
)
(24.0
)
Total operating expenses
(833
)
(36.7
)
(1,701
)
(28.3
)
(3,771
)
(50.5
)
48
Table of Contents
For the year ended December 31,
(in thousands of U.S. dollars, except as % of net revenues)(1)
2003
2004
2005
Income from operations
1,140
50.2
3,921
65.2
3,229
43.2
Interest income
51
2.3
294
4.9
1,486
19.9
Interest expenses
—
—
—
—
—
—
Other expense, net
(1
)
(0.1
)
(2
)
—
—
—
Exchange gain (net)
—
—
—
—
366
4.9
Income before income taxes
1,190
52.4
4,213
70.1
5,081
67.9
Income tax
—
—
384
6.4
(457
)
(6.1
)
Net income
$
1,190
52.4
%
$
4,597
76.4
%
$
4,624
61.8
%
(1)
For the results of operations for a specified period, all
translations from Renminbi to U.S. dollars were calculated at the
average exchange rate for that period. For the years ended
December 31, 2003, 2004 and 2005, all translations from Renminbi
to U.S. dollars were calculated at RMB8.2770, RMB8.2768 and
RMB8.1472 per US$1.00, respectively.
(2)
We receive subscription fees at the beginning of
the subscribers' subscription periods. Revenues
from the subscription fees are deferred and
recognized ratably over the twelve month
subscription period.
Year ended December 31, 2005 compared to year ended December 31, 2004
Revenues
Our gross revenues increased by 25.8% from $6.1 million in 2004 to $7.6 million in 2005. Our new
subscribers decreased by 66% to 9,100 new subscribers for the twelve months ended December 31, 2005
from 26,800 new subscribers during the same period in 2004, and our average subscription fee per
subscriber, or ASF, for new subscribers increased by 3% to $182 for the twelve months ended
December 31, 2005 from $177 for the same period in 2004. Our repeat subscribers decreased by 24% to
9,400 for the twelve months ended December 31, 2005 from 12,400 for the same period in 2004, and
our ASF for repeat subscribers increased by 11% to $270 for the twelve months ended December 31,
2005 from $243 for the same period in 2004. We believe the decrease in our new subscribers and our
repeat subscribers was primarily due to the significant volatility and the decline in value
experienced by Chinese stock markets during the twelve months ended December 31, 2005, which have
dampened the individual investors' interest in investing in the Chinese stock markets, resulting in
reduced user demand for stock market intelligence services including our service offerings. The
increase in our ASF for both new and repeat subscribers reflects price increases associated with
our continued efforts to provide more comprehensive and higher priced service offerings. The
increase in our ASF for repeat subscribers reflects the successful migration of a number of repeat
subscribers to our more comprehensive and higher priced service offerings.
Our revenues derived from online advertising sales increased to $1.8 million in 2005 from $544,000
in 2004. This increase is primarily due to our increased efforts in 2005 to market our advertising
services to online advertisers.
Our business taxes attributable to our gross revenues increased from $48,000 in 2004 to $145,000 in
2005, primarily due to increase in business taxes associated with our increase in advertising and
related businesses. After taking into account business taxes attributable to our gross revenues,
our net revenues increased by 24.4% to $7.5 million in 2005 from $6.0 million in 2004.
Cost of revenues
Our cost of revenues in 2005 increased by 22.4% to $482,000 from $394,000 in 2004 primarily because
our cost of data increased by 32.1% to $251,000 in 2005 from $190,000 in 2004, as we increased the
number of our content and data providers to increase the amount of data and information available
to our subscribers and users.
Gross profit
As a result of the foregoing, our gross profit increased by 24.5% to $7.0 million in 2005 from $5.6
million in 2004.
Operating expenses
Our operating expenses increased by 121.6% to $3.8 million in 2005 from $1.7 million in 2004. The
increase in our operating expenses was primarily the result of an increase in our sales and marketing expenses, an increase in
49
Table of Contents
our general and administrative expenses and, to a lesser extent,
increases in our product development expenses. Operating expenses as a percentage of net revenues
increased to 50.4% in 2005 from 28.3% in 2004 because our operating expenses grew at a faster rate
than the rate of increase in our net revenues.
General and administrative.
Our general and administrative expenses increased by 139.2% to $1.7
million in 2005 from $727,000 in 2004 due primarily to an increase in our employee headcount, which
resulted in an increase in salary expenses of $161,000, professional service and other related
costs associated with being a public company in U.S. with the amount of $492,000, an increase in
stock-based compensation of $80,000, as well as an increase in bank charges for online payments
made by some of our subscribers in the amount of $15,000, other office expenses increased $196,000,
partially offset by reductions in other general office expenses. Our general and administrative
expenses as a percentage of net revenues increased to 23.3% in 2005 from 12.1% in 2004.
Product development.
Our product development expenses increased by 36.7% to $236,000 in 2005 from
$173,000 in 2004 due primarily to increase in employee salaries. Our product development expenses
increased as a percentage of net revenues to 3.2% in 2005 from 2.9% in 2004.
Sales and marketing.
Our sales and marketing expenses increased by 123.9% to $1.8 million in 2005
from $801,000 in 2004. This increase is largely attributable to an increase in our advertising
expenditures and an increase in our customer service and sales personnel to address increased
subscription demand. Our advertising expenditures increased substantially to $1.4 million in 2005
from $415,000 in 2004, primarily reflecting increases in our sponsorship arrangements with portals,
search engines and other websites and, to a lesser extent, an increase in the advertising fee we
pay to one of our sponsors. Salary and compensation expenses attributable to our sales and
marketing personnel increased by 13.7% to $240,000 in 2005 from $211,000 in 2004 reflecting an
increase in headcount. Our sales and marketing expenses as a percentage of net revenues increased
to 24.0% in 2005 from 13.3% in 2004. Our acquisition cost per new subscriber increased by 562.1% to
$197.29 in 2005 from $29.8 in 2004. This increased cost is primarily due to higher sales and
marketing expenses associated with our expanded advertising efforts and decreases in the number of
new subscribers from 2004 to 2005.
Income from operations
As a result of the foregoing, we had income from operations of $3.2 million in 2005, decreased by
17.6% compared to income from operations of $3.9 million in 2004, and our operating margin
decreased to 43.2% in 2005 from 65.2% in 2004.
Interest income
Our interest income increased by 405.8% to $1.5 million in 2005 from $294,000 in 2004, due to a
significant increase in our cash balances derived primarily from net proceeds of our initial public
offering in October 2004 which amounted to $58.5 million.
Income tax expense
Our wholly-owned subsidiary, CFO Beijing, enjoys preferential tax treatments in China, including
exemption from enterprise income tax for 2003 and 2004 and a preferential enterprise income tax
rate of 12% from 2005 to 2007. We did not record deferred tax assets in 2003 because such deferred
tax assets were expected to reverse in full during the exemption period. Since our full exemption
period ended on December 31, 2004 and we are subject to a preferential enterprise income tax rate
of 12% in 2005, we recognized an income tax expense of $457,000 for 2005, primarily resulting from
the preferential enterprise income tax rate of 12% for CFO Beijing.
Net income
As a result of the foregoing, our net income increased slightly by 0.6% to $4.62 million in 2005
from $4.60 million in 2004. Our net margin decreased to 61.8% in 2005 from 76.4% in 2004.
Year ended December 31, 2004 compared to year ended December 31, 2003
Revenues
50
Table of Contents
Our gross revenues increased by 157.6% from $2.4 million in 2003 to $6.1 million in 2004. This
increase is primarily due to growth in revenues from our subscription services. Our new subscribers
increased by 54.9% to 26,800 new subscribers for the twelve months ended December 31, 2004 from
17,300 new subscribers during the same period in 2003, and our average subscription fee per
subscriber, or ASF, for new subscribers increased by 90.3% to $177 for the twelve months ended
December 31, 2004 from $93 for the same period in 2003. Our repeat subscribers increased by 22.8%
to 12,400 for the twelve months ended December 31, 2004 from 10,100 for the same period in 2003,
and our ASF for repeat subscribers increased by 118.9% to $243 for the twelve months ended December
31, 2004 from $111 for the same period in 2003. The increase in our ASF for both new and repeat
subscribers reflects price increases associated with our continued efforts to provide more
comprehensive and higher priced service offerings. The increase in our ASF for repeat subscribers
reflects the successful migration of a number of repeat subscribers to our more comprehensive and
higher priced service offerings.
Our revenues derived from online advertising sales increased to $544,000 in 2004 from an
insignificant amount in 2003. This increase is primarily due to our increased efforts in 2004 to
market our advertising services to online advertisers.
Our business taxes attributable to our gross revenues decreased from $83,000 in 2003 to $48,000 in
2004, primarily because seven of our products received certificates from the PRC government
qualifying them as software products and revenues from these software products became subject to
VAT in lieu of business tax. After taking into account business taxes attributable to our gross
revenues, our net revenues increased by 165.0% to $6.0 million in 2004 from $2.3 million in 2003.
Cost of revenues
Our cost of revenues in 2004 increased by 32.3% to $394,000 from $298,000 in 2003 primarily because
our cost of data increased by 84.7% to $190,000 in 2004 from $103,000 in 2003, as we increased the
number of our content and data providers to increase the amount of data and information available
to our subscribers and users.
Gross profit
As a result of the foregoing, our gross profit increased by 185.0% to $5.6 million in 2004 from
$2.0 million in 2003.
Operating expenses
Our operating expenses increased by 104.3% to $1.7 million in 2004 from $833,000 in 2003. The
increase in our operating expenses was primarily the result of an increase in our sales and
marketing expenses, an increase in our general and administrative expenses and, to a lesser extent,
increase in our product development expenses. Operating expenses as a percentage of net revenues
decreased to 28.3% in 2004 from 36.7% in 2003 because our net revenues grew at a faster rate than
the rate of increase in our operating expenses.
General and administrative.
Our general and administrative expenses increased by 81.7% to $727,000
in 2004 from $400,000 in 2003 due primarily to an increase in stock-based compensation of $190,000.
Our total stock-based compensation was $289,000 in 2004 which was incurred from our grant of
12,197,988 stock options to our directors, officers, employees, consultants and advisors in 2004,
and from our sale of 730,000 restricted shares in April 2004 to our chief financial officer in
connection with his initial employment, compared with $96,000 in 2003 from our sale of 2,666,600
ordinary shares to our former chairman and chief executive officer. The increase of our general and
administrative expenses is also due to an increase in our employee headcount, which resulted in an
increase in salary expenses of $98,000, as well as an increase in bank charges for online payments
made by some of our subscribers in the amount of $24,000, partially offset by reductions in other
general office expenses. In addition, the increase in our general and administrative expenses
reflected increased compliance costs associated with our becoming a public company in the U.S. Our
general and administrative expenses as a percentage of net revenues decreased to 12.1% in 2004 from
17.6% in 2003.
Product development.
Our product development expenses increased by 16.2% to $173,000 in 2004 from
$149,000 in 2003 due primarily to employee salaries. However, our product development expenses
decreased as a percentage of net revenues to 2.9% in 2004 from 6.6% in 2003, as our net revenues
increased at a faster rate than the rate of increase in our product development expenses.
51
Table of Contents
Sales
and marketing.
Our sales and marketing expenses increased by 182.2% to $801,000 in 2004 from
$284,000 in 2003. This increase is largely attributable to an increase in our advertising
expenditures and an increase in our customer service and sales personnel to address increased
subscription demand. Our advertising expenditures increased substantially to $415,000 in 2004 from
$71,000 in 2003, primarily reflecting increases in our sponsorship arrangements with portals,
search engines and other websites and, to a lesser extent, an increase in the advertising fee we
pay to one of our sponsors. Salary and compensation expenses attributable to our sales and
marketing personnel increased by 74.7% to $211,000 in 2004 from $121,000 in 2003, reflecting an
increase in headcount. Our sales and marketing expenses as a percentage of net revenues increased
slightly to 13.3% in 2004 from 12.5% in 2003. Our acquisition cost per new subscriber increased by
81.7% to $29.8 in 2004 from $16.4 in 2003, primarily due to increases in sales and marketing
expenses as we expanded advertising efforts to increase the number of our sponsorship arrangements
and as we increased the size of our sales and marketing team in 2004.
Income from operations
As a result of the foregoing, we had income from operations of $3.9 million in 2004, increased by
243.9% compared to income from operations of $1.1 million in 2003, and our operating margin
increased to 65.2% in 2004 from 50.2% in 2003.
Interest income
Our interest income increased by 473.7% to $294,000 in 2004 from $51,000 in 2003, due to a
significant increase in our cash balances derived primarily from net proceeds of our initial public
offering in October 2004 which amounted to $58.5 million.
Income tax benefit
Our income tax benefit increased to $384,000 in 2004 from nil in 2003, attributable to deferred tax
assets we recognized in 2004. Our wholly-owned subsidiary, CFO Beijing, enjoys preferential tax
treatments in China, including exemption from enterprise income tax for 2003 and 2004 and a
preferential enterprise income tax rate of 12% from 2005 to 2007. We did not record deferred tax
assets in 2003 because such deferred tax assets were expected to reverse in full during the
exemption period. Since our exemption period ends on December 31, 2004 and we are subject to a
preferential enterprise income tax rate of 12% in 2005, we recognized deferred tax assets of
$386,000 in 2004, accounting for 12% of the accumulated effect of revenue recognition of $3.2
million, which is expected to reverse in 2005 at the preferential enterprise income tax rate of
12%.
Net income
As a result of the foregoing, our net income increased by 286.3% to $4.6 million in 2004 from $1.2
million in 2003. Our net margin increased to 76.4% in 2004 from 52.4% in 2003.
B.
Liquidity and capital resources.
Cash flows and working capital
As of December 31, 2005, we had approximately $46.2 million in cash and cash equivalents. As of the
same date, we did not have any outstanding debt. Our cash and cash equivalents primarily consist of
cash on hand and liquid investments with original maturities of three months or less that are
deposited with banks and other financial institutions. We generally deposit our excess cash in
interest bearing bank accounts.
The following table shows our cash flows with respect to operating activities, investing activities
and financing activities in 2003, 2004 and 2005:
For the year ended December 31,
(in thousands of U.S. dollars)
2003
2004
2005
Net cash
provided by operating activities
$
1,506
$
7,023
$
3,059
Net cash used in investing activities
(152
)
(200
)
(15,235
)
Net cash provided by (used in) financing activities
—
57,968
(12,923
)
Net increase (decrease) in cash and cash equivalents
1,355
64,791
(24,428
)
Cash and cash equivalents at beginning of year
4,451
5,806
70,596
Cash and cash equivalents at end of year
$
5,806
$
70,596
$
46,168
52
Table of Contents
Net cash provided by operating activities was $3.1 million in 2005 compared to $7.0 million in
2004. This decrease was primarily due to the fact that we amortized $1.6 million of our deferred
revenue in 2005 and accrued $2.2 million in 2004. Net cash provided by operating activities was
$7.0 million in 2004 compared to $1.5 million for 2003. This increase was primarily due to
increases in our net income and deferred revenue from the growth in our subscription services
business.
Net cash used in investing activities was $15.2 in 2005, compared to net cash used in investing
activities of $200,000 in 2004. This increase was due to our cost
method investment in Moloon. Net cash
used in investing activities was $200,000 in 2004, compared to net cash used in investing
activities of $152,000 in 2003. This increase was due to purchases of property and equipment which
primarily consisted of office space, computer, network equipment and bandwidth for our network
system.
Net cash used in financing activities was $12.9 million in 2005, mainly due to the implementation
of our stock repurchase program. We had net cash provided by financing activities of $58.0 million
in 2004, mainly due to our initial public offering in October 2004 of 5,000,000 American Depositary
Shares, representing 25,000,000 ordinary shares, which raised net proceeds of $58.5 million. We
declared a dividend of $503,000 in the first quarter of 2004 in respect of the financial year ended
December 31, 2003. This dividend was payable pro rata to our registered shareholders as of December
31, 2003, of which $450,000 was paid in the first quarter of 2004 and the balance was paid in July
2004. We currently intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash dividends on our
ordinary shares, or indirectly on our ADSs, for the foreseeable future. In May 2004, we repaid
$60,000 to the shareholders of Fuhua for funds advanced by them, on our behalf, to capitalize Fuhua
when Fuhua was initially incorporated in December 2000. This was a one-time payment and the payment
amount constitutes the entire amount advanced by Fuhua's shareholders when Fuhua was initially
capitalized in December 2000.
Capital resources
Our principal capital expenditures for 2003, 2004 and 2005 consisted of primarily purchases of
servers, workstations, computers, computer software, and other items related to our network
infrastructure for a total of approximately $152,000, $200,000 and $235,000, respectively.
Our capital expenditure plans for 2006 have not yet been determined, but we expect to spend
approximately $704,000 in total primarily in connection with the furnishing and outfitting of the
new principal executive offices we will move into later this year, and in connection with the
purchasing of workstations, servers, equipment and technology. Capital expenditures in 2004 and
2005 have been, and our 2006 capital expenditures are expected to continue to be, funded through
operating cash flows and through our existing capital resources.
We believe that our current cash and cash equivalents, and cash flow from operations and proceeds
from our initial public offering in October 2004 will be sufficient to meet our anticipated cash
needs, including for our working capital and capital expenditure needs, for the foreseeable future.
We may, however, require additional cash resources due to changes in business conditions or other
future developments. If these sources are insufficient to satisfy our cash requirements, we may
seek to sell debt securities or additional equity securities or obtain a credit facility. The sale
of convertible debt securities or additional equity securities could result in additional dilution
to our shareholders. The incurrence of indebtedness would result in debt service obligations and
could result in operating and financial covenants that would restrict our operations. We cannot
assure you that financing will be available in amounts or on terms acceptable to us, if at all.
In March 2005, We have made additional capital contributions of $9 million and $11.5 million to CFO
Beijing and Fortune Software, respectively, with the approval from PRC government. In April 2005,
we have made shareholder loans of $11.0 million and $18.0 million to CFO Beijing and Fortune
Software, respectively, with the approval from PRC government authorities. We applied a portion of
the net proceeds of our initial public offering in October 2004 to fund these additional capital
contributions and shareholder loans.
In the event that CFO Beijing, Fortune Software or Fuhua require additional capital to fund their
operations or to acquire additional businesses or assets, we may need to make loans or additional
capital contributions to CFO
53
Table of Contents
Beijing, Fortune Software or Fuhua. Any loans to CFO Beijing, Fortune Software or Fuhua are subject
to PRC regulations and approvals. For example:
•
aggregate loans by us to CFO Beijing, a foreign invested enterprise,
to finance its activities, cannot in the aggregate exceed the
difference between CFO Beijing's currently approved total investment
amount and its currently approved registered capital amount, and must
be registered with the State Administration of Foreign Exchange for
the loans to be effective. The maximum amount we may loan to CFO
Beijing, given CFO Beijing's currently approved registered capital and
total investment amounts, is $18.0 million;
•
aggregate loans by us to Fortune Software, a foreign invested
enterprise, to finance its activities, cannot in the aggregate exceed
the difference between Fortune Software's currently approved total
investment amount and its currently approved registered capital
amount, and must be registered with the State Administration of
Foreign Exchange for the loans to be effective. The maximum amount we
may loan to Fortune Software, given Fortune Software's currently
approved registered capital and total investment amounts, is $18.0
million; and
•
loans by us to Fuhua, which is a domestic PRC enterprise, must be
approved by the relevant government authority and must also be
registered with the State Administration of Foreign Exchange, although
in practice we could make loans to CFO Beijing or Fortune Software,
and CFO Beijing or Fortune Software could in separate transactions
make loans to Fuhua through financial or Fortune Software,
intermediaries, without approval from any PRC governmental agencies.
We may also determine to finance CFO Beijing or Fortune Software by means of additional capital
contributions. These additional capital contributions must be approved by the PRC Ministry of
Commerce. Because Fuhua is a domestic PRC enterprise, we are not likely to finance its activities
by means of a capital contribution due to regulatory issues relating to foreign investment in
domestic PRC enterprises, as well as the licensing and other regulatory issues. We cannot assure
you that we can obtain these government registrations or approvals on a timely basis, if at all,
with respect to future loans or capital contributions by us to CFO Beijing, Fortune Software or
Fuhua.
