##### 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 endedDecember 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
  Not Applicable
 Hong Kong
 Room 610B, 6/F, Pingan Mansion
No. 23 Financial Street  Beijing 100032, Peoples Republic of China
  Title of each class
    
    Name of each exchange on which registeredNone
    
    None
  American Depositary Shares, each representing 5 ordinary shares,
 par value HK$0.001 per share *
 
   None
   o Yes
    
    þ No
  o Yes
    
    þ No
  þ Yes
    
    o No
  o o þ
  o Yes
    
    þ No
  o þ
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##### 



CHINA FINANCE ONLINE CO. LIMITED
 TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    
    
    3PART IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    4Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    4Item 3.
    
    Key Information
    
    
    4Item 4.
    
    Information on the Company
    
    
    25Item 5.
    
    Operating and Financial Review and Prospects
    
    
    43Item 6.
    
    Directors, Senior Management and Employees
    
    
    57Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    64Item 8.
    
    Financial Information
    
    
    68Item 9.
    
    The Offer and Listing
    
    
    69Item 10.
    
    Additional Information
    
    
    70Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    76Item 12.
    
    Description of Securities Other than Equity Securities
    
    
    76PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    76Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    76Item 15.
    
    Controls and Procedures
    
    
    76Item 16A.
    
    Audit Committee Financial Expert
    
    
    77Item 16B.
    
    Code of Ethics
    
    
    77Item 16C.
    
    Principal Accountant Fees and Services
    
    
    77Item 16D.
    
    Exemption from the Listing Standard for Audit Committees
    
    
    77Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    77PART IIIItem 17.
    
    Financial Statement
    
    
    78Item 18.
    
    Financial Statements
    
    
    78Item 19.
    
    Exhibits
    
    
    78EX-4.15 SECURITIES INFORMATION OPERATION LICENSE CONTRACTEX-4.16 CONTRACT FOR LICENSE OF PROPRIETARY INFORMATIONEX-4.17 CONTRACT FOR FINANCIAL AND ECONOMIC DATABANK SERVICE, AS AMENDEDEX-4.20 LEASE CONTRACT FOR HOUSING UNITEX-4.21 LEASE CONTRACT FOR HOUSING UNITEX-4.22 LEASE CONTRACT FOR HOUSING UNITEX-4.26 LABOR CONTRACTEX-12.1 CEO CERTIFICATIONEX-12.2 CFO CERTIFICATIONEX-13.1 CEO CERTIFICATION PURSUANT TO SECTION 906EX-13.2 CFO CERTIFICATION PURSUANT TO SECTION 906
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INTRODUCTION
  
    
    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.
  FORWARD-LOOKING INFORMATION
  
    
    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
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
    
    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.
    
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. Selected financial data .
  For the year ended December 31,(in thousands of U.S. dollars, except per share or per ADS data)(1)
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005Consolidated statement of operations:Gross revenues(2)
    
    $
    102
    
    
    $
    1,098
    
    
    $
    2,354
    
    
    $
    6,064
    
    
    $
    7,627Business tax
    
    
    (5
    )
    
    
    (48
    )
    
    
    (83
    )
    
    
    (48
    )
    
    
    (145
    )
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For the year ended December 31,(in thousands of U.S. dollars, except per share or per ADS data)(1)
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005Net revenues
    
    
    97
    
    
    
    1,050
    
    
    
    2,271
    
    
    
    6,016
    
    
    
    7,482Cost of revenues
    
    
    (265
    )
    
    
    (254
    )
    
    
    (298
    )
    
    
    (394
    )
    
    
    (482
    )Gross (loss) profit
    
    
    (168
    )
    
    
    796
    
    
    
    1,973
    
    
    
    5,622
    
    
    
    7,000Operating 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
    
    
    
    3,229Interest income
    
    
    100
    
    
    
    95
    
    
    
    51
    
    
    
    294
    
    
    
    1,486Interest expense
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (expense)
    
    
    
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    Exchange gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366Income
(loss) before income taxes benefit (expense)
    
    
    (644
    )
    
    
    203
    
    
    
    1,190
    
    
    
    4,213
    
    
    
    5,081Income tax
benefit (expense) - current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384
    
    
    
    (457
    )Net income (loss)
    
    $
    (644
    )
    
    $
    203
    
    
    $
    1,190
    
    
    $
    4,597
    
    
    $
    4,624Dividends on preference shares
    
    
    
    
    
    
    
    
    
    
    (352
    )
    
    
    
    
    
    
    Income (loss) attributable to ordinary shareholders
    
    $
    (644
    )
    
    $
    203
    
    
    $
    838
    
    
    $
    4,597
    
    
    $
    4,624Income (loss) per share-basic
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.05Income (loss) per share-diluted
    
    $
    (0.04
    )
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.04Income per ADS equivalent-basic(3)
    
    $
    (0.18
    )
    