From time to time, we also evaluate possible investments, acquisitions or divestments and may, if a
suitable opportunity arises, make an investment or acquisition or conduct a divestment.
In March 2005, our board of directors approved a stock repurchase program pursuant to which we were
authorized to purchase from time to time up to US$10 million worth of our American Depositary
Shares, or ADSs, over a period of six months. In May and June 2005, we repurchased a total of
1,659,442 ADSs, representing 8,297,210 ordinary shares, at an average cost of $5.98 per ADS for a
total consideration of approximately US$10.0 million, including a brokerage commission of US$0.05
per ADS. In August 2005, our board of directors approved another stock repurchase program pursuant
to which we were authorized to purchase from time to time up to US$10 million worth of its ADSs,
over a period of six months. In December 2005, we repurchased a total of 482,164 American
Depositary Shares, or ADSs, representing 2,410,820 ordinary shares, at an average cost of US$6.60
for a total consideration of approximately US$ 3,2 million. The purchases were funded from
available working capital.
Restricted net assets
Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiary and affiliate
only out of their retained earnings, if any, as determined in accordance with PRC accounting
standards and regulations. In addition, the statutory general reserve fund, which requires annual
appropriations of 10% of net after-tax income should be set aside prior to payment of any
dividends. As a result of these and other restrictions under PRC laws and regulations, our PRC
subsidiary and affiliate are restricted in their ability to transfer a portion of their net assets
to us either in the form of dividends, loans or advances, restricted portion amounted to
approximately $40.7 million, or 66.9%, of our total consolidated net assets as of December 31,
2005.
Even though we currently do not require any such dividends, loans or advances from our PRC
subsidiary and affiliate, we may in the future require additional cash resources from our PRC
subsidiary and affiliate due to changes in business conditions, to fund future acquisitions or
developments, or merely to declare and pay dividends or distributions to our shareholders, although
we currently have no intention to do so.
C.
Research and development.
54
Table of Contents
Our research and development efforts consist of continuing to:
•
increase the breadth of our service offerings through the addition of new features and functions to our
service packages;
•
enhance our subscribers' experience by improving the quality of our research tools and website; and
•
develop additional research tools, features and content specifically targeting the high-end subscribers.
For example, In August, 2005, we launched a new subscription service offering, Tao of Wealth, which
include new personal finance tools such as book keeping, financial report and payment alert with
comprehensive real time personal wealth management product information and news. The new service
offering is targeted at middle class individuals and financial professionals such as financial
advisors.
D.
Trend information.
Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the period from January 1, 2003 to December 31,
2005 that are reasonably likely to have a material effect on our net revenues, income,
profitability, liquidity or capital resources, or that caused the disclosed financial information
to be not necessarily indicative of future operating results or financial conditions.
E.
Off-balance sheet arrangements.
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees,
interest rate swap transactions or foreign currency forward contracts. We do not engage in trading
activities involving non-exchange traded contracts.
F.
Tabular disclosure of contractual obligations.
We have entered into leasing arrangements relating to office premises, equipment and others that
are classified as operating leases. The following sets forth our known contractual obligations as
of December 31, 2005 and as of the types that are specified below:
Equipment
Office Premises
and Others
Total
(in U.S. dollars)
Less than 1 year
115,569
—
115,569
1 — 3 years
—
—
—
3 — 5 years
—
—
—
More than 5 years
—
—
—
We have entered into certain leasing arrangements relating to our offices premises. Our rental
expenses under these leases were $243,000 in 2005. Apart from such rental expenses, as of December
31, 2005, we did not have any long-term debt obligations, capital (finance) lease obligations,
operating lease obligations, purchase obligations or any other long-term liabilities reflected on
our balance sheets with durations to maturity as are set forth in the chart directly above.
As of December 31, 2005, we did not have any indebtedness and we did not have any material debt
securities, material contingent liabilities, or material mortgages or liens. We intend to meet our
future funding needs through net cash provided from operating activities and the proceeds of our
initial public offering in 2004. Therefore we intend to keep our cash and cash equivalents in
short-term bank deposits and short-term bonds to maintain safety and liquidity of our cash.
G.
Quantitative and qualitative disclosures about market risk.
Interest rate risk
55
Table of Contents
Our exposure to market rate risk for changes in interest rates relates primarily to the interest
income generated by excess cash invested in short term money market accounts and certificates of
deposit. We have not used derivative financial instruments in our investment portfolio. Interest
earning instruments carry a degree of interest rate risk. We have not been exposed nor do we
anticipate being exposed to material risks due to changes in interest rates. However, our future
interest income may fall short of expectations due to changes in interest rates.
Foreign currency risk
Substantially all our revenues and expenses are denominated in Renminbi and a substantial portion
of our cash is kept in Renminbi, but as noted above, a portion of our cash is also kept in U.S.
dollars. Although we believe that, in general, our exposure to foreign exchange risks should be
limited, the value of our American Depositary Shares, or ADSs, will be affected by the foreign
exchange rate between U.S. dollars and Renminbi. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operational needs and the Renminbi appreciates against the U.S.
dollar at that time, our financial position and the price of our ADSs may be adversely affected.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring
dividends on our ADSs or otherwise and the U.S. dollar appreciates against the Renminbi, the U.S.
dollar equivalent of our earnings from our subsidiaries and controlled entities in China would be
reduced.
We have recorded foreign exchange gains of $366,000 in net income in year 2005, due to the recent
revaluation of RMB against the U.S. dollar by Chinese government. The PRC government may further
readjust the current rate at which Renminbi-U.S. dollar exchanges are fixed, as well as re-evaluate
its decades-old policy of using a fixed-rate regime to govern foreign currency transactions,
although the PRC government has not committed itself to take any such action currently. Since we
have not engaged in any hedging activities, we may experience economic loss as a result of any
foreign currency exchange rate fluctuations.
H.
Recent accounting pronouncements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No.
123(R)").This statement is a revision to SFAS No. 123 and supersedes APB Opinion No. 25. This
statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, primarily focusing on the accounting for transactions
in which an entity obtains employee services in share-based payment transactions. Entities are
required to measure the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award (with limited
exceptions).That cost will be recognized over the period during which an employee is required to
provide service, the requisite service period (usually the vesting period), In exchange for the
award. The grant-date fair value of employee share options and similar instruments are to be
estimated using option pricing models. If an equity award is modified after the grant date,
incremental compensation cost will be recognized in an amount equal to the excess of the fair value
of the modified award over the fair value of the original award immediately before the
modification. This statement is effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. In accordance with the standard, the Company is
required to adopt SFAS No.123(R) effective January 1, 2006. Upon adoption, the Company has two
application methods to choose from: the modified prospective transition approach or the
modified-retrospective transition approach.
Under the modified-prospective transition method the Company would be required to recognize
compensation cost for share-based awards to employees based on their grant-date fair value from the
beginning of the fiscal period in which the recognition provisions are first applied as well as
compensation cost for awards that were granted prior to, but not vested as of the date of adoption.
Prior periods remain unchanged and pro forma disclosures previously required by SFAS No. 123
continue to be required. Under the modified-retrospective transition method, the Company would
restate prior periods by recognizing compensation cost in the amounts previously reported in the
pro forma footnote disclosure under SFAS No. 123. Under this method, the Company is permitted to
apply this presentation to all periods presented or to the start of the fiscal year in which SFAS
No. 123(R) is adopted. The Company would follow the same guidelines as in the modified prospective
transition method for awards granted subsequent to adoption and those that were granted and not yet
vested. The Company believes that the impact that the adoption of SFAS No. 123(R) will have on its
financial position or results of operations will approximate the magnitude of the stock-based
employee compensation cost disclosed in Note 2 pursuant to the disclosure requirements of SFAS No.
148.
56
Table of Contents
In May 2005, FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" (SFAS 154) which
replaces APB Opinion No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements — An Amendment of APB Opinion No. 28". SFAS 154 provides guidance on
the accounting for and reporting of accounting changes and error corrections. It requires
retrospective application to prior periods' financial statements of changes in accounting principle
and corrections of errors, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005, and must be adopted
by the Company in the first quarter of fiscal year 2006. The Company considers that the adoption of
SFAS 154 will not have material impact on its consolidated results of operations and financial
condition.
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments"
which amends FASB Statements No. 133 "Accounting for Derivative Instruments and Hedging
Activities", and No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement permits fair value re-measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would require bifurcation.
This statement is effective for all financial instruments acquired or issued after the beginning of
an entity's first fiscal year that begins after September 15, 2006. The Company is currently
evaluating the effect that the adoption of SFAS 155 will have on its consolidated results of
operations and financial condition but does not expect it to have a material impact.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and senior management.
The following table sets forth the name, age and position of each director and executive officer of
our company as of March 31,2006.
Name
Age
Position
Zhiwei Zhao
43
Chief Executive Officer and a
member of the Board of Directors
Hugo Shong
50
Chairman of the Board of Directors
Kheng Nam Lee(1)
58
Director
Ling Wang(1)(2)(3)
43
Director
Fansheng Guo(1)(2)(3)
50
Director
Sam Qian
42
President and Chief Financial Officer
(1)
Member, audit committee
(2)
Member, compensation committee
(3)
Member, nominations committee
The address of each of our executive officers and directors is Room 610B, 6/F, Ping'an
Mansion, No. 23 Financial Street, Xicheng District, Beijing, People's Republic of China.
Jun Ning, our former Chairman and Chief Executive Officer, resigned from these positions, effective
July 25, 2005, for health reasons. Zhiwei Zhao was appointed as our new Chief Executive Officer and
as a member of the Board of Directors and Mr. Hugo Shong was appointed as the new Chairman of our
Board of Directors. Zhiwei Zhao will at all times be a director, and will not retire as a director,
so long as he remains as the Chief Executive Officer. Kheng Nam Lee and Fansheng Guo will stand
for re-election as directors in the upcoming annual general meeting of shareholders in July 2006.
Ling Wang and Hugo Shong will hold office until the next annual general meeting of shareholders and
until such director's successor is elected and duly qualified, or until such director's earlier
death, bankruptcy, insanity, resignation or removal. There are no family relationships among any of
the directors or executive officers of our company.
Bo Wu, our former Vice President and Chief Operating Officer, resigned from these positions,
effective as of August 9, 2005 for family reasons. We have not appointed a new Chief Operating
Officer.
Sam Qian, our President & Chief Financial Officer, has indicated his intention to resign from his
positions in the company to spend more time with his family. To ensure a smooth transition, Mr.
Qian has committed to remaining in his current position until a suitable successor is appointed. We
are searching for his successor.
57
Table of Contents
Biographical Information
Hugo Shong
has served as our director since May 2004. He was elected as the Chairman of our Board
of Directors as of July 25, 2005 and has been in that position since then. Mr. Shong has been a
senior vice president of International Data Group, Inc., or IDG, since 2001, the president of IDG
Asia since 1995, a director of IDG Technology Venture Investment, Inc., or IDGVC, since 1994, and a
member of IDG Technology Venture Investments, LLC, the general partner of IDG Technology Venture
Investments, LP, since 2000. Mr. Shong has headed a number of operations for IDG including in
information technology, publishing, market research and tradeshows in the Asia Pacific region. Mr.
Shong graduated from Hunan University with a Bachelor of Arts degree in English, followed by a
Master of Science degree from the Boston University College of Communications.
Zhiwei Zhao
has served as our Chief Executive Officer since June 21, 2005 and our director since
July 25, 2005. Mr. Zhao was the Chairman of the Board of Directors of Abitcool Inc before joining
us. Abitcool is a company that provides broadband internet services in China. It boasts the largest
private Internet Data Center in China. From 1998 to 2005, he served as the General Manager of
Huatong International Development Limited in Hong Kong. Mr. Zhao graduated with a Bachelor of
Science degree from Huazhong University of Science and Technology.
Kheng Nam Lee
has served as our director since May 2004. Mr. Lee was the president of Vertex
Management Pte Ltd, a management company for a venture capital fund, from March 1995 to February
2004 and was also a director of Vertex Venture Holdings Ltd., both of which are affiliates of
Vertex Technology Fund (III) Ltd. Mr. Lee is a director of Creative Technology Ltd and United Test
and Assembly Centre Ltd, and has served as a director of ActivCard Corp, Centillium Communications
Inc., Creative Lab Inc., GRIC Communications Inc., Gemplus International SA and Semiconductor
Manufacturing International Corporation. Mr. Lee holds a Bachelor of Science degree in mechanical
engineering, with first class honors, from Queen's University, Canada and a Master of Science
degree in operations research and systems analysis from the U.S. Naval Postgraduate School.
Ling Wang
has served as our director since May 2004. Mr. Wang is the chairman and chief executive
officer of GCTech Company Limited, a company that provides systems integration and software
development services to the telecommunications industry, which he founded in 1994. Since 2003, he
has been a director of Tiantian Online Co., Ltd., a provider of broadband Internet audio-visual
programs (or Internet TV) in the PRC. Mr. Wang graduated with a Bachelor of Science degree in
Mathematics from the University of Science and Technology of China, and also has a Master of
Science degree in automation control from the Beijing Institute of Information Control.
Fansheng Guo
has served as our director since May 2004. Mr. Guo is the chairman, chief executive
officer and president of HC International, Inc., a Hong Kong listed company that provides business
information services in the PRC, which he founded in 1990. Mr. Guo obtained a Bachelor of Arts
degree in Industrial Economics from Renmin University of China.
Sam Qian
has served as our President since February 2005 and has served as our Chief Financial
Officer since April 2004. Mr. Qian was a vice president of Sohu.com Inc., a Chinese Internet
portal, from March 2000 to March 2004. From July 1996 to February 2000, Mr. Qian was an associate
director in the risk finance group of Barclays Capital, a financial services corporation. Mr. Qian
graduated with a Bachelor of Arts degree in Physics from the University of Science and Technology
of China, and holds a Ph. D. degree in Astrophysics from Columbia University. He was a Bakhmeteff
fellow in fluid dynamics at Columbia University.
B.
Compensation of directors and executive officers.
In 2005, we granted our non-executive directors, in the aggregate, options representing the right
to purchase 260,000 ordinary shares. Other than the foregoing option grants, we did not pay any
other compensation to our non-executive directors in 2005.
In 2005, we paid aggregate cash compensation of approximately $115,487 to our directors and
executive officers as a group. In 2005, we granted to selected directors, officers, employees and
individual consultants and advisors options to acquire an aggregate of 5,003,000 ordinary shares.
Unvested options to purchase 402,000 ordinary shares were returned to the pool of our ungranted
options upon resignation of the employees holding such options
in 2005. We have no service contracts with any of our directors or executive officers that provide
benefits to them upon termination, except for change in control agreements we entered into with
each of our chief executive officer and chief financial officer. The change in control agreements
provide that if after a change-of-control of our
58
Table of Contents
company has occurred, the executive is terminated without cause or resigns for good reason, we are obligated to provide severance benefits to that
executive.
All of our current directors have entered into indemnification agreements in which we agree to
indemnify, to the fullest extent allowed by Hong Kong law, our charter documents or other
applicable law, our directors from any liability or expenses, unless the liability or expense
arises from the director's own willful negligence, intentional malfeasance, bad faith act, or other
transactions from which the director may not be relieved of liability under applicable law. The
indemnification agreements also specify the procedures to be followed with respect to
indemnification.
Directors' and officers' liability insurance
We have renewed directors' and officers' liability insurance on behalf of our directors and
officers that will expire in January 2007.
Employee's stock option plan
We adopted the 2004 Stock Incentive Plan, or the Plan, in January 2004. The Plan is intended to
promote our success and to increase shareholder value by providing an additional means to attract,
motivate, retain and reward selected directors, officers, employees and other eligible persons. An
aggregate of 5,688,488 ordinary shares were reserved for issuance under the Plan in January 2004.
We amended the Plan in September 2004 to increase the total number of ordinary shares issuable
under the Plan to 10,688,488 or 10.5% of our issued share capital at that time.
We have
issued options under the Plan to purchase a total of 10,691,488 ordinary shares to selected
directors, officers, employees and individual consultants and advisors. The exercise price for the
5,368,488 stock options granted in January 2004 under the Plan is $0.16 per share, the exercise
price for the 320,000 options granted in June 2004 is $1.04 per share, the exercise price for the
4,353,000 options granted in February 2005 is $1.31 per share, the exercise price for the 50,000
options granted in June 2005 is $1.32 and the exercise price for the 400,000 and 200,000 options
granted in November 2005 are $1.12 and $1.16, respectively. Unvested options to purchase 972,600
ordinary shares were returned to the pool of our ungranted options upon resignation of the
employees holding such options as of March 31, 2006. With the exception of the options granted to
our directors and our management, which vest over a period of one to four years, our options
granted to employees generally vest over a period of three to five years. Together with options we
granted under option agreements that were independent of the Plan, we have a total number of
11,535,680 options that are currently vested and exercisable for ordinary shares.
Options granted under the Plan generally do not vest unless the grantee remains under our
employment or in service with us on the given vesting date. However, in circumstances where there
is a death or disability of the grantee, or a change in the control of our company, the vesting of
options will be accelerated to permit immediate exercise of all options granted to a grantee.
Generally, to the extent an outstanding option granted under the Plan has not vested by the date
the grantee's employment or service with us terminates, the option will terminate and become
unexercisable. Our board of directors may amend, alter, suspend, or terminate the Plan at any time,
provided, however, that our board of directors must first seek the approval of our shareholders
and, if such amendment, alteration, suspension or termination would adversely affect the rights of
an optionee under any option granted prior to that date, the approval of such optionee. Without
further action by our board of directors, the Plan will terminate in January 2014.
The table below sets forth the option grants made to our directors and executive officers pursuant
to the Plan:
Number of
ordinary Shares to
be issued upon
Exercise price per
Exercise of options
ordinary share
Date of grant
Date of expiration
Zhiwei Zhao
*
$
1.12
November 15, 2005
November 15, 2015
Hugo Shong
*
$
0.16
January 5, 2004
March 5, 2009
*
$
1.04
June 15, 2004
March 5, 2009
*
$
1.314
February 18, 2005
February 18, 2015
Kheng Nam Lee
*
$
0.16
January 5, 2004
March 5, 2009
59
Table of Contents
Number of
ordinary Shares to
be issued upon
Exercise price per
Exercise of options
ordinary share
Date of grant
Date of expiration
*
$
1.04
June 15, 2004
March 5, 2009
*
$
1.314
February 18, 2005
February 18, 2015
Fansheng Guo
*
$
0.16
January 5, 2004
March 5, 2009
*
$
1.04
June 15, 2004
March 5, 2009
*
$
1.314
February 18, 2005
February 18, 2015
Ling Wang
*
$
0.16
January 5, 2004
March 5, 2009
*
$
1.04
June 15, 2004
March 5, 2009
*
$
1.314
February 18, 2005
February 18, 2015
Sam Qian
189,200
$
1.314
February 18, 2005
February 18, 2015
*
Upon exercise of all options granted, would beneficially own less
than 1% of our outstanding ordinary shares.
C.
Board practices
.
In 2005, our directors met in person or passed resolutions by unanimous written consent eight
times. No director attended fewer than 75% of all the meetings of our board and its committees on
which he served after becoming a member of our board. No director is entitled to any severance
benefits upon termination of his directorship with us. Our board of directors has also concluded
that Mr. Kheng Nam Lee meets the criteria for an "audit committee financial expert" as established
by the U.S. Securities and Exchange Commission (SEC).
Board committees
Our board of directors has established an audit committee, a compensation committee and a
nominations committee.
Audit committee.
Our audit committee currently consists of Kheng Nam Lee, Ling Wang and Fansheng
Guo. Our board of directors has determined that all of our audit committee members are "independent
directors" within the meaning of Nasdaq Marketplace Rule 4200(a)(15) and meet the criteria for
independence set forth in Section 10A(m)(3) of the U.S. Securities Exchange Act of 1934, or the
Exchange Act. Our audit committee is responsible for, among other things:
•
recommending to our shareholders, if appropriate, the annual re-appointment of our independent
auditors and pre-approving all auditing and non-auditing services permitted to be performed by the
independent auditors;
•
annually reviewing an independent auditors' report describing the auditing firm's internal
quality-control procedures, any material issues raised by the most recent internal quality control
review, or peer review, of the independent auditors and all relationships between the independent
auditors and our company;
•
setting clear hiring policies for employees or former employees of the independent auditors;
•
reviewing with the independent auditors any audit problems or difficulties and management's response;
•
reviewing and approving all proposed related-party transactions, as defined in Item 404 of
Regulation S-K under the U.S. securities laws;
•
discussing the annual audited financial statements with management and the independent auditors;
•
discussing with management and the independent auditors major issues regarding accounting principles
and financial statement presentations; reviewing reports prepared by management or the independent
auditors relating to significant financial reporting issues and judgments;
•
reviewing reports prepared by management or the independent auditors relating to significant
financial reporting issues and judgments;
•
discussing earnings press releases, as well as financial information and earnings guidance provided
to analysts and rating agencies;
60
Table of Contents
•
reviewing with management and the independent auditors the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures on our financial statements;
•
discussing policies with respect to risk assessment and risk management;
•
reviewing major issues as to the adequacy of our internal controls and any special audit steps
adopted in light of material control deficiencies;
•
timely reviewing reports from the independent auditors regarding all critical accounting policies
and practices to be used by our company, all alternative treatments of financial information within
U.S. GAAP that have been discussed with management and all other material written communications
between the independent auditors and management;
•
establishing procedures for the receipt, retention and treatment of complaints received from our
employees regarding accounting, internal accounting controls or auditing matters and the
confidential, anonymous submission by our employees of concerns regarding questionable accounting or
auditing matters;
•
annually reviewing and reassessing the adequacy of our audit committee charter;
•
such other matters that are specifically delegated to our audit committee by our board of directors
from time to time;
•
meeting separately, periodically, with management, the internal auditors and the independent
auditors; and
•
reporting regularly to the full board of directors.
Compensation committee.
Our current compensation committee consists of Ling Wang and Fansheng Guo.
Our board of directors has determined that all of our compensation committee members are
"independent directors" within the meaning of Nasdaq Marketplace Rule 4200(a)(15). Our compensation
committee is responsible for:
•
determining and recommending the compensation of our Chief Executive Officer;
•
reviewing and making recommendations to our board of directors regarding our
compensation policies and forms of compensation provided to our directors and
officers;
•
reviewing and determining bonuses for our officers and other employees;
•
reviewing and determining stock-based compensation for our directors, officers,
employees and consultants;
•
administering our equity incentive plans in accordance with the terms thereof; and
•
such other matters that are specifically delegated to the compensation committee
by our board of directors from time to time.
Nominations committee.
Our current nominations committee consists of Ling Wang and Fansheng Guo.
Our board of directors has determined that all of our nominations committee members are
"independent directors" within the meaning of Nasdaq Marketplace Rule 4200(a)(15). Our nominations
committee is responsible for, among other things, selecting and recommending the appointment of new
directors to our board of directors.
Corporate governance
Our board of directors has adopted a code of ethics, which is applicable to our senior executive
and financial officers. In addition, our board of directors has adopted a code of conduct, which is
applicable to all of our directors, officers and employees. Our code of ethics and our code of
conduct are publicly available on our website.
61
Table of Contents
In addition, our board of directors has adopted a set of corporate governance guidelines. The
guidelines reflect certain guiding principles with respect to our board's structure, procedures and
committees. The guidelines are not intended to change or interpret any law, or our memorandum and
articles of association.
Duties of directors
Under Hong Kong law, our directors have a duty of loyalty to act honestly in good faith with a view
to our best interests. Our directors also have a duty to exercise the care, diligence and skills
that a reasonable person with that director's qualifications and experience would exercise in
comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association.
The functions and powers of our board of directors include, among others:
•
convening shareholders' meetings and reporting its work to shareholders at such meetings;
•
implementing shareholders' resolutions;
•
determining our business plans and investment proposals;
•
formulating our profit distribution plans and loss recovery plans;
•
determining our debt and finance policies and recommending proposals for the increase or
decrease in our share capital and the issuance of debentures;
•
formulating our major acquisition and disposition plans, and plans for consolidation,
division or dissolution;
•
proposing amendments to our articles of association; and
•
exercising any other powers conferred at shareholders' meetings or under our memorandum
and articles of association.
Terms of directors and executive officers
We have a staggered board, which means our directors, excluding our Chief Executive Officer, are
divided into two classes, with half of our board, excluding our Chief Executive Officer, standing
for election every two years. Our Chief Executive Officer will at all times be a director, and will
not retire as a director, so long as he remains as the Chief Executive Officer. Accordingly, our
directors, excluding our Chief Executive Officer, hold office until the second annual meeting of
shareholders following their election, or until their successors have been duly elected and
qualified. Our board has adopted a policy providing that no director may be nominated for
re-election or re-appointment to our board after reaching 70 years of age, unless our board
concludes that such person's continued service as our director is in our best interest. Officers
are elected by and serve at the discretion of the board of directors.
D.
Employees
.
As of March 31, 2006 we had 106 full-time employees. We currently anticipate hiring an additional
20 employees in 2006, most of whom will be located in Beijing. Of our current employees, 2 are
executive officers, 12 are administrative, 43 form our sales, marketing and customer support staff,
25 form our editorial department, and 24 are dedicated to our technology department.
None of our employees are represented by a labor union. We believe we maintain a good working
relationship with our employees.
E.
Share ownership.
As of March 31, 2006, 104,329,933 of our ordinary shares were outstanding, excluding shares
issuable upon exercise of outstanding options. On that date, a total of 12,078,734 of our ADSs were
outstanding.
62
Table of Contents
The following table sets forth information with respect to the beneficial ownership, within the
meaning of Section 13(d)(3) of the U.S. Securities Exchange Act of 1934, as amended, or the
Exchange Act, of our ordinary shares by:
•
each person known to us to own beneficially more than 5% of our ordinary shares; and
•
each of our directors and executive officers who beneficially own any of our ordinary shares.
Beneficial ownership includes voting or investment power with respect to the securities. Except as
indicated below, and subject to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all ordinary shares shown as beneficially
owned by them. Percentage of beneficial ownership is based on 104,329,933 ordinary shares
outstanding.
Number of Shares Beneficially Owned
Name
Number
Percent
5% Shareholder
IDG Technology Venture Investment, Inc.(1)
20,580,652
19.7
%
IDG Technology Venture Investments, LP(2)
6,723,115
6.4
%
Vertex Technology Fund (III) Ltd.(3)
14,481,319
13.9
%
Jianping Lu (4)
7,156,121
6.9
%
Ling Zhang (5)
8,746,370
8.4
%
Directors and executive officers
Hugo Shong
*
*
Kheng Nam Lee
*
*
Ling Wang
*
*
Fansheng Guo
*
*
Zhiwei Zhao
*
*
Sam Qian
730,000
0.7
%
All current directors and executive officers as a group (6 persons)
1,433,600
1.3
%
*
Upon exercise of all options currently exercisable or vesting
within 60 days of the date of this annual report, would
beneficially own less than 1% of our ordinary shares.
(1)
Includes 20,580,652 ordinary shares held by IDG Technology Venture
Investment, Inc. IDG Technology Venture Investment, Inc. is the
limited partner of IDG Technology Venture Investments, LP and does
not control IDG Technology Venture Investments, LP. IDG Technology
Venture Investment, Inc., a Massachusetts corporation, is wholly
owned by International Data Group Inc., a Massachusetts
corporation, which is controlled by Patrick McGovern, the majority
shareholder, founder and chairman of International Data Group Inc.
IDG Technology Venture Investment, Inc. disclaims beneficial
ownership of all of the ordinary shares owned by IDG Technology
Venture Investments, LP. The registered address of IDG Technology
Venture Investment, Inc. is 5 Speen Street, Framingham, MA 01701,
U.S.A.
(2)
Includes 6,723,115 ordinary shares held by IDG Technology Venture
Investments, LP. The general partner of IDG Technology Venture
Investments, LP is IDG Technology Venture Investments, LLC. Messrs.
Patrick McGovern and Quan Zhou are managing members of IDG
Technology Venture Investments, LLC, both of whom disclaim
beneficial ownership of our shares held by IDG Technology Venture
Investments, LLC. IDG Technology Venture Investment, Inc. is a
limited partner of IDG Technology Venture Investments, LP, and does
not control IDG Technology Venture Investments, LP. IDG Technology
Venture Investments, LP disclaims beneficial ownership of all of
the ordinary shares owned by IDG Technology Venture Investment,
Inc. The registered address of IDG Technology Venture Investments,
LP is Corporation Service Company, 1013 Centre Road, Wilmington,
County of New Castle, Delaware 19805-1297, U.S.A.
(3)
Includes 14,481,319 ordinary shares held by Vertex Technology Fund
(III) Ltd. Vertex Technology Fund (III) Ltd is 100% owned by Vertex
Venture Holdings Ltd. Vertex Venture Holdings Ltd is 100% owned by
Ellensburg Holding Pte Ltd; and Ellensburg Holding Pte Ltd is 100%
owned by Singapore Technologies Pte Ltd. Vertex Management (II) Pte
Ltd is the fund manager of Vertex Technology Fund (III) Ltd, and as
such, exercises voting and dispositive power over our shares held
by Vertex Technology Fund (III) Ltd. The
63
Table of Contents
president of Vertex
Management (II) Pte Ltd is Mui Hong Tan. Ms. Tan disclaims
beneficial ownership of our shares held by Vertex Technology Fund
(III) Ltd. The address of Vertex Technology Fund (III) Ltd. is 51
Cuppage Road, #10-08 Starhub Centre, Singapore 229469.
(4)
Includes (i) 4,028,156 ordinary shares held by Cast Technology,
Inc.; and (ii) 3,127,965 ordinary shares held by Fanasia Capital
Limited. Both Cast Technology, Inc. and Fanasia Capital Limited are
held 45% and 55% by Jianping Lu and Ling Zhang, respectively.
(5)
Includes (i) 4,923,302 ordinary shares held by Cast Technology,
Inc.; and (ii) 3,823,068 ordinary shares held by Fanasia Capital
Limited. Both Cast Technology, Inc. and Fanasia Capital Limited are
held 45% and 55% by Jianping Lu and Ling Zhang, respectively.
None of our existing shareholders has voting rights that differ from the voting rights of other
shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change in control of our company. Other than shares held by IDG Technology Venture Investment, Inc.
and IDG Technology Venture Investments, LP, each of which is a United States corporation or limited
partnership, in each case as set forth in the table above, and shares held by our President and
Chief Financial Officer Sam Qian, who is a U.S. citizen, none of our outstanding ordinary shares or
preference shares is held in the United States, nor do we have any record holders of our voting
securities in the United States.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major shareholders.
Please refer to Item 6. "Directors, Senior Management and Employees — Share Ownership"
B.
Related party transactions
.
CFO Beijing/Fuhua arrangements
In order to comply with PRC regulations, we operate our online business in China through Fuhua, a
company wholly owned by Wu Chen, a financial manager at International Data Group China, Ltd., a PRC
company affiliated with IDG Technology Venture Investment Inc., and IDG Technology Venture
Investments, LP, two of our principal shareholders, and Jun Ning, our former chairman and Chief
Executive Officer, who are both PRC citizens. Jun Ning is expected to transfer his holdings in
Fuhua to Zhiwei Zhao, a PRC citizen and our current Chief Executive Officer and a member of our
board of directors, later this year. We have entered into a series of contractual arrangements with
Fuhua and its shareholders, including contracts relating to the leasing of equipment, the licensing
of our domain name, the provision of services and certain shareholder rights and corporate
governance matters. Upon his receipt of Jun Ning's holdings in Fuhua later this year, Zhiwei Zhao
is expected to replace Jun Ning as a party to each of the contractual arrangements we have entered
into with Jun Ning with respect to his holdings in Fuhua and the operation of Fuhua.
Each of our contractual arrangements with Fuhua and its shareholders may only be amended with the
approval of our audit committee or another independent body of our board of directors. The
following is a summary of the material provisions of these agreements.
Leasing of equipment
Equipment Leasing Agreement, dated May 27, 2004, between CFO Beijing and Fuhua.
CFO Beijing leases to Fuhua equipment necessary for Fuhua's operation and requested by Fuhua from
time to time for a monthly lease payment calculated based on the actual value of the leased
equipment. Without CFO Beijing's written consent, Fuhua may not lease any equipment from any other
parties. The term of the lease is ten years, which will be automatically renewed for another one
year term upon the expiration of each term unless CFO Beijing notifies Fuhua of its intention not
to renew 30 days before the relevant term expires.
Provision of services
Technical Support Agreement, dated May 27, 2004, between CFO Beijing and Fuhua.
64
Table of Contents
CFO Beijing provides Fuhua with exclusive technical support services for the maintenance of Fuhua's
servers, networks and other equipment, software and systems. Fuhua pays a quarterly service fee to
CFO Beijing which is based on the actual labor cost of CFO Beijing during the relevant period. In
addition, Fuhua reimburses CFO Beijing for out of pocket costs CFO Beijing incurs in connection
with providing the services under this agreement. The term of this agreement is ten years, which
will be automatically renewed for another one year term upon the expiration of each term unless CFO
Beijing notifies Fuhua of its intention not to renew 30 days before the relevant term expires.
Amended and Restated Strategic Consulting Service Agreement, dated May 27, 2004, between CFO
Beijing and Fuhua.
CFO Beijing provides Fuhua with strategic consulting and related services for Fuhua's business,
including (1) valuation of new products; (2) industry investigation and survey; (3) marketing and
promotion strategies; and (4) other services relating to Fuhua's business, including its online
advertising business. The fee for these services will be calculated quarterly based on the actual
time of services provided by CFO Beijing. The term of this agreement is 20 years, which will be
automatically renewed for another one year term upon the expiration of each term unless CFO Beijing
notifies Fuhua of its intention not to renew 30 days before the relevant term expires.
Domain Name Licensing Agreement, dated May 27, 2004, between CFO Beijing and Fuhua.
CFO Beijing has granted to Fuhua a non-exclusive license to use its domain name
www.jrj.com.cn
.
Without CFO Beijing's consent, Fuhua cannot transfer, pledge or sublicense its interest in the
domain name. CFO Beijing reserves the right to either use the domain name by itself or license the
domain name to other parties. Fuhua will not pay a separate licensing fee to CFO Beijing for such
license but will bear CFO Beijing's costs relating to registration and maintenance of the domain
name. The term of the license equals the term of the Amended and Restated Strategic Consulting
Service Agreement between CFO Beijing and Fuhua. Before the terms expires, CFO Beijing may
unilaterally terminate the license by delivering a written notice to Fuhua.
Domain Name Licensing Agreement, dated March 20, 2005, among CFO Beijing, Fuhua and us.
We have granted to Fuhua a non-exclusive license to use our domain name
www.jrj.com
. Without our
consent, Fuhua cannot sublicense the domain name to any third party. We reserve the right to use
the domain name by ourselves, but are not permitted to transfer or license the domain name. In
consideration of the Amended and Restated Strategic Consulting Service Agreement between CFO
Beijing and Fuhua, Fuhua will not pay a separate licensing fee to us for such license but will bear
our costs relating to registration and maintenance of the domain name. CFO Beijing will act as the
administrator for the domain name licensed to Fuhua. The term of the license equals the term of the
Amended and Restated Strategic Consulting Service Agreement between CFO Beijing and Fuhua.
Loans to Jun Ning and Wu Chen
We entered into a loan agreement with each of Jun Ning and Wu Chen, the shareholders of Fuhua, on
May 27, 2004 to extend each of Jun Ning and Wu Chen a loan with the amount of $163,000 and
$199,000, respectively, for the sole purpose of investing in Fuhua as Fuhua's registered capital.
Upon his receipt of Jun Ning's holdings in Fuhua later this year, Zhiwei Zhao is expected to
replace Jun Ning as a party to the loan agreement we entered into with Jun Ning. The initial term
of these loans in each case is 10 years which may be extended upon the parties' agreement. Jun Ning
and Wu Chen can only repay the loans by transferring all of their interest in Fuhua to us or a
third party designated by us. When Jun Ning and Wu Chen transfer their interest in Fuhua to us or
our designee, if the actual transfer price is higher than the principal amount of the loans, the
amount exceeding the principal amount of the loans will be deemed as interest accrued on such loans and repaid by Jun Ning and Wu
Chen to us. While Hong Kong law limits the maximum interest payment chargeable under a loan to 60%
of the outstanding principal amount per annum, this limitation would only be relevant if, at the
time of a future transfer to us of the interests in Fuhua held by Jun Ning and Wu Chen, the actual
value of Fuhua were to have increased at an average annual rate greater than 60%. Fuhua's assets
currently consist primarily of registered capital and licenses to provide Internet content and
advertising related services, and its operations are primarily limited to operating our free
website and providing advertising related services on behalf of CFO Beijing. In addition, we do not
expect Fuhua to continue to provide advertising related services once CFO Beijing is permitted
under PRC law to engage in these advertising related services directly, which may be as soon as
2006 according to recent PRC government
65
Table of Contents
announcements related to China's World Trade Organization
compliance schedule. Accordingly, we do not believe this limitation will have a material effect on
our business and operations, or will result in a material amount being paid to the shareholders of
Fuhua if and when they are permitted to transfer their interests in Fuhua to us.
In May 2004, we repaid $60,000 to Jun Ning and Wu Chen for funds advanced by Jun Ning and Wu Chen,
on our behalf, to capitalize Fuhua when Fuhua was initially incorporated in December 2000.
Loans to CFO Beijing and Fortune Software
In March 2005, we have made additional capital contributions of $9 million and $11.5 million to CFO
Beijing and Fortune Software, respectively. In April 2005, we further made shareholder loans of
$16.8 million and $18.0 million to CFO Beijing and Fortune Software, respectively. We made these
additional capital contributions and shareholder loans solely for purposes of capitalizing CFO
Beijing and Fortune Software. Funding for these additional capital contributions and shareholder
loans came from net proceeds of our initial public offering in October 2004. We intend to use these
additional capital to fund the operations of CFO Beijing and Fortune Software.
Shareholder rights and corporate governance
Transfer of ownership when permitted by law
Pursuant to a purchase option and cooperation agreement, or the purchase option agreement, entered
into among us, CFO Beijing, Jun Ning, Wu Chen and Fuhua on May 27, 2004, Jun Ning and Wu Chen
jointly granted us an exclusive option to purchase all of their equity interest in Fuhua, and Fuhua
granted us an exclusive option to purchase all of its assets if and when (1) such purchase is
permitted under applicable PRC law, or (2) to the extent permitted by law, with respect to Jun
Ning's or Wu Chen's individual interest, as the case may be, when Jun Ning ceases to be a director
or employee of Fuhua, Wu Chen ceases to be affiliated with IDG Technology Venture Investment, Inc.
or IDG Technology Venture Investments, LP or neither entity continues to be our shareholder, or
either Jun Ning or Wu Chen desires to transfer his equity interest in Fuhua to a third party. We
may purchase such interest or assets ourselves or designate another party to purchase such interest
or assets. Upon his receipt of Jun Ning's holdings in Fuhua later this year, Zhiwei Zhao is
expected to replace Jun Ning as a party to this purchase option agreement.
The exercise price of the option will equal the total principal amount of the loans lent by us to
Jun Ning and Wu Chen under the loan agreements dated May 27, 2004 between us and Jun Ning and Wu
Chen, respectively, or the price required by relevant PRC law or government approval authority if
such required price is higher than the total principal amount of the loans lent by us to Jun Ning
and Wu Chen. We may choose to pay the purchase price payable to Jun Ning and Wu Chen by canceling
our loans to Jun Ning and Wu Chen.
Following any exercise of the option, the parties will enter into a definitive share or asset
purchase agreement and other related transfer documents within 30 days after written notice of
exercise is delivered by us. Pursuant to the purchase option agreement, at all times before we or
any party designated by us acquire 100% of Fuhua's shares or assets, Fuhua may not (1) sell,
transfer, assign, dispose of in any manner or create any encumbrance in any form on any of its
assets unless such sale, transfer, assignment, disposal or encumbrance is related to the daily
operation of Fuhua or has been disclosed to and consented to in writing by us; (2) enter into any
transaction which may have a material effect on Fuhua's assets, liabilities, operations, equity or
other legal interests unless such transaction relates to the daily operation of Fuhua or has been
disclosed to and consented to in writing by us; or (3) distribute any dividends to its shareholders
in any manner, and Jun Ning and Wu Chen may not cause Fuhua to amend its articles of association to
the extent such amendment may have a material effect on Fuhua's assets, liabilities, operations,
equity or other legal interests except for
pro rata
increases of registered capital required by
law.
Voting arrangement
Pursuant to two proxies executed and delivered by Jun Ning and Wu Chen to Ling Hai Ma and Jian
Feng, respectively, each an employee of CFO Beijing, on May 27, 2004, Jun Ning and Wu Chen have
granted Ling Hai Ma and Jian Feng the power to exercise all their voting rights as shareholders of
Fuhua, including the right to appoint directors, the general manager and other senior managers of
Fuhua. The term of the proxies is 20 years which will be automatically renewed for another one year
term upon the expiration of each term unless we notify Jun Ning and Wu Chen of our intention not to
renew 30 days before the relevant term expires. Under the purchase
66
Table of Contents
option agreement, Jun Ning and Wu Chen have agreed that (1) they will only revoke the proxies granted to Ling Hai Ma and Jian Feng
when either Ling Hai Ma or Jian Feng ceases to be an employee of CFO Beijing or we deliver a
written notice to Jun Ning and Wu Chen requesting such revocation, and (2) they, or either of them,
as the case may be, will execute and deliver another proxy in the same format as the one dated May
27, 2004 to any other individuals as instructed by us. Upon his receipt of Jun Ning's holdings in
Fuhua later this year, Zhiwei Zhao will execute and deliver a proxy substantially identical to the
proxy executed by Jun Ning with respect to his voting rights as a shareholder of Fuhua.
Share Pledge Agreement
Pursuant to a share pledge agreement, dated May 27, 2004, Jun Ning and Wu Chen have pledged all of
their equity interest in Fuhua to CFO Beijing to secure the payment obligations of Fuhua under the
equipment leasing agreement, the technical support agreement and the amended and restated strategic
consulting agreement between CFO Beijing and Fuhua. Upon his receipt of Jun Ning's holdings in
Fuhua later this year, Zhiwei Zhao is expected to replace Jun Ning as a party to the share pledge
agreement. Under this agreement, Jun Ning and Wu Chen have agreed not to transfer, assign, pledge
or in any other manner dispose of their interests in Fuhua or create any other encumbrance on their
interest in Fuhua which may have a material effect on CFO Beijing's interest without the written
consent of CFO Beijing, except the transfer of their interest in Fuhua to us or the third party
assignee designated by us according to the purchase option agreement.
Financing support
Pursuant to the purchase option agreement, we have agreed to provide or designate one of our
affiliates to provide financing to Fuhua in a way permitted by relevant laws in case Fuhua needs
such financing. If Fuhua is unable to repay the financing due to its losses, we agree to waive or
cause other relevant parties to waive all recourse against Fuhua with respect to the financing.
Indemnifications
Pursuant to the purchase option agreement, CFO Beijing has agreed to provide necessary support to
and to indemnify Jun Ning and Wu Chen to the extent that they are subject to any legal or economic
liabilities as a result of performing their obligations pursuant to their agreements with us or CFO
Beijing.
Other related party transactions
Shareholders Agreement
Our investors under the shareholders agreement are IDG Technology Venture Investment, Inc. and
Vertex Technology Fund (III) Ltd. Investors to the shareholders agreement or their permitted
assignees that hold at least 15% of our registrable securities may require us to effect a
registration statement on Form F-3 (or any successor form or any comparable form for a registration
in a jurisdiction other than the United States) for a public offering of registrable securities so
long as the reasonably anticipated aggregate price to the public (net of selling expenses) would be
at least $1 million and we are entitled to use Form F-3 (or a comparable form) for such offering.
Holders of registrable securities may demand a registration on Form F-3 on unlimited occasions,
although we are not obligated to effect more than two such registration in any twelve month period.
Holders of registrable securities are also entitled to ''piggyback'' registration rights, which may
require us to register all or any part of the registrable securities then held by such holders when
we register any of our ordinary shares.
Registrable securities are ordinary shares not previously sold to the public and issued or issuable
to IDG Technology Venture Investment, Inc. and Vertex Technology Fund (III) Ltd., who are holders
of our preference shares, including (1) ordinary shares issued upon conversion of our preferred shares, (2) ordinary
shares issued or issuable upon exercise of their options or warrants to purchase ordinary shares,
and (3) ordinary shares issued pursuant to stock splits, stock dividends and similar distributions
to holders of our preference shares. Under certain circumstances, such demand registration may also
include ordinary shares other than registrable securities.
If any of the offerings involves an underwriting, the managing underwriter of any such offering has
certain rights to limit the number of shares included in such registration. However, the number of
registrable securities included in an underwritten public offering subsequent to our initial public
offering pursuant to "piggyback" registration
67
Table of Contents
rights may not be reduced to less than 10% of the
aggregate securities included in such offering without the consent of a majority of the holders of
registrable securities who have requested their shares to be included in the registration and
underwriting. We are generally required to bear all of the registration expenses incurred in
connection with one demand registration on a form other than Form F-3, and unlimited Form F-3 and
piggyback registrations. The foregoing demand, Form F-3 and piggyback registration rights will
terminate, with respect to any holder of registrable securities, on the earliest of:
•
the fifth anniversary of the consummation of our initial public offering;
•
upon such holder holding less than 1% of our outstanding ordinary shares
after our initial public offering; and
•
upon such holder becoming eligible to sell all of such holder's
registrable securities pursuant to Rule 144 under the Securities Act
within any three-month period without volume limitations, under Rule
144(k), or under any comparable securities law of a jurisdiction other
than the United States for sale of registrable securities in such
jurisdiction.
C.
Interests of experts and counsel.
Not applicable
ITEM 8. FINANCIAL INFORMATION
A.
Consolidated statements and other financial information.
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
On May 19, 2004, four former employees of CFO Beijing filed claims with the Labor Arbitration
Committee of Xi Cheng District in Beijing against CFO Beijing alleging that we owed them unpaid
overtime incurred while they were employed by CFO Beijing. The claims were dismissed on July 28,
2004 for lack of evidence. All four claimants then filed lawsuits against us in the Beijing Xicheng
District People's Court to recover the alleged unpaid overtime. These claims were dismissed on
December 28, 2004 for lack of evidence. The claimants subsequently appealed to the Beijing No. 1
Mid-level People's Court but their appeals were rejected by the court. We cannot assure you that
the plaintiffs filing the lawsuits against us will not bring other claims against us in other
forums. We believe these claims will not result in any material liability for us.
Dividend Policy
We currently intend to retain all available funds and any future earnings for use in the operation
and expansion of our business and do not anticipate paying any cash dividends on our ordinary
shares, or indirectly on our ADSs, for the foreseeable future. Investors seeking cash dividends
should not purchase our ADSs. Future cash dividends, if any, will be at the discretion of our board
of directors and will depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors as our board of
directors may deem relevant. In addition, we can pay dividends only out of our profit or other
distributable reserves. Any dividend we declare will be paid to the holders of ADSs, subject to the
terms of the deposit agreement, to the same extent as holders of our ordinary shares, less the fees
and expenses payable under the deposit agreement. Other distributions, if any, will be paid by the
depositary to holders of our ADSs in any means it deems legal, fair and practical. Any dividend
will be distributed by the depositary, in the form of cash or additional ADSs, to the holders of
our ADSs. Cash dividends on our ADSs, if any, will be paid in U.S. dollars.
B.
Significant changes since December 31, 2004
.
We derive revenues primarily from annual subscription fees from subscribers to our financial data
and information services. Our subscription service is substantially dependent on user demand for
market intelligence on China's securities markets. Such demand has fluctuated with the level of
trading activity in China's securities markets. During the past several years, China's securities
markets have experienced significant volatility and decrease in value. The Shanghai Stock Exchange
A-Share Index and the Shenzhen Stock Exchange A-Share Index declined
68
Table of Contents
38.8% and
58.1%, respectively, from January 2, 2001 to March 31, 2006. On June 6, 2005, the Shanghai Stock Exchange Index reached
its lowest level since March 1997. If China's securities markets weaken, and if investors' interest
in China's securities markets declines in the future, our business could be materially and
adversely affected.
In 2005, we enhanced our effort to sell online advertisements and advertising related services. We
have a dedicated 3 person sales team that cooperates with 11 advertising agents. Our primary target
client base for advertisers consists of global and domestic corporations whose target clients are
established middle class Chinese. Our online advertising revenue has increased from $544,000 in
2004 to $1,752,000 in 2005. The number of advertisers has increased from 12 in 2004 to 40 in 2005.
In March 2005, our board of directors approved a stock repurchase program pursuant to which we were
authorized to repurchase up to US$10 million worth of our American Depositary Shares, or ADSs, In
May and June of 2005 we repurchased a total of 1,659,442 ADSs, representing 8,297,210 ordinary
shares, at an average cost of $5.98 per ADS for a total consideration of approximately US$ 10
million, including a brokerage commission of US$0.05 per ADS. In July 2005, our board of
directors approved another stock repurchase program pursuant to which we were authorized to
repurchase up to an additional US$10 million worth of our ADSs. In December 2005, we repurchased a
total of 482,164 ADSs, representing 2,410,820 ordinary shares, at an average cost of US$6.60 per
ADS for total consideration of approximately US$ 3.2 million, including a brokerage commission of
US$0.05 per ADS.
ITEM 9. THE OFFER AND LISTING
A.
Offering and listing details.
Our ADSs, each representing five of our ordinary shares, have been listed on the Nasdaq National
Market since October 15, 2004. Our ADSs trade under the symbol "JRJC."
The following table provides the high and low trading prices for our ADSs on the Nasdaq National
Market for (1) the year 2004 and 2005, (2) each of the quarters since the fourth quarter in 2004
and (3) each of the months since October 2005.
Sales Price
High
Low
Yearly highs and lows
Year 2004 (from October 15, 2004)
15.99
8.3
Year 2005
11.14
5.22
Quarterly highs and lows
Fourth Quarter 2004 (from October 15, 2004)
15.99
8.30
First Quarter 2005
11.14
5.8
Second Quarter 2005
7.17
5.22
Third Quarter 2005
6.52
5.5
Fourth Quarter 2005
6.9
5.52
First Quarter 2006
9.68
5.66
Monthly highs and lows
November 2005
6.88
5.52
December 2005
6.9
5.8
January 2006
6.69
6.01
February 2006
9.68
5.84
March 2006
6.28
5.66
April 2006
7.37
5.50
B.
Plan of distribution.
Not applicable
C.
Markets.
See Item 9.A. above.
69
Table of Contents
D.
Selling shareholders.
Not applicable
E.
Dilution.
Not applicable
F.
Expenses of the issue.
Not applicable
ITEM 10. ADDITIONAL INFORMATION
A.
Share capital.
Not applicable.
B.
Memorandum and articles of association.
We incorporate by reference into this Annual Report the description of our amended and restated
memorandum of association contained in our registration statement on Form F-1 (File No. 333-119166)
filed with the Commission on October 14, 2004. Our shareholders adopted our amended and restated
memorandum and articles of association at an extraordinary shareholder meeting on October 14, 2004.
C.
Material contracts.
We have not entered into any material contracts other than in the ordinary course of business and
other than those described in Item 4, "Information on the Company" or elsewhere in this annual
report on Form 20-F.
D.
Exchange controls.
China's government imposes control over the convertibility of RMB into foreign currencies. Under
the current unified floating exchange rate system, the People's Bank of China publishes a daily
exchange rate for RMB, or the PBOC Exchange Rate, based on the previous day's dealings in the
inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an authorized range above or
below the PBOC Exchange Rate according to market conditions.
Pursuant to the Foreign Exchange Control Regulations issued by the State Council on January 29,
1996 and effective as of April 1, 1996 (and amended on January 14, 1997) and the Administration of
Settlement, Sale and Payment of Foreign Exchange Regulations which came into effect on July 1, 1996
regarding foreign exchange control, or the Regulations, conversion of Renminbi into foreign
exchange by foreign investment enterprises for current account items, including the distribution of
dividends and profits to foreign investors of joint ventures, is permissible upon the proper
production of qualified commercial vouchers or legal documents as required by the Regulations.
Foreign investment enterprises are permitted to remit foreign exchange from their foreign exchange
bank account in China upon the proper production of, inter alia, the board resolutions declaring
the distribution of the dividend and payment of profits. Conversion of RMB into foreign currencies
and remittance of foreign currencies for capital account items, including direct investment, loans,
security investment, is still subject to the approval of the State Administration of Foreign
Exchange, or SAFE, in each such transaction. On January 14, 1997, the State Council amended the
Foreign Exchange Control Regulations and added, among other things, an important provision, as
Article 5 provides that the State shall not impose restrictions on recurring international payments
and transfers under current accounts.
Under the Regulations, foreign investment enterprises are required to open and maintain separate
foreign exchange accounts for capital account items (but not for other items). In addition, foreign
investment enterprises may only buy, sell and/or remit foreign currencies at those banks authorized
to conduct foreign exchange business upon the production of valid commercial documents and, in the
case of capital account item transactions, document approval from SAFE.
70
Table of Contents
Currently, foreign investment enterprises are required to apply to SAFE for "foreign exchange
registration certificates for foreign investment enterprises." With such foreign exchange
registration certificates (which are granted to foreign investment enterprises, upon fulfilling
specified conditions and which are subject to review and renewal by SAFE on an annual basis) or
with the foreign exchange sales notices from the SAFE (which are obtained on a
transaction-by-transaction basis), foreign-invested enterprises may open foreign exchange bank
accounts and enter into foreign exchange transactions at banks authorized to conduct foreign
exchange business to obtain foreign exchange for their needs.
E.
Taxation.
Hong Kong taxation
Profits tax.
No tax is imposed in Hong Kong in respect of capital gains from the sale of property,
such as the ordinary shares underlying our ADSs. However, trading gains from the sale of property
by persons carrying on a trade, profession or business in Hong Kong where such gains are derived
from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong
profit tax. Liability for Hong Kong profits tax would therefore arise in respect of trading gains
from the sale of ADSs or the underlying ordinary shares realized by persons in the course of
carrying on a business of trading or dealing in securities in Hong Kong. For the current year of
assessment 2005/2006, the charging rate for profits tax is 17.5% for corporations and 16% for
unincorporated businesses.
In addition, Hong Kong does not impose withholding tax on gains derived from the sale of stock in
Hong Kong companies and does not impose withholding tax on dividends paid outside of Hong Kong by
Hong Kong companies. Accordingly, investors will not be subject to Hong Kong withholding tax with
respect to a disposition of their ADSs or with respect to the receipt of dividends on their ADSs,
if any. No income tax treaty relevant to the acquiring, withholding or dealing in the ADSs or the
ordinary shares underlying our ADSs exists between Hong Kong and the U.S.
Estate duty.
Estate duties are imposed upon the value of properties situated or deemed to be
situated in Hong Kong that pass to a person's estate upon his or her death. Our ordinary shares are
Hong Kong property under Hong Kong law, and accordingly may be subject to estate duty on the death
of the beneficial owner of such ordinary shares, regardless of the place of the owner's residence,
citizenship or domicile. We cannot assure you that the Hong Kong Inland Revenue Department will not
treat the ADSs as Hong Kong property that may be subject to estate duty on the death of the
beneficial owner of the ADSs, notwithstanding that the ADRs representing such ADSs may be situated
outside Hong Kong at the date of such death. Hong Kong estate duty is currently imposed on a
progressive scale from 5% to 15%, which rate and threshold has been adjusted on a fairly regular
basis in the past. No estate duty is payable when the aggregate value of the dutiable estate does
not exceed HK$7.5 million, and the maximum rate of 15% applies when the aggregate value of the
dutiable estate exceeds HK$10.5 million. The Hong Kong Financial Secretary proposed in his
2005/2006 Budget to abolish estate duty, but the necessary legislative changes have not yet been
made as at the date of this document.
Stamp duty.
Hong Kong stamp duty is generally payable on the transfer of shares in companies
incorporated in Hong Kong. The stamp duty is payable both by the purchaser on every purchase and by
the seller on every sale of such shares at the ad valorem rate of HK$1.00 per HK$1,000 or part
thereof, on the higher of the consideration for or the value of the shares transferred. In
addition, a fixed duty, currently of HK$5, is payable on an instrument of transfer of such shares.
Where one party to the sale is a non-resident of Hong Kong and does not pay the required stamp
duty, the stamp duty not paid will be assessed on the instrument of transfer of such shares (if
any), and the purchaser will be liable for payment of such stamp duty. A withdrawal of ordinary
shares upon the surrender of ADSs, and the issuance of ADSs upon the deposit of ordinary shares,
will also require payment of Hong Kong stamp duty at the rate described above for sale and purchase
transactions, unless such withdrawal or deposit does not result in a change in the beneficial
ownership of shares under Hong Kong law. The issuance of the ADSs upon the deposit of ordinary
shares issued directly to the depositary or for the account of the depositary does not require
payment of stamp duty. In addition, no Hong Kong stamp duty is payable upon the transfer of ADSs
effected outside Hong Kong.
United States federal income taxation
71
Table of Contents
This discussion describes the material U.S. federal income tax consequences of the purchase,
ownership and disposition of our ADSs. This discussion does not address any aspect of U.S. federal
gift or estate tax, or the state,
local or foreign tax consequences of an investment in our ADSs. This discussion applies to you only
if you hold and beneficially own our ADSs as capital assets for tax purposes. This discussion does
not apply to you if you are a member of a class of holders subject to special rules, such as:
•
dealers in securities or currencies;
•
traders in securities that elect to use a mark-to-market method of accounting for securities holdings;
•
banks or other financial institutions;
•
insurance companies;
•
tax-exempt organizations;
•
partnerships and other entities treated as partnerships for U.S. federal income tax purposes or
persons holding ADSs through any such entities;
•
persons that hold ADSs as part of a hedge, straddle, constructive sale, conversion transaction or
other integrated investment;
•
U.S. Holders (as defined below) whose functional currency for tax purposes is not the U.S. dollar;
•
persons liable for alternative minimum tax; or
•
persons who actually or constructively own 10% or more of the total combined voting power of all
classes of our shares (including ADSs) entitled to vote.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer to
in this discussion as the Code, its legislative history, existing and proposed regulations
promulgated thereunder, published rulings and court decisions, all as currently in effect. These
laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on
our assumptions regarding the value of our shares and the nature of our business over time.
Finally, this discussion is based in part upon the representations of the depositary and the
assumption that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms. For U.S. federal income tax purposes, as a holder of ADSs,
you are treated as the owner of the underlying ordinary shares represented by such ADSs.
You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the purchase, ownership and disposition of our ADSs, as well as the
consequences to you arising under the laws of any other taxing jurisdiction.
For purposes of the U.S. federal income tax discussion below, you are a "U.S. Holder" if you
beneficially own ADSs and are:
•
a citizen or resident of the United States for U.S. federal income tax purposes;
•
a corporation, or other entity taxable as a corporation, that was created or organized in or
under the laws of the United States or any political subdivision thereof;
•
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
•
a trust if (a) a court within the United States is able to exercise primary supervision over
its administration and one or more U.S. persons have the authority to control all substantial
decisions of the trust, or (b) the trust has a valid election in effect to be treated as a U.S.
person.
If you are not a U.S. person, please refer to the discussion below under "Non-U.S. Holders."
72
Table of Contents
For U.S. federal income tax purposes, income earned through a foreign or domestic partnership or
other flow-through entity is attributed to its owners. Accordingly, if a partnership or other
flow-through entity holds ADSs, the tax treatment of the holder will generally depend on the status
of the partner or other owner and the activities of the partnership or other flow-through entity.
U.S. Holders
Dividends on ADSs
We do not anticipate paying dividends on our ordinary shares or indirectly on our ADSs, in the
foreseeable future. See "Dividend policy."
Subject to the "Passive Foreign Investment Company" discussion below, if we do make distributions
and you are a U.S. Holder, the gross amount of any distributions you receive on your ADSs will
generally be treated as dividend income if the distributions are made from our current or
accumulated earnings and profits, calculated according to U.S. federal income tax principles.
Dividends will generally be subject to U.S. federal income tax as ordinary income on the day you
actually or constructively receive such income. However, if you are an individual and have held
your ADSs for a sufficient period of time, dividend distributions on our ADSs will generally
constitute qualified dividend income taxed at a preferential rate (generally 15% for dividend
distributions before January 1, 2009) as long as our ADSs continue to be readily tradable on the
Nasdaq National Market and certain other conditions apply. You should consult your own tax adviser
as to the rate of tax that will apply to you with respect to dividend distributions, if any, you
receive from us.
We do not intend to calculate our earnings and profits according to U.S. tax accounting principles.
Accordingly, distributions on our ADSs, if any, will generally be taxed to you as dividend
distributions for U.S. tax purposes. Even if you are a corporation, you will not be entitled to
claim a dividends-received deduction with respect to distributions you receive from us. Dividends
generally will constitute foreign source passive income for U.S. foreign tax credit limitation
purposes.
Sales and other dispositions of ADSs
Subject to the "Passive Foreign Investment Company" discussion below, when you sell or otherwise
dispose of ADSs, you will generally recognize capital gain or loss in an amount equal to the
difference between the amount realized on the sale or other disposition and your adjusted tax basis
in the ADSs, both as determined in U.S. dollars. Your adjusted tax basis will generally equal the
amount you paid for the ADSs. Any gain or loss you recognize will be long-term capital gain or loss
if your holding period in our ADSs is more than one year at the time of disposition. If you are an
individual, any such long-term capital gain will be taxed at preferential rates. Your ability to
deduct capital losses will be subject to various limitations.
Passive Foreign Investment Company
If we were a Passive Foreign Investment Company or "PFIC" in any taxable year in which you hold our
ADSs, as a U.S. Holder, you would generally be subject to adverse U.S. tax consequences, in the
form of increased tax liabilities and special U.S. tax reporting requirements.
We will be classified as a PFIC in any taxable year if either: (1) the average percentage value of
our gross assets during the taxable year that produce passive income or are held for the production
of passive income is at least 50% of the value of our total gross assets or (2) 75% or more of our
gross income for the taxable year is passive income (such as certain dividends, interest or
royalties). For purposes of the first test: (1) any cash, cash equivalents, and cash invested in
short-term, interest bearing, debt instruments, or bank deposits that is readily convertible into
cash, will generally count as producing passive income or held for the production of passive income
and (2) the average value of our gross assets is calculated based on our market capitalization.
We believe that we were not a PFIC for the taxable year 2004. However, there can be no assurance
that we will not be a PFIC for the taxable year 2005 and/or later taxable years, as PFIC status is
re-tested each year and depends on the facts in such year. For example, we would be a PFIC for the
taxable year 2005 if the sum of our average market capitalization, which is our share price
multiplied by the total amount of our outstanding shares, and our liabilities over that taxable
year is not more than twice the value of our cash, cash equivalents, and other assets that are
readily converted into cash. In particular, we currently deposit a substantial portion of our net
proceeds from our
73
Table of Contents
initial public offering in interest bearing bank accounts, which we book as cash and cash
equivalents, but the value of our ADSs have declined to $5.22 per ADS on May 5, 2005 from our
initial public offering price of $13.00 per ADS. If the value of our outstanding stock were to
continue to decrease for an extended period of time in which we hold substantial cash and cash
equivalents, we would likely become a PFIC. We could also be a PFIC for any taxable year if the
gross income that we and our subsidiaries earn from investing the portion of the cash raised in our
initial public offering in 2004 that exceeds the immediate capital needs of our active online
business is substantial in comparison with the gross income from our business operations.
If we were a PFIC, you would generally be subject to additional taxes and interest charges on
certain "excess" distributions we make and on any gain realized on the disposition or deemed
disposition of your ADSs, regardless of whether we continue to be a PFIC in the year in which you
receive an "excess" distribution or dispose of or are deemed to dispose of your ADSs. Distributions
in respect of your ADSs during a taxable year would generally constitute "excess" distributions if,
in the aggregate, they exceed 125% of the average amount of distributions in respect of your ADSs
over the three preceding taxable years or, if shorter, the portion of your holding period before
such taxable year.
To compute the tax on "excess" distributions or any gain, (1) the "excess" distribution or the gain
would be allocated ratably to each day in your holding period, (2) the amount allocated to the
current year and any tax year before we became a PFIC would be taxed as ordinary income in the
current year, (3) the amount allocated to other taxable years would be taxable at the highest
applicable marginal rate in effect for that year, and (4) an interest charge at the rate for
underpayment of taxes for any period described under (3) above would be imposed with respect to any
portion of the "excess" distribution or gain that is allocated to such period. In addition, if we
were a PFIC, no distribution that you receive from us would qualify for taxation at the
preferential rate discussed in the "Dividends on ADSs" section above.
If we were a PFIC in any year, as a U.S. Holder, you would be required to make an annual return on
IRS Form 8621 regarding your ADSs. However, we do not intend to generate, or share with you,
information that you might need to properly complete IRS Form 8621. You should consult with your
own tax adviser regarding reporting requirements with regard to your ADSs.
If we were a PFIC in any year, you would generally be able to avoid the "excess" distribution rules
described above by making a timely so-called "mark-to-market" election with respect to your ADSs
provided our ADSs are "marketable". Our ADSs will be "marketable" as long as they remain regularly
traded on a national securities exchange, such as the Nasdaq National Market. If you made this
election in a timely fashion, you would generally recognize as ordinary income or ordinary loss the
difference between the fair market value of your ADSs on the first day of any taxable year and
their value on the last day of that taxable year. Any ordinary income resulting from this election
would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of
tax applicable to qualified dividend income. Any ordinary losses would be limited to the extent of
the net amount of previously included income as a result of the mark-to-market election, if any.
Your basis in the ADSs would be adjusted to reflect any such income or loss. You should consult
with your own tax adviser regarding potential advantages and disadvantages to you of making a
"mark-to-market" election with respect to your ADSs. Separately, if we were a PFIC in any year, you
would be able to avoid the "excess" distribution rules by making a timely election to treat us as a
so-called "Qualified Electing Fund" or "QEF." You would then generally be required to include in
gross income for any taxable year (1) as ordinary income, your pro rata share of our ordinary
earnings for the taxable year, and (2) as long-term capital gain, your pro rata share of our net
capital gain for the taxable year. However, we do not intend to provide you with the information
you would need to make or maintain a "QEF" election and you will, therefore, not be able to make or
maintain such an election with respect to your ADSs.
Non-U.S. Holders
If you beneficially own ADSs and are not a U.S. Holder for U.S. federal income tax purposes (a
"Non-U.S. Holder"), you generally will not be subject to U.S. federal income tax or withholding on
dividends received from us with respect to ADSs unless that income is considered effectively
connected with your conduct of a U.S. trade or business and, if an applicable income tax treaty so
requires as a condition for you to be subject to U.S. federal income tax with respect to income
from your ADSs, such dividends are attributable to a permanent establishment that you maintain in
the United States. You generally will not be subject to U.S. federal income tax, including
withholding tax, on any gain realized upon the sale or exchange of ADSs, unless:
74
Table of Contents
•
that gain is effectively connected with the conduct of a U.S. trade or
business and, if an applicable income tax treaty so requires as a
condition for you to be subject to U.S. federal income tax with
respect to income from your ADSs, such gain is attributable to a
permanent establishment that you maintain in the United States; or
•
you are a nonresident alien individual and are present in the United
States for at least 183 days in the taxable year of the sale or other
disposition and either (1) your gain is attributable to an office or
other fixed place of business that you maintain in the United States
or (2) you have a tax home in the United States.
If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides otherwise,
the income from your ADSs, including dividends and the gain from the disposition of ADSs, that is
effectively connected with the conduct of that trade or business will generally be subject to the
rules applicable to U.S. Holders discussed above. In addition, if you are a corporation, you may be
subject to an additional branch profits tax at a rate of 30% or any lower rate under an applicable
tax treaty.
U.S. information reporting and backup withholding rules
In general, dividend payments with respect to the ADSs and the proceeds received on the sale or
other disposition of those ADSs may be subject to information reporting to the IRS and to backup
withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if
you (1) are a corporation or come within certain other exempt categories and, when required, can
demonstrate that fact or (2) provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with the applicable backup withholding
rules. To establish your status as an exempt person, you will generally be required to provide
certification on IRS Form W-9, W-8BEN or W-8ECI, as applicable. Any amounts withheld from payments
to you under the backup withholding rules will be allowed as a refund or a credit against your U.S.
federal income tax liability, provide that you furnish the required information to the IRS.
HOLDERS OF OUR ADSS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ADSS, INCLUDING THE APPLICABILITY AND EFFECT
OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND
INHERITANCE LAWS.
F.
Dividends and paying agents.
Not applicable.
G.
Statement by experts.
Not applicable.
H.
Documents on display.
We have previously filed with the Commission our registration statement on Form F-1, as amended,
and our prospectus under the Securities Act of 1933, with respect to our ordinary shares.
We are subject to the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with the Securities and Exchange Commission. Specifically, we
are required to file annually a Form 20-F no later than six months after the close of each fiscal
year, which is December 31. Copies of reports and other information, when so filed, may be
inspected without charge and may be obtained at prescribed rates at the public reference facilities
maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional office of the Securities and Exchange Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
public may obtain information regarding the Washington, D.C. Public Reference Room by calling the
Commission at 1-800-SEC-0330. The SEC also maintains a Web site at
www.sec.gov
that contains
reports, proxy and information statements, and other information regarding registrants that make
electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing and content of
75
Table of Contents
quarterly reports and proxy statements, and officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the
Exchange Act.
Our financial statements have been prepared in accordance with U.S. GAAP.
We will furnish our shareholders with annual reports, which will include a review of operations and
annual audited consolidated financial statements prepared in conformity with U.S. GAAP.
I.
Subsidiaries information.
Not Applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to Item 5, "Operating and Financial Review and Prospects; Quantitative and qualitative
disclosures about market risk."
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not Applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
The following "Use of Proceeds" information relates to the registration statement on Form F-1 (File
No. 333-119166), or Registration Statement, for our initial public offering and sale of 6,200,000
American Depositary Shares, each representing five of our ordinary shares, for an aggregate
offering price of US$80.6 million. Our Registration Statement was declared effective by the
Commission on October 14, 2005 and we began offering and selling American Depositary Shares, on
October 15, 2004. In the offering we sold 5,000,000 ADSs and the participating selling shareholders
sold 1,200,000 ADSs.
We received net proceeds of approximately US$58.5 million from our initial public offering (after
deducting underwriting discounts and other expenses related to the offering). We did not receive
any of the proceeds from sales by the selling shareholders. JPMorgan Securities Inc; Jefferies
Broadview, a division of Jefferies & Company, Inc; and WR Hambrecht + Co, LLC were the underwriters
for our initial public offering.
We used the net proceeds we received from our initial public offering as follows:
•
approximately $20.5 million was used for additional capital contributions to CFO Beijing
and Fortune Software.
•
approximately $29 million was used for shareholder loans to CFO Beijing and Fortune
Software.
•
the remaining amount was used as part of the $13.2 million we used for repurchases of
our American Depositary Shares pursuant to repurchase programs approved by our board of
directors.
ITEM 15. CONTROLS AND PROCEDURES
Our management, with the participation of Zhiwei Zhao, our chief executive officer, and Sam Qian,
our president and chief financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the fiscal year
covered by this report. Based on such evaluation, our chief executive officer and chief financial
officer have concluded that, as of the end of the fiscal year covered by this report, our
disclosure
76
Table of Contents
controls and procedures were effective in recording, processing, summarizing and reporting, on a
timely basis, information required to be disclosed by us in the reports that we file or submit
under the Exchange Act.
There have not been any change in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal year covered by
this report that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
See Item 6.C. of this annual report, "Directors, Senior Management and Employees — Board
Practices."
Our board of directors has concluded that Mr. Kheng Nam Lee, a member of our audit committee, meets
the criteria for an "audit committee financial expert" as established by the U.S. Securities and
Exchange Commission.
Mr. Kheng Nam Lee will not be deemed an "expert" for any purpose, including, without limitation,
for purposes of section 11 of the U.S. Securities Act of 1933, as amended, as a result of being
designated or identified as an audit committee financial expert. The designation or identification
of Mr. Kheng Nam Lee as an audit committee financial expert does not impose on him any duties,
obligations or liability that are greater than the duties, obligations and liability imposed on him
as a member of the audit committee and board of directors in the absence of such designation or
identification. The designation or identification of Mr. Kheng Nam Lee as an audit committee
financial expert does not affect the duties, obligations or liability of any other member of the
audit committee or board of directors.
ITEM 16B. CODE OF ETHICS.
See Item 6.C. of this annual report, "Directors, Senior Management and Employees — Board
Practices."
Our board of directors has adopted a code of ethics, which is applicable to our senior executive
and financial officers and any other persons who perform similar functions for us. We have posted
the text of our code of ethics on our Internet website at
www.chinafinanceonline.com/investor/governance.asp
.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by category specified below in connection with
certain professional services rendered by Deloitte Touche Tohmatsu CPA Ltd., our principal external
auditors, for the periods indicated. We did not pay any other fees to our auditors during the
periods indicated below.
For the Year Ended December 31,
2003
2004
2005
Audit fees
(1)
US$
18,100
US$
347,500
US$
192,500
(1)
"Audit fees" means the aggregate fees billed in each
of the fiscal years listed for professional services
rendered by our principal auditors for the audit of
our annual financial statements, review of interim
financial statements and attestation services that are
provided in connection with statutory and regulatory
filings or engagements.
ITEM 16D. EXEMPTION FROM THE LISTING STANDARD FOR AUDIT COMMITTEES
Not Applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In March 2005, our board of directors approved a stock repurchase program pursuant to which we were
authorized to purchase from time to time up to $10 million worth of our American Depositary Shares,
or ADSs, over a period
77
Table of Contents
of six months. In May and June 2005, the Company repurchased a total of 1,659,442 ADSs,
representing 8,297,210 ordinary shares, at an average cost of $5.98 per ADS for total consideration
of approximately US$ 10 million including a brokerage commission
of US$0.05 per ADS. We believe that all of these repurchases were made in full
compliance with the anti-manipulation provisions of the Securities and Exchange Commission's Rule
10b-18. In July 2005, our board of directors approved another stock repurchase program pursuant to
which we were authorized to purchase from time to time up to US$10 million worth of its ADSs, over
a period of six months. In the fourth quarter, we repurchased again a total of 482,164 ADSs,
representing 2,410,820 ordinary shares, at an average cost of
US$6.60. We believe that all of these repurchases were made in full compliance with the
anti-manipulation provisions of the Securities and Exchange Commission's Rule 10b-18.
The following table sets forth, for each of the months indicated, the total number of ADSs
purchased by us or on our behalf or any affiliated purchaser, the average price paid per ADS, the
number of ADSs purchased as part of a publicly announced repurchase plan or program, the maximum
number of ADSs or approximate United States dollar value that may yet be purchased under the plans
or programs.
(c) Total Numbers of
(d) Maximum Numbers
ADSs Purchased as
of ADSs that May
(a) Total Number of
(b) Average Price
Part of Publicly
Yet Be Purchased
ADSs Purchased
Paid per ADS
Announced Plans or
Under the Plans or
(Shares)
(US$)
Programs
Programs
†
May 1,
2005 —
May 31, 2005 *
1,252,042
5.73
1,252,042
478,061
June 1,
2005 — June
30, 2005 *
407,400
6.75
407,400
36
December 1, 2005 —
December 31, 2005
**
482,164
6.60
482,164
1,021,595
†
The numbers of ADSs set forth in this column represent the number of ADSs that could be purchased, as of the month referred to in the
corresponding row of this table, assuming the same average purchase price per ADS as set forth in column (b) of the corresponding row of this table.
*
Pursuant to a stock repurchase program approved by our board of directors on March 31, 2005 and announced to the public on March 31, 2005, we were
authorized to purchase from time to time up to $10 million worth of our American Depositary Shares, or ADSs, over a period of six months. This stock repurchase
program expired in September 2005.
**
Pursuant to a stock repurchase program approved by our board of directors on July 26, 2005 and announced to the public on August 1, 2005, we were
authorized to purchase from time to time up to $10 million worth of our American Depositary Shares, or ADSs, over a period of six months. This stock repurchase
program expired in January 2006.
We believe that all of these repurchases were made in full compliance with the
anti-manipulation provisions of the Securities and Exchange Commission's Rule 10b-18.
PART III
ITEM 17. FINANCIAL STATEMENT
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements for China Finance Online Co., Limited and its subsidiaries
are included at the end of this annual report.
ITEM 19. EXHIBITS
78
Table of Contents
Index to exhibits
Exhibit
Number
Description
1.1
Amended and Restated Memorandum and Articles of Association of China Finance Online Co. Limited (incorporated by
reference to Exhibit 3.1 from our Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities
and Exchange Commission on October 4, 2004)
2.1
Specimen ordinary share certificate (incorporated by reference to Exhibit 4.1 from our Registration Statement on Form
F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on September 21, 2004)
2.2
Specimen American depositary receipt of China Finance Online Co. Limited (Incorporated by reference to the
Registration Statement on Form F-6 (File No. 333-119530) filed with the Securities and Exchange Commission with
respect to American depositary shares representing ordinary shares on October 5, 2004.
4.1
Incentive Stock Option Plan and form of option agreement (incorporated by reference to Exhibit 10.1 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on
September 21, 2004)
4.2
Form of Option Agreement with outside consultants and strategic advisors (incorporated by reference to Exhibit 10.2
from our Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on
September 21, 2004)
4.3
Purchase Option and Cooperation Agreement among China Finance Online Co. Limited, Jun Ning, Wu Chen and Fuhua
Innovation Technology Development Co., Ltd. dated May 27, 2004 (incorporated by reference to Exhibit 10.3 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on
September 21, 2004)
4.4
Share Pledge Agreement among Jun Ning, Wu Chen and China Finance Online (Beijing) Co., Ltd. dated May 27, 2004
(incorporated by reference to Exhibit 10.4 from our Registration Statement on Form F-1 (file no. 333-119166) filed
with the Securities and Exchange Commission on September 21, 2004)
4.5
Proxy from Jun Ning to Linhai Ma dated May 27, 2004 (incorporated by reference to Exhibit 10.5 from our Registration
Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on September 21, 2004)
4.6
Proxy from Wu Chen to Jian Feng dated May 27, 2004 (incorporated by reference to Exhibit 10.6 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September 21, 2004)
4.7
Equipment Lease Agreement between China Finance Online (Beijing) Co., Ltd. and Fuhua Innovative
Technology Development Co., Ltd. dated May 27, 2004 (incorporated by reference to Exhibit 10.7 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September 21, 2004)
4.8
Technical Support Agreement between China Finance Online (Beijing) Co., Ltd. and Fuhua Innovative
Technology Development Co., Ltd. dated May 27, 2004 (incorporated by reference to Exhibit 10.8 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September 21, 2004)
4.9
Amended and Restated Strategic Consulting Agreement between China Finance Online (Beijing) Co., Ltd. and
Fuhua Innovative Technology Development Co., Ltd. dated May 27, 2004 (incorporated by reference to
Exhibit 10.9 from our Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities
and Exchange Commission on September 21, 2004)
4.10
Domain Name Licensing Agreement between China Finance Online (Beijing) Co., Ltd. and Fuhua Innovative
Technology Development Co., Ltd. dated May 27, 2004 (incorporated by reference to Exhibit 10.10 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September 21, 2004)
4.11
Domain Name Licensing Agreement among China Finance Online (Beijing) Co., Ltd., Fuhua Innovative
Technology Development Co., Ltd. and China Finance Online Co. Limited dated March 20, 2005 (incorporated
by reference to Exhibit 4.11 from our Annual Report on Form 20-F (file no. 000-50975) filed with the
Securities and Exchange Commission on April 28, 2005)
79
Table of Contents
Exhibit
Number
Description
4.12
Loan Agreement between China Finance Online Co. Limited and Jun Ning dated May 27, 2004 (incorporated by
reference to Exhibit 10.11 from our Registration Statement on Form F-1 (file no. 333-119166) filed with
the Securities and Exchange Commission on September 21, 2004)
4.13
Loan Agreement between China Finance Online Co. Limited and Wu Chen dated May 27, 2004 (incorporated by
reference to Exhibit 10.12 from our Registration Statement on Form F-1 (file no. 333-119166) filed with
the Securities and Exchange Commission on September 21, 2004)
4.14
Securities Information Database Service Contract between China Finance Online (Beijing) Co., Ltd. and
Shenzhen Securities Information Co., Ltd. dated December 9, 2004, and as amended on January 31, 2005
(incorporated by reference to Exhibit 4.18 from our Annual Report on Form 20-F (file no. 000-50975) filed
with the Securities and Exchange Commission on April 28, 2005)
4.15
*†
Securities Information Operation
License Contract between China Finance Online (Beijing) Co., Ltd. and
Shanghai Stock Exchange Information Network Co., Ltd. dated March 2006
4.16
*†
Contract for License of Proprietary Information of the Shenzhen Stock Exchange between China Finance
Online (Beijing) Co., Ltd. and Shenzhen Securities Information Co., Ltd. dated December 31, 2005
4.17
*†
Contract for Financial and Economic
Databank Services dated December 15, 2004, as amended by the
Supplementary Agreement to the Contract for Financial and Economic
Databank Services dated January 31, 2005, between China Finance Online (Beijing) Co., Ltd.
and Shenzhen Securities Information Co., Ltd.
4.18
Lease Agreement between Ping'an Real Estate Development Co., Ltd. and China Finance Online (Beijing) Co.,
Ltd. dated June 30, 2003 (incorporated by reference to Exhibit 10.17 from our Registration Statement on
Form F-1 (file no. 333-119166) filed with the Securities and Exchange Commission on September 21, 2004).
4.19
Lease Agreement between Fortune Software (Beijing) Co., Ltd. and Li Jihong dated March 22, 2005
(incorporated by reference to Exhibit 4.20 from our Annual Report on Form 20-F (file no. 000-50975) filed
with the Securities and Exchange Commission on April 28, 2005)
4.20
*
Lease Contract for Housing Unit of Corporate Square dated January 19, 2006 between China Finance Online
Co., Ltd. and China Galaxy Securities Company Limited
4.21
*
Lease Contract for Housing Unit of Corporate Square datedJanuary 19, 2006 between Fortune Software
(Beijing) Co. Ltd. and China Galaxy Securities Company Limited
4.22
*
Lease Contract for Housing Unit of Corporate Square datedJanuary 19, 2006 between Beijing Fuhua
Innovation Technology Co., Ltd. and China Galaxy Securities Company Limited
4.23
Form of indemnification agreement for directors and officers (incorporated by reference to Exhibit 10.18
from our Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September 21, 2004)
4.24
Form of labor contract of China Finance Online (Beijing) Co., Ltd. (incorporated by reference to Exhibit
10.19 from our Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and
Exchange Commission on September 21, 2004)
4.25
Labor Contract of Sam Qian dated March 31, 2004 (incorporated by reference to Exhibit 10.21 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September 21, 2004)
4.26
*
Labor Contract of Zhao Zhiwei dated June 21, 2005
4.27
Intellectual Property Rights, Confidentiality and Non-Competition Agreement of Jun Ning dated December
31, 1999 (incorporated by reference to Exhibit 10.22 from our Registration Statement on Form F-1 (file
no. 333-119166) filed with the Securities and Exchange Commission on October 4, 2004)
80
Table of Contents
Exhibit
Number
Description
4.28
Intellectual Property Rights, Confidentiality and Non-Competition
Agreement of Sam Qian dated March 31, 2004 (incorporated by reference to
Exhibit 10.23 from our Registration Statement on Form F-1 (file no.
333-119166) filed with the Securities and Exchange Commission on September
21, 2004)
4.29
Form of Change in Control Agreement (incorporated by reference to Exhibit
10.1 from our Registration Statement on Form F-1 (file no. 333-119166)
filed with the Securities and Exchange Commission on October 4, 2004)
8.1
List of subsidiaries (incorporated by reference to Exhibit 21.1 from our
Registration Statement on Form F-1 (file no. 333-119166) filed with the
Securities and Exchange Commission on September 21, 2004)
10.1
Consents of Deloitte Touche Tohmatsu CPA Ltd (incorporated by reference to
Exhibit 23.1 from our Registration Statement on Form F-1 (file no.
333-119166) filed with the Securities and Exchange Commission on September
21, 2004, October 4, 2004 and October 13, 2004)
10.2
Consent of Jincheng and Tongda Law Firm (included in Exhibit 5.2)
(incorporated by reference to Exhibit 23.2 from our Registration Statement
on Form F-1 (file no. 333-119166) filed with the Securities and Exchange
Commission on September 21, 2004)
10.3
Consent of Taylor Nelson Sofres (incorporated by reference to Exhibit 23.8
from our Registration Statement on Form F-1 (file no. 333-119166) filed
with the Securities and Exchange Commission on September 21, 2004)
12.1*
CEO Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-1(a) (17 CFR 240.15d-14(a))
12.2*
CFO Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) or
Rule 15d-1(a) (17 CFR 240.15d-14(a))
13.1*
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2*
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*
Filed as an exhibit to this Form 20-F
†
Confidential treatment requested with respect to redacted portions
81
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: May 23, 2006
CHINA FINANCE ONLINE CO. LIMITED
/s/
Sam Qian
Name:
Sam Qian
Title:
President and Chief Financial Officer
82
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
PAGE
Report of Independent Registered Public Accounting Firm
F - 2
Consolidated Balance Sheets as of December 31, 2004 and 2005
F - 3
Consolidated Statements of Operations for the years ended December 31, 2003,
2004 and 2005
F - 4
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended December 31, 2003, 2004 and 2005
F - 5
Consolidated Statements of Cash Flows for the years ended December 31, 2003,
2004 and 2005
F - 6
Notes to the Consolidated Financial Statements
F - 7
Schedule 1
F - 27
F - 1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CHINA FINANCE ONLINE CO. LIMITED
We have audited the accompanying consolidated balance sheets of China Finance Online Co.
Limited and its subsidiaries (the "Company") as of December 31, 2004 and 2005 and the
related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for the years ended December 31, 2003, 2004 and 2005, and related
financial statement schedule included in Schedule 1. These financial statements and related
financial statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements and
related financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (PCAOB) in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2004 and 2005 and the
results of its operations and its cash flows for each of the three years ended December 31,
2005 in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
Deloitte Touche Tohmatsu CPA Ltd.
Beijing, China
April 21, 2006
F - 2
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share data)
December 31,
2004
2005
Assets
Current assets:
Cash and cash equivalents
$
70,596,197
$
46,168,385
Accounts receivable
33,921
144,694
Income tax recoverable
14,573
—
Prepaid expenses and other current assets
331,943
1,131,515
Deferred tax
assets — current
386,325
64,036
Total current assets
71,362,959
47,508,630
Cost investment
—
15,000,000
Property and equipment, net
417,002
512,179
Rental deposits
30,736
41,393
Goodwill
50,534
50,534
Total assets
$
71,861,231
$
63,112,736
Liabilities and shareholders' equity
Current liabilities:
Deferred revenue
$
3,487,258
$
1,859,321
Accrued expenses and other current liabilities
285,696
381,693
Income tax payable
—
40,762
Total current liabilities
$
3,772,954
$
2,281,776
Commitments (Note 13)
Shareholders' equity
Ordinary shares ($0.00013 par value; 500,000,000 shares
authorized; shares issued and outstanding 99,329,933 in 2004
and 101,329,933 in 2005)
12,814
13,077
Additional paid-in capital
64,175,132
64,564,534
Treasury stock, at cost (Nil shares and 10,708,030 shares in 2004
and 2005, respectively)
—
(13,200,394
)
Deferred stock-based compensation
(325,221
)
(67,129
)
Accumulated other comprehensive (loss) income
(11
)
671,122
Retained earnings
4,225,563
8,849,750
Total shareholders' equity
68,088,277
60,830,960
Total liabilities and shareholders' equity
$
71,861,231
$
63,112,736
The accompanying notes are an integral part of these consolidated financial statements.
F - 3
Table of Contents
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
(In U.S. dollars, except share data)
Year ended December 31,
2003
2004
2005
Gross revenues
$
2,354,225
$
6,064,363
$
7,626,756
Business tax
(83,448
)
(47,914
)
(144,590
)
Net revenues
2,270,777
6,016,449
7,482,166
Cost of revenues (including stock-based
compensation of $nil, $825 and $740,
respectively)
297,719
393,841
482,068
Gross profit
1,973,058
5,622,608
7,000,098
Operating expenses:
General and administrative
(including stock-based compensation of
$96,311, $286,089 and $365,949,
respectively)
400,270
727,349
1,740,117
Product development (including stock-based
compensation of $nil, $920 and $1,610,
respectively)
148,871
172,997
236,438
Sales and marketing (including stock-based
compensation of $nil, $1,500 and $2,482,
respectively)
283,964
801,481
1,794,569
Total operating expenses
833,105
1,701,827
3,771,124
Income from operations
1,139,953
3,920,781
3,228,974
Interest income
51,220
293,862
1,486,276
Other (expense) income, net
(1,243
)
(1,579
)
—
Exchange gain
—
—
365,965
Income before income tax benefit (expense)
1,189,930
4,213,064
5,081,215
Income tax
benefit (expense) — Current
—
384,277
(457,028
)
Net income
1,189,930
4,597,341
4,624,187
Dividends on preference shares
(351,489
)
—
—
Income attributable to ordinary shareholders
$
838,441
$
4,597,341
$
4,624,187
Income per share-basic
$
0.04
$
0.12
$
0.05
Income per share-diluted
$
0.01
$
0.05
$
0.04
Shares used in calculating basic
net income per share
20,124,153
38,912,491
94,341,061
Shares used in calculating diluted
net income per share
72,562,516
90,092,668
104,781,492
Dividends
declared per preference share
$
0.01
$
—
$
—
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME
(In U.S. dollars, except share data)
Accumulated
other
Retained
Series A convertible
Series B convertible
Additional
Deferred
comprehensive
earnings
Total
preference shares
preference shares
Ordinary shares
paid-in
stock-based
income
(accumulated
shareholders'
Comprehensive
Shares
Amount
Shares
Amount
Shares
Amount
capital
Treasury stock
compensation
(loss)
deficit)
equity
income
Balance as of January 1, 2003
32,315,100
$
4,170
20,833,333
$
2,688
17,784,900
$
2,295
$
4,997,073
$
—
$
—
$
(142
)
$
(1,059,156
)
$
3,946,928
Issuance of ordinary shares to an employee
—
—
—
—
2,666,600
341
96,311
—
—
—
—
96,652
—
Conversion of Series A convertible preference shares into
ordinary shares
(1,672,100
)
(216
)
—
—
1,672,100
216
—
—
—
—
—
—
—
Foreign currency translation adjustment
—
—
—
—
—
—
—
—
—
328
—
328
328
Net income
—
—
—
—
—
—
—
—
—
—
1,189,930
1,189,930
1,189,930
Dividends on preference shares
—
—
—
—
—
—
—
—
—
—
(351,489
)
(351,489
)
—
Dividends on ordinary shares
—
—
—
—
—
—
—
—
—
—
(151,063
)
(151,063
)
—
Balance as of December 31, 2003
30,643,000
3,954
20,833,333
2,688
22,123,600
2,852
5,093,384
—
—
186
(371,778
)
4,731,286
$
1,190,258
Issuance of ordinary shares to an employee
—
—
—
—
730,000
94
—
—
—
—
—
94
—
Stock options issued to non-employees
—
—
—
—
—
—
72,764
—
—
—
—
72,764
—
Deferred stock-based compensation
—
—
—
—
—
—
541,791
—
(541,791
)
—
—
—
—
Amortization of deferred stock-based compensation
—
—
—
—
—
—
—
—
216,570
—
—
216,570
—
Issuance of ordinary shares upon the initial public offering
(net of offering costs of $6,469,282)
—
—
—
—
25,000,000
3,226
58,527,492
—
—
—
—
58,530,718
—
Conversion of preference shares to ordinary shares upon
initial public offering
(30,643,000
)
(3,954
)
(20,833,333
)
(2,688
)
51,476,333
6,642
—
—
—
—
—
—
—
Distribution to the shareholders of Fuhua
—
—
—
—
—
—
(60,299
)
—
—
—
—
(60,299
)
—
Foreign currency translation adjustment
—
—
—
—
—
—
—
—
—
(197
)
—
(197
)
(197
)
Net income
—
—
—
—
—
—
—
—
—
—
4,597,341
4,597,341
4,597,341
Balances as of December 31, 2004
—
—
—
—
99,329,933
12,814
64,175,132
—
(325,221
)
(11
)
4,225,563
68,088,277
$
4,597,144
Repurchase
of ordinary shares as treasury stock
—
—
—
—
—
—
—
(13,200,394
)
—
—
—
(13,200,394
)
Issuance of
ordinary shares to an employee
—
—
—
—
2,000,000
263
276,713
—
—
—
—
276,976
Stock options issued to non-employees
—
—
—
—
—
—
112,689
—
—
—
—
112,689
Amortization of deferred stock-based compensation
—
—
—
—
—
—
—
—
258,092
—
—
258,092
Foreign currency translation adjustment
—
—
—
—
—
—
—
—
—
671,133
—
671,133
671,133
Net income
—
—
—
—
—
—
—
—
—
—
4,624,187
4,624,187
4,624,187
Balance as of December 31, 2005
—
$
—
—
$
—
101,329,933
$
13,077
$
64,564,534
$
(13,200,394
)
$
(67,129
)
$
671,122
$
8,849,750
$
60,830,960
$
5,295,320
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
Year ended December 31,
2003
2004
2005
Operating activities:
Income attributable to ordinary shareholders
$
838,441
$
4,597,341
$
4,624,187
Dividends on preference shares
351,489
—
—
Net income
1,189,930
4,597,341
4,624,187
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock-based compensation
96,311
289,334
370,781
Depreciation
105,478
133,208
129,833
Loss on disposal of property and equipment
1,339
463
9,686
Changes in assets and liabilities:
Accounts receivable
—
(33,921
)
(110,773
)
Income tax recoverable
(283,284
)
268,711
14,573
Prepaid expenses and other current assets
3,768
(239,513
)
(799,572
)
Deferred tax assets
—
(386,325
)
322,289
Rental deposits
1,491
(7,161
)
(10,657
)
Deferred revenue
343,778
2,209,155
(1,627,937
)
Accrued expenses and other current liabilities
46,952
191,328
95,997
Income tax payable
—
—
40,762
Net cash provided by operating activities
1,505,763
7,022,620
3,059,169
Investing activities:
Acquisition
of cost investment
—
—
(15,000,000
)
Purchase of property and equipment
(151,522
)
(199,857
)
(234,696
)
Net cash used in investing activities
(151,522
)
(199,857
)
(15,234,696
)
Financing activities:
Repurchase
of ordinary shares as treasury stock
341
—
(13,200,394
)
Issuance of ordinary shares to an employee
—
94
276,976
Proceeds from initial public offering, net of
offering costs of $6,469,282
—
58,530,718
—
Dividend paid
—
(502,552
)
—
Distribution to the shareholders of Fuhua
—
(60,299
)
—
Net cash provided by (used in) financing activities
341
57,967,961
(12,923,418
)
Effect of exchange rate changes
328
(197
)
671,133
Net increase (decrease) in cash and cash equivalents
1,354,910
64,790,527
(24,427,812
)
Cash and cash equivalents, beginning of year
4,450,760
5,805,670
70,596,197
Cash and cash equivalents, end of year
$
5,805,670
$
70,596,197
$
46,168,385
Supplemental disclosure of cash flow information
Income taxes paid
$
283,284
$
16,621
$
93,977
Interest paid
$
—
$
—
$
—
Supplemental disclosures of non-cash financing activities:
Conversion of Series A and/or Series B convertible
preference shares into ordinary shares
$
216
$
6,642
$
—
Deferred stock-based compensation
$
—
$
325,221
$
67,129
The accompanying notes are an integral part of these consolidated financial statements.
F - 6
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
China Finance Online Co. Limited (the "Company") was incorporated in Hong Kong on November
2, 1998. The Company and its subsidiaries including its variable interest entity are
principally engaged in the sale of online financial services analyzing financial and listed
company information in the People's Republic of China ("PRC"). The services are provided
through downloadable proprietary software research tools on their website www.jrj.com.
Details of the Company's subsidiaries and variable interest entity are as follows:
Place of
Date of
Ownership
Company name
incorporation
incorporation
interest
China Finance Online (Beijing) Co., Ltd. ("CFO Beijing")
Beijing, PRC
July 9, 1998
100
%
Fortune Software (Beijing) Co., Ltd. ("CFO Software")
Beijing, PRC
December 7, 2004
100
%
Beijing Fuhua Innovation Technology
Investment Co., Ltd. *
Beijing, PRC
December 13, 2000
100
%
*
Represents a variable interest entity
PRC regulations prohibit direct foreign ownership of business entities providing internet
content services or ICP services in the PRC which included the Company's business of
providing financial information and data to Internet users as certain licenses are required
for the provision of such services. The Company and CFO Beijing are foreign or foreign
invested enterprises under PRC law and accordingly are ineligible for a license to operate
ICP services. In order to comply with these regulations, in December 2000, the Company
established Beijing Fuhua Innovation Technology Investment Co., Ltd. ("Fuhua"), a variable
interest entity, through two designated shareholders who are PRC citizens and legally owned
Fuhua. There was a trust and pledge agreement between the shareholders of Fuhua and the
Company which provides that the shareholders of Fuhua hold the equity interests of Fuhua in
trust for the Company and that all benefits, rights, and power arising from the equity
interests in Fuhua accrue to the Company. In addition, the corporate management and
business operation of Fuhua is to be conducted by the Company. Upon the establishment of
Fuhua, Mr. Chen Wu, an employee of an entity affiliated with the majority shareholder of the
Company and Mr. Wang Xinzheng, one of the founding employees and existing employee and
shareholder of the Company were designated as the shareholders of Fuhua and held 55% and
45%, respectively, of Fuhua equity interests on behalf of the Company. On January 21, 2003,
Mr. Ning Jun, former Chief Executive Officer of the Company, replaced Mr. Wang Xinzheng as
the 45% registered shareholder of Fuhua as Mr. Wang Xinzheng was no longer an employee of
the Company.
F - 7
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES — continued
In May 2004, the Company replaced the trust and pledge agreement with the shareholders of
Fuhua and entered into a series of contractual arrangements with Fuhua and its shareholders.
Pursuant to these agreements, Fuhua has the exclusive right to use certain domain names of
the CFO Beijing, Fuhua leases a substantial majority of its operating assets from CFO
Beijing and CFO Beijing is the exclusive provider of technical support and other services to
Fuhua. In return, Fuhua is required to pay licensing and service fees for the use of the
domain name, operating leases and technical support and other services received.
In May 2004, the Company made a loan to each of the shareholders of Fuhua to capitalize
Fuhua. Principal terms of the loan agreement and affiliated agreements provide that the
loans can only be repaid by transferring all of their interests in Fuhua to the Company or
to a third party designated by the Company.
In addition, the Company has entered into an option agreement with Fuhua and its
shareholders that provide the Company with the substantial ability to control Fuhua.
Pursuant to these contractual agreements:
•
The shareholders of Fuhua have granted the Company or someone designated
by the Company an irrevocable proxy to exercise all their rights as shareholders of
Fuhua, including the right to appoint directors, the general manager and other senior
management of Fuhua;
•
Fuhua will not enter into any transactions that may materially affect its
assets, liabilities, equity or operations without prior written consent;
•
Fuhua cannot distribute any dividends;
•
The Company can purchase the entire equity interest in, or all of the
assets of Fuhua when and if such purchase is permitted by PRC law or the current
shareholders of Fuhua cease to be directors or employees of Fuhua;
•
The shareholders of Fuhua have pledged their equity interest in Fuhua to
CFO Beijing to secure the payment obligations of Fuhua under all of the contractual
agreements between CFO Beijing and Fuhua; and
•
The shareholders of Fuhua will not transfer, sell, pledge, dispose of or
create any encumbrance on their equity interests in Fuhua without prior written consent
of CFO Beijing.
Each of the contractual agreements with Fuhua and its shareholders can only be amended with
the approval of our audit committee or another independent body appointed by the Company's
Board of Directors.
F - 8
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES — continued
In January 2003, the Financial Accounting Standards Board ("FASB") issued Financial
Interpretation ("FIN") No. 46 which requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the ownership interest held by the
equity investors in the entity does not have characteristics of a controlling financial
interest or does not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN 46 was effective
for all new variable interest entities created or acquired after December 15, 2003, the FASB
issued FIN 46 (revised), which provides for the deferral of the implementation date to the
end of the first reporting period after March 15, 2004, unless the Company has a special
purpose entity, in which case the provisions must be applied for fiscal years ending
December 31, 2003. However, the Company has elected to retroactively apply FIN 46 (revised)
and has consolidated Fuhua as its variable interest entity from its inception.
The Company is the primary beneficiary of the Fuhua because the Company holds all of the
variable interests in Fuhua through related parties. The only variable interests in Fuhua
not directly held by the Company are the shares held by the registered shareholders Mr. Chen
Wu (55%) and Mr. Ning Jun (45%). Each of these individuals is a related party as described
in FIN 46 (revised) either because they are management or acting as a defacto agent of the
Company. The defacto relationship is established through the contractual relationships
described above under which the individuals assign all their rights as shareholders of Fuhua
to the Company.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with
the accounting principles generally accepted in the United States of America ("U.S. GAAP").
Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its
two subsidiaries, CFO Beijing and CFO Software, and a variable interest entity, Fuhua. All
inter-company transactions and balances have been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments which are
unrestricted as to withdrawal or use, and which have maturities of three months or less when
purchased.
F - 9
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities
and revenue and expenses in the financial statements and accompanying notes. Significant
accounting estimates reflected in the Company's financial statements include the useful
lives and impairment for property and equipment, valuation allowance for deferred tax
assets, stock-based compensation expense and impairment of goodwill valuation. Actual
results could differ from those estimates.
Significant risks and uncertainties
The Company participates in a dynamic high-technology industry and believes that changes in
any of the following areas could have a material adverse effect on the Company's future
financial position, results of operations, or cash flows: advances and trends in new
technologies and industry standards; stock market performance and public interest in the
Chinese stock market; competition from other competitors; changes in key suppliers; changes
in certain strategic relationships; regulatory or other factors; and risks associated with
the Company's ability to attract and retain employees necessary to support its growth.
Property and equipment, net
Property and equipment, net are carried at cost less accumulated depreciation. Depreciation
is calculated on a straight-line basis over the following estimated useful lives:
Technology infrastructure
5 years
Computer equipment
5 years
Furniture, fixtures and equipment
5 years
Motor vehicle
5 years
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may no longer be recoverable.
When these events occur, the Company measures impairment by comparing the carrying value of
the long-lived assets to the estimated undiscounted future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of the expected
undiscounted cash flow is less than the carrying amount of the assets, the Company would
recognize an impairment loss based on the fair value of the assets.
F - 10
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Goodwill
The excess of the purchase price over the fair value of net assets acquired is recorded on
the consolidated balance sheet as goodwill.
SFAS No. 142 requires the Company to complete a two-step goodwill impairment test. The
first step compares the fair values of each reporting unit to its carrying amount, including
goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is
not considered to be impaired and the second step will not be required. If the carrying
amount of a reporting unit exceeds its fair value, the second step compares the implied fair
value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair
value of goodwill is determined in a manner similar to accounting for a business combination
with the allocation of the assessed fair value determined in the first step to the assets
and liabilities of the reporting unit. The excess of the fair value of the reporting unit
over the amounts assigned to the assets and liabilities is the implied fair value of
goodwill. This allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any assets or liabilities.
An impairment loss is recognized for any excess in the carrying value of goodwill over the
implied fair value of goodwill.
As of December 31, 2005, the Company performed a goodwill impairment test by comparing the
book value to the fair value of each reporting unit. Based on the Company's assessment,
there was no impairment issue and thus no impairment charge was recorded.
Revenue recognition
The Company generates revenue primarily from annual subscription fees from subscribers to
their financial data and information services including their downloadable proprietary
software research tools. The Company recognizes revenue under the provisions of Statement
of Position No 97-2 ("SOP 97-2") entitled "Software Revenue Recognition"(as amended by SOP
98-9). Accordingly, the Company recognizes revenues when all of the following criteria are
met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the
fee is fixed or determinable and (4) collectibility is probable. Upon receipt of the
upfront cash payments from the subscriber, the Company will activate the subscribers account
and provide the subscriber the access code. This will commence the one-year subscription
period and the full payment will be deferred and recognized ratably over the one-year
subscription period. Since the Company does not have sufficient vendor specific objective
evidence to allocate the revenue to the various elements of the arrangement, the Company
recognizes revenue ratably over the life of the arrangement.
Subscription-based revenue includes the benefit of the rebate of value added taxes on sale
of the downloaded software received from the Chinese tax authorities as part of the PRC
government policy of encouraging software development in the PRC. In 2003, 2004 and 2005,
the Company recognized $40,260, $613,050 and $708,613, respectively, in value added tax
refunds.
F - 11
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Revenue recognition
— continued
The Company provides short messaging services ("SMS") which are delivered primarily through
intermediary companies licensed to provide SMS services on behalf of mobile phone service
providers. The Company records the net amount of revenues received from the intermediary
company after deducting service and network fees. The Company evaluates the criteria
outlined in EITF No. 99-19, "Reporting Revenue Gross as Principal Versus Net as an Agent,"
in determining whether it is appropriate to record the gross amount of revenues and related
costs or the net amount earned after deducting service and network fees paid to the mobile
phone service providers. Currently, the Company records the net amount billed to its
customers since the Company is the agent in these transactions primarily working through an
intermediary of the mobile phone service provider, has little latitude in establishing
prices, and is not involved in the determination of the service specifications.
The Company generally derives its advertising fees from advertising sales on their Website
principally for a fixed period of time, generally less than one year. Revenues from
advertising arrangements are recognized ratably over the period the advertising is
displayed.
Cost investment
For investments in an investee over which the Company does not have significant influence,
the Company carries the investment at cost and recognizes income as any dividends received
from distribution of investee's earnings. The Company reviews the cost investments for
impairment whenever events or changes in circumstances indicate that the carrying value may
no longer be recoverable.
Foreign currency translation
The functional currency of the Company's subsidiaries
and variable interest entity is Renminbi ("RMB"). Transactions
denominated in currencies other than RMB are translated into RMB at the exchange rates
quoted by the People's Bank of China (the "PBOC") prevailing at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies are
translated into RMB using the applicable exchange rates quoted by the PBOC at the balance
sheet dates. The resulting exchange differences are included in the statement of
operations.
The Company has determined that the U.S. dollar as its functional and reporting currency.
Accordingly assets and liabilities are translated using exchange rates in effect at each
year end and average exchange rates are used for the consolidated statements of operations.
Translation adjustments resulting from translation of these consolidated financial
statements are reflected as accumulated other comprehensive income in the
shareholders' equity.
F - 12
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Foreign currency risk
The RMB is not a freely convertible currency. The State Administration for Foreign
Exchange, under the authority of the People's Bank of China, controls the conversion of
Renminbi into foreign currencies. The value of the RMB is subject to changes in central
government policies and to international economic and political developments affecting
supply and demand in the China Foreign Exchange Trading System market. The cash and cash
equivalents of the Company included aggregate amounts of $10,200,804 at December 31, 2004
and $42,676,039 at December 31, 2005 which were denominated in RMB.
Product development expenses
These costs are expensed as incurred until technological feasibility has been established,
at which time any additional costs would be capitalized. To date, the Company has
essentially completed its development concurrently with the establishment of technological
feasibility, and, accordingly, no costs have been capitalized.
Advertising costs
The Company expenses advertising costs as incurred. Total
advertising expenses were $70,942, $414,907, and $1,389,899 for the
years ended December 31, 2003, 2004 and 2005, respectively and
have been included as part of sales and marketing expenses.
Income taxes
Deferred income taxes are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements, net operating
loss carry forwards and credits by applying enacted statutory tax rates applicable to future
years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Current income taxes are provided for in accordance with the laws of
the relevant taxing authorities.
Comprehensive income
Comprehensive income includes foreign currency translation adjustments.
Comprehensive income is reported in the statements of shareholders' equity.
Fair value of financial instruments
Financial instruments include cash and cash equivalents. The carrying values of cash and
cash equivalents approximate their fair values due to their short-term maturities.
Stock-based compensation
The Company grants stock options to its employees and certain non-employees. The Company
records a compensation charge for the excess of the fair value of the stock at the grant
date or any other measurement date over the amount an employee must pay to acquire the
stock in accordance with Accounting Principle Board Opinion
("APB") No. 25 "Accounting for Stock Issued to
Employees". The compensation expense is recognized over the applicable service period, which is
usually the vesting period. The Company accounts for stock-based awards to non-employees by
recording a charge for the services rendered by the non-employees using the Black-Scholes
option pricing model.
F - 13
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Stock-based compensation
— continued
Had compensation cost for options granted to employees under the Company's stock option plan
(the "Plan") been determined based on the fair value at the grant dates, the Company's pro
forma net income would have been as follows:
December 31,
2003
2004
2005
Income attributable to ordinary
shareholders as reported:
$
838,441
$
4,597,341
4,624,187
Add: Stock-based compensation as reported
—
33,192
13,589
Less: Stock-based compensation determined
using the fair value method
—
(256,947
)
(1,935,649
)
Pro forma income attributable to
ordinary shareholders
$
838,441
$
4,373,586
2,702,127
Basic income per share:
As reported
$
0.04
$
0.12
$
0.05
Pro forma
$
0.04
$
0.11
$
0.04
Diluted income per share:
As reported
$
0.01
$
0.05
$
0.04
Pro forma
$
0.01
$
0.05
$
0.03
The fair value of each option and share granted is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for grants during the
applicable period.
December 31,
2003
2004
2005
Option grants
Average risk-free rate of return
—
1.87
%
3.37
%
Weighted average expected option life
—
2.41 years
2.94 years
Volatility rate
—
73.78
%
65.08
%
Dividend yield
—
—
—
F - 14
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Income per share
Basic income per share is computed by dividing net income by the weighted average number of
ordinary shares outstanding during the period. Diluted income per ordinary share reflects
the potential dilution that could occur if securities or other contracts to issue ordinary
            shares were exercised or converted into ordinary shares.
Recently issued accounting standards
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS
No. 123(R)").This statement is a revision to SFAS No. 123 and supercedes APB Opinion No. 25.
This statement establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services, primarily focusing on the accounting
for transactions in which an entity obtains employee services in share-based payment
transactions. Entities are required to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during which an
employee is required to provide service, the requisite service period (usually the vesting
period), in exchange for the award. The grant-date fair value of employee share options and
similar instruments are to be estimated using option-pricing models. If an equity award is
modified after the grant date, incremental compensation cost will be recognized in an amount
equal to the excess of the fair value of the modified award over the fair value of the
original award immediately before the modification. This statement is effective as of the
beginning of the first interim or annual reporting period that begins after June 15, 2005.
In accordance with the standard, the Company is required to adopt SFAS No. 123(R) effective
January 1, 2006.
Upon adoption, the Company has two application methods to choose from: the
modified-prospective transition approach or the modified-retrospective transition approach.
Under the modified-prospective transition method the Company would be required to recognize
compensation cost for share-based awards to employees based on their grant-date fair value
from the beginning of the fiscal period in which the recognition provisions are first
applied as well as compensation cost for awards that were granted prior to, but not vested
as of the date of adoption. Prior periods remain unchanged and pro forma disclosures
previously required by SFAS No. 123 continue to be required. Under the
modified-retrospective transition method, the Company would restate prior periods by
recognizing compensation cost in the amounts previously reported in the pro forma footnote
disclosure under SFAS No. 123. Under this method, the Company is permitted to apply this
presentation to all periods presented or to the start of the fiscal year in which SFAS No.
123(R) is adopted. The Company would follow the same guidelines as in the
modified-prospective transition method for awards granted subsequent to adoption and those
that were granted and not yet vested. The Company believes that the impact that the
adoption of SFAS No. 123(R) will have on its financial position or results of operations
will approximate the magnitude of the stock-based employee compensation cost disclosed in
Note 2 pursuant to the disclosure requirements of SFAS No. 148.
F - 15
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Recently issued accounting standards
— continued
In October 2005, the FASB issued FSP FAS 123(R)-2, "Practical Accommodation to the
Application of Grant Date as Defined in FASB Statement No. 123(R)", which provides
clarification of the concept of mutual understanding between employer and employee with
respect to the grant date of a share-based payment award. This FSP provides that a mutual
understanding of the key terms and conditions of an award shall be presumed to exist on the
date the award is approved by management if the recipient does not have the ability to
negotiate the key terms and conditions of the award and those key terms and conditions will
be communicated to the individual recipient within a relatively short time period after the
date of approval. This guidance shall be applied upon initial adoption of SFAS 123(R). The
Company is currently evaluating the effect that the adoption of the FSP will have on its
consolidated results of operations and financial condition but does not expect it to have a
material impact.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 provides guidance
on the accounting for and reporting of accounting changes and error corrections. It
establishes retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of the correction of
an error. SFAS No. 154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. The Company does not expect the adoption
of SFAS No. 154 on January 1, 2006 to have a material impact on its results of operations
and financial condition.
In February 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 155,
"Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133
and 140." SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", to permit fair value remeasurement for any hybrid financial instrument
with an embedded derivative that otherwise would require bifurcation, provided that the
whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140,
"Accounting for the Impairment or Disposal of Long-Lived Assets", to allow a qualifying
special-purpose entity (SPE) to hold a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS No. 155
applies to all financial instruments acquired or issued after the beginning of an entity's
first fiscal year that begins after September 15, 2006, with earlier application allowed.
The Company does not expect the adoption of SFAS No. 155 to have a material impact on its
consolidated results of operations and financial condition.
In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement No. 143" ("FIN 47"), which requires an
entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47
is effective for fiscal years ending after December 15, 2005. The Company does not expect
the adoption of FIN 47 will have a material impact on its results of operations and
financial condition.
F - 16
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consists of:
December 31,
2004
2005
Interest receivable
$
92,113
$
562,673
Prepaid expenses
123,156
470,926
Staff advances and other receivables
6,803
75,612
Advances to suppliers
109,871
22,304
$
331,943
$
1,131,515
4. COST INVESTMENT
In December 2005, the Company purchased 9,800,000 Series B preferred shares in Moloon
International Inc. ("Moloon") for $15,000,000, which represents a 25% interest of Moloon on
an if-converted basis. The Company does not exert significant influence over the operating
and financial activities of Moloon, and accordingly, this has been recorded as a cost
investment.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of:
December 31,
2004
2005
Technology infrastructure
$
569,065
$
626,188
Computer equipment
136,207
113,569
Furniture, fixtures and equipment
132,015
88,580
Motor vehicle
—
62,288
837,287
890,625
Less: accumulated depreciation
(420,285
)
(378,446
)
$
417,002
$
512,179
6. GOODWILL
F - 17
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
6. GOODWILL — continued
Beginning fiscal 2002, with the adoption of SFAS 142 "Goodwill and Other Intangible Assets",
goodwill was no longer amortized, but instead tested for impairment at least on an annual
basis or more frequently if events or changes in circumstances indicate that it may be
impaired.
7.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of:
December 31,
2004
2005
Accrued expenses
$
189,726
$
262,889
Value added tax payable
90,715
51,612
Other taxes payable
663
40,303
Accrued welfare benefits
4,592
26,889
$
285,696
$
381,693
8. STOCK OPTIONS
In January 2004, the Company adopted the 2004 stock incentive plan (the "Plan") which allows
the Company to offer a variety of incentive awards to employees, directors, officers and
other eligible persons of the Company. Options to purchase 5,688,488 ordinary shares are
authorized under the Plan. In September 2004, the Company increased the total number of
ordinary shares that are available for issuance under the Plan by additional 5,000,000
shares. Therefore, there are in total 10,688,488 options to purchase ordinary shares
authorized under the Plan. Under the terms of the Plan, options are generally granted at
prices equal to the fair market value of the Company's shares listed on the Nasdaq National
Market. Prior to the Company's initial public offering the market value of the ordinary
shares underlying the stock option was determined by the Board of Directors. As of December
31, 2005, options to purchase 15,250,488 shares of ordinary shares were outstanding.
In February 2005, the Company granted 4,053,000 stock options to directors, officers and
employees at an exercise price that equates the trading price of the stock upon the stock
option grant. In November 2005, the Company granted 400,000 stock options to the CEO and
200,000 stock options to the Vice President. All the exercise prices equate the trading
price of the stock at the grant date of the stock option. The Company has not recognized a
compensation expense in the consolidated financial statements since the exercise prices were
equal to the fair market values at the date of grant.
F - 18
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
8.
STOCK OPTIONS — continued
Options to non-employees
The Company granted stock options to purchase up to 6,829,500 ordinary shares outside of the
stock option plan and 90,000 options to purchase ordinary shares under the plan to
consultants and strategic advisors in 2004. The Company also granted 350,000 options under
the plan to consultants and strategic advisors in 2005. The Company recorded a compensation
expense of approximately $72,764 and $112,689 for the years ended December 31, 2004 and
2005, respectively, estimated using the Black-Scholes option pricing model as such method
provided a more accurate estimate of the fair value of services provided by the consultants
and strategic advisers.
The following assumptions were used in the option pricing model:
Year ended December 31,
2004
2005
Options to non-employees:
Average risk-free rate of return
2
%
3.48
%
Weighted average expected option life
2 years
2.14 years
Volatility rate
73.78
%
56.96
%
Dividend yield
—
—
A summary
of the stock option activity for both employees and non-employees is follows:
Year ended December 31,
2004
2005
Weighted
Weighted
Number
average
Number
average
of options
exercise price
of options
exercise price
Outstanding at beginning of year
—
—
12,492,988
$
0.18
Granted
12,517,988
$
0.18
5,003,000
$
1.29
Exercised
—
—
(1,731,500
)
$
0.16
Cancelled
(25,000
)
$
0.17
(514,000
)
$
1.05
Outstanding at end of year
12,492,988
$
0.18
15,250,488
$
0.52
The weighted average per share fair value of options as of the grant date was as follows:
2004
2005
Options
$
0.011
$
0.17
F - 19
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
8. STOCK OPTIONS — continued
The following table summarizes information with respect to stock options outstanding at
December 31, 2005:
Options outstanding
Options exercisable
Weighted
average
Weighted
Weighted
remaining
average
average
Number
contractual
exercise
Number
exercise
outstanding
life
price
exercisable
price
Ordinary shares
$0.16
10,329,488
3.18 years
$
0.16
8,846,488
$
0.16
$1.04
320,000
3.18 years
$
1.04
160,000
$
1.04
$1.31
3,951,000
9.14 years
$
1.31
980,000
$
1.31
$1.32
50,000
9.14 years
$
1.32
—
—
$1.12
400,000
9.88 years
$
1.12
—
—
$1.16
200,000
9.92 years
$
1.16
—
—
15,250,488
9,986,488
As of December 31, 2005, options to purchase 536,000 ordinary shares were available for
future grant.
9. INCOME TAXES
The Company has not recorded a tax provision for Hong Kong tax purposes as the Company does
not have any assessable profit in Hong Kong.
The subsidiary of the Company, CFO Beijing, is subject to PRC income tax at a rate of 27%
(24% PRC state income tax plus 3% PRC local income tax). In accordance with the approval by
the tax authority in March 2004, the subsidiary is exempted from PRC state income tax for
2001, 2002, 2003 and 2004 and entitled to a 50% tax relief commencing from 2005 to 2007; and
is entitled to exemption from PRC local income tax from 2003 to 2007 and 50% tax relief
commencing from 2008 to 2012. The income tax paid by CFO Beijing in 2003 before the notice
of tax exemption was received is recorded as income tax recoverable in the balance sheet.
Another subsidiary of the Company, CFO Software is also subject to PRC income tax at a rate
of 15%. In accordance with the local tax law, CFO Software is exempted for 3 years from PRC
state income tax for 2005, 2006 and 2007 and entitled to a 50% tax relief commencing from
2008 to 2010.
F - 20
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
9. INCOME TAXES — continued
The variable interest entity, Fuhua, is subject to PRC income tax at a rate of 33%. For the
years ended December 31, 2003, 2004 and 2005, income tax expense of Fuhua is nil, $2,048 and
nil.
The principal components of the deferred income tax assets are as follows:
December 31,
2003
2004
2005
Deferred tax assets:
Revenue recognition
$
—
$
386,325
$
64,036
Net operating loss carryforwards
15,185
10,217
47,781
Deferred tax assets
15,185
396,542
111,817
Valuation allowance
(15,185
)
(10,217
)
(47,781
)
Deferred tax
assets, net — current
$
—
$
386,325
$
64,036
No deferred tax assets related to revenue recognition and net operating loss for 2003 have
been recorded, as they are expected to reverse during the tax exemption period. As of
December 31, 2004 and 2005, the accumulated effect of revenue recognition is $3,219,377 and
$533,633, respectively, which are expected to reverse in the following year at the income
tax rate of 12%. As a result, the Company recognized deferred tax asset of $386,325 and
$64,036, respectively. In 2004 and 2005, the Company has not recognized deferred tax assets
on the net operating loss which is related to the Company since it is more likely than not
that the deferred tax assets will not be realized.
There are no deferred tax liability components for 2003, 2004 or 2005.
As of December 31, 2005, the Company had loss carryforwards of approximately $273,032 with
no expiration date.
During the years ended December 31, 2003, 2004 and 2005, if the Company's subsidiaries in
the PRC were neither in the tax holiday period nor had they been specifically allowed
special tax concessions, they would have recorded additional income tax expense of $60,175,
$1,230,873 and $1,448,866, respectively, and basic and diluted income per share would have
been decreased to $0.04, $0.09 and $0.03 and $0.01, $0.04 and $0.03 for the years ended
December 31, 2003, 2004 and 2005, respectively.
F - 21
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
9. INCOME TAXES — continued
A reconciliation between the provision for income tax computed by applying the PRC
enterprise income rate of 27% to income before income taxes and the actual provision for
income taxes is as follows:
Year ended December 31,
2003
2004
2005
%
%
%
PRC enterprise income tax
27.0
27.0
27.0
Tax exemption and tax relief granted to
PRC subsidiaries
(27.0
)
(35.8
)
(18.0
)
—
(8.8
)
9.0
10. SHAREHOLDERS' EQUITY
In April 2004 the Company issued 730,000 ordinary shares for $0.00013 per share which were
valued at $0.67 per share to the Company's chief financial officer. The Company recorded
deferred stock compensation of approximately $489,006 and compensation expense of $183,378
and $244,503 in 2004 and 2005, respectively. The fair value of the ordinary shares in April
2004 was determined based on the Company's internally developed valuation methodology with
reference to the valuation analysis conducted by an independent appraiser for the value of
the ordinary shares in January 2004, the sale of preference shares by one of the Company's
shareholders to an unrelated third party in June 2004, and the business developments of the
Company during the intervening period.
In May 2004, the Company paid $60,299 to the shareholders of Fuhua to return the same amount
of funds advanced by the shareholders of Funhua in order to capitalize Fuhua when Fuhua was
initially incorporated. This payment was recorded as a reduction to additional paid-in
capital.
In October 2004, the Company offered 5,000,000 American Depositary Shares ("ADS"),
representing 25,000,000 ordinary shares, at $13 per ADS to the public.
Upon the Company's initial public offering in October of 2004, all of the outstanding Series
A convertible preference shares and the Series B convertible preference shares were
converted into an aggregate of 51,476,333 ordinary shares of the Company.
In October 2005, the Company issued 2,000,000 ordinary shares to its American Depositary
Receipt bank and in exchange received 400,000 ADSs for purposes of future exercise of share
options by employees. As of December 31, 2005, 346,300 ADSs of the above had been issued to
the employees and the remaining 53,700 ADSs continued to be held by the Company for purposes
of future issuances.
F - 22
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
10. SHAREHOLDERS' EQUITY — continued
Conversion
The holders of the preference shares shall have the right, at their sole discretion, to
convert all or any portion of the preference shares into ordinary shares at any time after
such preference shares have been issued. The initial conversion rate for the conversion of
preference shares into ordinary shares shall be one for one.
Voting rights
Each preference share shall carry a number of votes equal to the number of ordinary shares
then issuable upon its conversion into ordinary shares. The preference shares shall
generally vote together with the ordinary shares and not as a separate class, except as
provided below under the heading "protective provisions".
Dividends
No dividend, whether in cash, in property or in shares of the capital of the Company, shall
be allowed to be paid on any other class or series of shares of the Company unless and until
a dividend in like amount was first paid in full on the preference shares on an as-converted
basis. As of December 31, 2003, the board of directors declared a dividend of US$0.0068 per
share, amounting to $502,552 of which was paid in 2004. The total declared dividend of
$502,552 comprises $351,489 preference share dividends and $151,063 ordinary share
dividends. In 2005, the board of directors did not declare any dividend.
Treasury stock
In 2005, the Company repurchased 10.7 million ordinary shares at a price from $1.13 to $1.41
per share, including brokerage commission, for a total consideration of $13.2 million. The
10.7 million ordinary shares purchased by the Company are no longer outstanding, and are
being held by the Company as treasury stock.
Liquidation preference
In the event of any liquidation, dissolution or winding up of the Company, the holders of
the preference shares shall be entitled to receive, prior to any distribution to the holders
of the ordinary shares or any other class or series of shares, an amount per preference
share equal to the purchase price of such preference share plus all declared but unpaid
dividends thereon (the "Preference Amount"). After the full payment of the preference
amount on all outstanding preference shares has been paid, any remaining funds and assets of
the Company legally available for distribution to shareholders shall be distributed as
follows: (i) first, to the holders of the preference shares, amount for each preference
share equal to 50% of the purchase price of such preference share, and (ii) then any
remaining funds and assets of the Company legally available for distribution to shareholders
shall be distributed pro rata among the holders of the ordinary shares. If the Company had
insufficient funds or assets to permit payment of the preference amount in full to all
holders of preference shares, then such funds and assets of the Company shall be distributed
ratably to the holders of the preference shares in proportion to the preference amount each
such holder of preference shares shall otherwise be entitled to receive. A sale of all or
substantially all the Company's assets or business or a merger of the Company with or into
another company (except for a merger to reincorporate the Company in another jurisdiction)
shall each be deemed a liquidation, dissolution or winding up of the Company.
F - 23
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
11. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per share for the
years indicated:
Year ended December 31,
2003
2004
2005
Income attributable to ordinary
shareholders (numerator),
basic and diluted
$
838,441
$
4,597,341
$
4,624,187
Shares (denominator):
Weighted average ordinary shares
outstanding used in computing
basic income per share
20,124,153
38,912,491
94,341,061
Plus: Weighted average
preference shares
52,438,363
40,505,966
—
Incremental shares from assumed
conversions of stock options
—
10,674,211
10,440,431
Weighted average ordinary shares
outstanding used in computing
diluted income per share
72,562,516
90,092,668
104,781,492
Income per share-basic
$
0.04
$
0.12
$
0.05
Income per share-diluted
$
0.01
$
0.05
$
0.04
Ordinary share equivalents are calculated using the treasury stock method. Under the
treasury stock method, the proceeds from the assumed conversion of options are used to
repurchase ordinary shares using the average fair value for the years.
12. MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION
Full time employees of the Company in the PRC participate in a government-mandated
multi-employer defined contribution plan pursuant to which certain pension benefits, medical
care, unemployment insurance, employee housing fund and other welfare benefits are provided
to employees. Chinese labor regulations require the Company to accrue for these benefits
based on certain percentages of the employees' salaries. The total provisions for such
employee benefits were $13,931, $53,660 and $107,552 for the years ended December 31, 2003,
2004 and 2005, respectively.
F - 24
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
12. MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION — continued
Pursuant to the laws applicable to the PRC's Foreign Investment Enterprises, the Company's
subsidiary in the PRC must make appropriations from after-tax profit to non-distributable
reserve funds as determined by the Board of Directors of the Company. These reserves
include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and
welfare fund. Subject to certain cumulative limits, the general reserve fund requires
annual appropriations of 10% of after-tax profit (as determined under PRC GAAP at each
year-end); the other fund appropriations are at the Company's discretion. These reserve
funds can only be used for specific purposes and are not distributable as cash dividends.
Appropriations to the staff welfare and bonus fund are charged to general and administrative
expenses and amounted to $6,450, $24,165 and $26,889 in 2003, 2004 and 2005, respectively.
Appropriation to general reserve amounted to $64,503, $674,205 and $268,891 in 2003, 2004
and 2005, respectively.
13. COMMITMENTS
The Company leases certain office premises under non-cancelable leases, which expire in
2005. Rent expense under operating leases for 2003, 2004 and 2005 were $159,152, $191,789
and $242,765, respectively.
Future minimum lease payments under non-cancelable operating leases agreements were as
follows:
Year ending
2006
$
115,569
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's chief operating decision maker has been identified as the Chief Executive
Officer, who reviews consolidated results when making decisions about allocating resources
and assessing performance of the Company. The Company believes it operates in one segment
and all financial segment information can be found in the consolidated financial statements.
Geographic Information
The Company operates in the PRC and all of the Company's long lived assets are located in
the PRC.
F - 25
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(In U.S. dollars)
15. RESTRICTED NET ASSETS
PRC legal restrictions permit payments of dividends by the Company's PRC subsidiaries only
out of their retained earnings, if any, determined in accordance with PRC accounting
standards and regulations. The general reserve fund, which requires annual appropriations
of 10% of after-tax profit should be set aside prior to payment of dividends. As a result
of these PRC laws and regulations, the Company's PRC subsidiary and variable interest entity
are restricted in their abilities to transfer a portion of their net assets to the Company.
As of December 31, 2005, the amount of restricted net assets was approximately $40,676,774.
F - 26
Table of Contents
Schedule 1
This financial information has been prepared in conformity with accounting principles generally
accepted in United States.
CHINA FINANCE ONLINE CO. LIMITED
Financial information of Parent Company
Balance sheets
December 31,
(in U.S. dollars)
2004
2005
Assets
Current assets:
Cash and cash equivalents
$
59,745,660
$
2,782,027
Prepaid expenses and other current assets
79,252
37,026
Total current assets
59,824,912
2,819,053
Investments in subsidiaries
8,857,533
29,111,000
Long-term investment
—
15,000,000
Loans receivable from subsidiaries
—
13,990,000
Goodwill, net
50,534
50,534
Total assets
$
68,732,979
$
60,970,587
Liabilities and shareholders' equity
Current liabilities:
Accrued expenses and other current liabilities
$
148,274
$
121,040
Amount due to a subsidiary
496,428
18,587
Total current liabilities
$
644,702
$
139,627
Shareholders' equity
Ordinary shares ($0.00013 par value; 500,000,000 shares
authorized; shares issued and outstanding 99,329,933 in 2004
and 101,329,933 in 2005)
12,814
13,077
Additional paid-in capital
64,175,132
64,564,534
Treasury stock
—
(13,200,394
)
Deferred stock compensation
(325,221
)
(67,129
)
Accumulated other comprehensive (loss) income
(11
)
671,122
Retained earnings
4,225,563
8,849,750
Total shareholders' equity
68,088,277
60,830,960
Total liabilities and shareholders' equity
$
68,732,979
$
60,970,587
F - 27
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
Financial information of Parent Company
Statements of operations
December 31,
(in U.S. dollars)
2003
2004
2005
Operating expenses:
General and administrative
$
33,815
$
60,094
$
692,453
Stock-based compensation
96,311
289,334
370,781
Total operating expenses
130,126
349,428
1,063,234
Loss from operations
(130,126
)
(349,428
)
(1,063,234
)
Interest income
—
184,836
560,772
Equity in earnings of subsidiaries
1,320,056
4,761,933
5,126,649
Income before income taxes
1,189,930
4,597,341
4,624,187
Income tax expense
—
—
—
Net income
1,189,930
4,597,341
4,624,187
Dividends on preference shares
(351,489
)
—
—
Income attributable to ordinary shareholders
$
838,441
$
4,597,341
$
4,624,187
F - 28
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
Financial information of Parent Company
Statements of shareholders' equity and other comprehensive income
Accumulated
other
Retained
Series A convertible
Series B convertible
Additional
Deferred
comprehensive
earnings
Total
preference shares
preference shares
Ordinary shares
paid-in
stock-based
income
(accumulated
shareholders'
Comprehensive
Shares
Amount
Shares
Amount
Shares
Amount
capital
Treasury stock
compensation
(loss)
deficit)
equity
income
Balance as of January 1, 2003
32,315,100
$
4,170
20,833,333
$
2,688
17,784,900
$
2,295
$
4,997,073
$
—
$
—
$
(142
)
$
(1,059,156
)
$
3,946,928
$
202,182
Issuance of ordinary shares to an employee
—
—
—
—
2,666,600
341
96,311
—
—
—
96,652
—
Conversion of Series A convertible preference shares into
ordinary shares
(1,672,100
)
(216
)
—
—
1,672,100
216
—
—
—
—
—
—
—
Foreign currency translation adjustment
—
—
—
—
—
—
—
—
—
328
—
328
328
Net income
—
—
—
—
—
—
—
—
—
—
1,189,930
1,189,930
1,189,930
Dividends on preference shares
—
—
—
—
—
—
—
—
—
—
(351,489
)
(351,489
)
—
Dividends on ordinary shares
—
—
—
—
—
—
—
—
—
—
(151,063
)
(151,063
)
—
Balance as of December 31, 2003
30,643,000
3,954
20,833,333
2,688
22,123,600
2,852
5,093,384
—
—
186
(371,778
)
4,731,286
$
1,190,258
Issuance of ordinary shares to an employee
—
—
—
—
730,000
94
—
—
—
—
—
94
—
Stock options issued to non-employees
—
—
—
—
—
—
72,764
—
—
—
—
72,764
—
Deferred stock-based compensation
—
—
—
—
—
—
541,791
—
(541,791
)
—
—
—
—
Amortization of deferred stock-based compensation
—
—
—
—
—
—
—
—
216,570
—
—
216,570
—
Issuance of ordinary shares upon the initial public offering
(net of offering costs of $6,469,282)
—
—
—
—
25,000,000
3,226
58,527,492
—
—
—
—
58,530,718
—
Conversion of preference shares to ordinary shares upon
initial public offering
(30,643,000
)
(3,954
)
(20,833,333
)
(2,688
)
51,476,333
6,642
—
—
—
—
—
—
—
Distribution to the shareholders of Fuhua
—
—
—
—
—
—
(60,299
)
—
—
—
—
(60,299
)
—
Foreign currency translation adjustment
—
—
—
—
—
—
—
—
—
(197
)
—
(197
)
(197
)
Net income
—
—
—
—
—
—
—
—
—
—
4,597,341
4,597,341
4,597,341
Balances as of December 31, 2004
—
—
—
—
—
99,329,933
12,814
64,175,132
(325,221
)
(11
)
4,225,563
68,088,277
$
4,597,144
Repurchase
of ordinary shares as treasury stock
—
—
—
—
—
—
—
(13,200,394
)
—
—
—
(13,200,394
)
—
Issuance of
ordinary shares to an employee
—
—
—
—
2,000,000
263
276,713
—
—
—
—
276,976
—
Stock option issued to non-employees
—
—
—
—
—
—
112,689
—
—
—
—
112,689
—
Amortization of deferred stock-based compensation
—
—
—
—
—
—
—
—
258,092
—
—
258,092
—
Foreign currency translation adjustment
—
—
—
—
—
—
—
—
—
671,133
—
671,133
671,133
Net income
—
—
—
—
—
—
—
—
—
—
4,624,187
4,624,187
4,624,187
Balance as of December 31, 2005
—
$
—
—
$
—
$
101,329,933
$
13,077
$
64,564,534
$
(13,200,394
)
$
(67,129
)
$
671,122
$
8,849,750
$
60,830,960
$
5,295,320
F - 29
Table of Contents
CHINA FINANCE ONLINE CO. LIMITED
Financial information of Parent Company
Statements of cash flows
December 31,
(in U.S. dollars)
2003
2004
2005
Operating activities:
Income attributable to ordinary shareholders
$
838,441
$
4,597,341
4,624,187
Dividends on preference shares
351,489
—
—
Net income
1,189,930
4,597,341
4,624,187
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Stock-based compensation
96,311
289,334
370,781
Equity in earnings of subsidiaries
(1,320,056
)
(4,761,933
)
(5,126,649
)
Changes in assets and liabilities:
Prepaid expenses and other current assets
229
(76,040
)
42,226
Amount due from a subsidiary
1,150,000
271,953
—
Accrued expenses and other current liabilities
18,277
128,160
(27,234
)
Amounts due to subsidiaries
—
496,428
(477,841
)
Net cash provided by (used in)
operating activities
1,134,691
945,243
(594,530
)
Investing activities:
Investments in subsidiaries
—
(500,000
)
(20,500,000
)
Cost investment
—
—
(15,000,000
)
Net increase in loans to subsidiaries
—
—
(13,990,000
)
Net cash
(used in) investing activities
—
(500,000
)
(49,490,000
)
Financing activities:
Repurchase
of ordinary shares as treasury stock
—
—
(13,200,394
)
Dividend from a subsidiary
—
—
5,373,183
Issuance of ordinary shares to an employee
—
94
276,976
Proceeds from initial public offering,
net of offering cost of $6,469,282
—
58,530,718
—
Dividend paid
—
(502,552
)
—
Distribution to the shareholders of Fuhua
—
(60,299
)
—
Proceeds from stock-based compensation
341
—
—
Net cash provided by (used in) financing activities
341
57,967,961
(7,550,236
)
Effect of exchange rate changes
328
(197
)
671,133
Net increase (decrease) in cash and
cash equivalents
1,135,360
58,413,007
(56,963,633
)
Cash and cash equivalents,
beginning of the year
197,293
1,332,653
59,745,660
Cash and cash equivalents, end of the year
$
1,332,653
$
59,745,660
$
2,782,027
Supplemental disclosures of non-cash
financing activities:
Conversion of Series A and/or Series
B convertible preference shares into
ordinary shares
$
216
$
6,642
$
—
Deferred stock-based compensation
$
—
$
325,221
$
67,129
F - 30