    $
    0.06
    
    
    $
    0.21
    
    
    $
    0.59
    
    
    $
    0.25Income per ADS equivalent-diluted(3)
    
    $
    (0.18
    )
    
    $
    0.01
    
    
    $
    0.06
    
    
    $
    0.26
    
    
    $
    0.22Dividends 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
    
    2005Consolidated balance sheet data:Cash and cash equivalents
    
    $
    3,487
    
    
    $
    4,451
    
    
    $
    5,806
    
    
    $
    70,596
    
    
    $
    46,168Current working capital(4)
    
    
    3,366
    
    
    
    3,565
    
    
    
    4,306
    
    
    
    67,590
    
    
    
    45,227Total assets
    
    
    3,994
    
    
    
    4,929
    
    
    
    6,606
    
    
    
    71,861
    
    
    
    63,113Deferred revenue
    
    
    186
    
    
    
    934
    
    
    
    1,278
    
    
    
    3,487
    
    
    
    1,859Total current liabilities
    
    
    249
    
    
    
    982
    
    
    
    1,875
    
    
    
    3,773
    
    
    
    2,282Total 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
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Average(1)
    
    High
    
    Low
    
    Period-end(RMB per U.S.$1.00)2001
    
    
    8.2770
    
    
    
    8.2786
    
    
    
    8.2676
    
    
    
    8.27662002
    
    
    8.2770
    
    
    
    8.2800
    
    
    
    8.2669
    
    
    
    8.28002003
    
    
    8.2770
    
    
    
    8.2800
    
    
    
    8.2765
    
    
    
    8.27692004
    
    
    8.2768
    
    
    
    8.2774
    
    
    
    8.2764
    
    
    
    8.27652005
    
    
    8.1472
    
    
    
    8.2765
    
    
    
    8.0702
    
    
    
    8.0702November
    
    
    8.0839
    
    
    
    8.0877
    
    
    
    8.0796
    
    
    
    8.0796December
    
    
    8.0764
    
    
    
    8.0808
    
    
    
    8.0709
    
    
    
    8.07092006January
    
    
    8.0668
    
    
    
    8.0705
    
    
    
    8.0608
    
    
    
    8.0608February
    
    
    8.0500
    
    
    
    8.0608
    
    
    
    8.0420
    
    
    
    8.0420March
    
    
    8.0345
    
    
    
    8.0503
    
    
    
    8.0170
    
    
    
    8.0170April
    
    
    8.0155
    
    
    
    8.0248
    
    
    
    8.0040
    
    
    
    8.0165May (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.
  C. Reasons for the offer and use of proceeds.
  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.
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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.
  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 have a limited operating history, which may make it difficult for you to evaluate our business.
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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 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.
  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.
  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 face significant competition which could adversely affect our business, financial condition and
results of operations
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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.
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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.
  Our business would 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.
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Our business could be materially and adversely affected if increased usage strains our server
systems or if we suffer from other system malfunctions.
   If we are not able to respond successfully to technological or industry developments, our business
may be materially and adversely affected.
  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.
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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.
  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 depend on our key personnel and our business and growth prospects may be severely disrupted if
we lose their services.
   Undetected programming errors or defects in our research tools 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.
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
    
    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.
  
    
    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.
   We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax
consequences to U.S. investors.
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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.
  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 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.
  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.
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Unexpected network interruptions, security breaches or computer virus attacks could have a material
adverse effect on our business, financial condition and results of operations.
  
    
    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.
  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.
  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.
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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.
   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
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www.jrj.com
   
    
    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.
  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.
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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.
  The PRC government may prevent us from distributing, and we may be subject to liability for,
content that it believes is inappropriate.
     Risks relating to the Peoples Republic of China
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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 legal system embodies uncertainties which could limit the legal protections available to
you and us.
  Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
  Fluctuations in exchange rates could result in foreign currency exchange losses.
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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
  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.
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If we grant employee share options and other share-based compensation in the future, our net income
could be materially and adversely affected.
  The sale or availability for sale of substantial amounts of our ADSs could adversely affect their
market price.
   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.
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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 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




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##### Table of Contents



preference shares without any further action by shareholders.
   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.
  
    
    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.
   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.
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##### Table of Contents



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.
  You may be subject to limitations on transfer of your ADSs.
  24




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##### Table of Contents



Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings.
   
 ITEM 4. INFORMATION ON THE COMPANY
 A. History and development of the company.
 www.jrj.com.cn, www.jrj.com,
    25




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##### Table of Contents



th
    B. Business overview.
  
    
    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,
  www.jrj.com www.jrj.com.cn
 26




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Comprehensive.
  Integrated.
  Interactive.
 27




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##### Table of Contents



Timely.
  Unbiased.
  Easy to use.
  sohu.com netease.com, 21cn.com, tfol.com,
china.com tom.com baidu.com sogou.com
    28




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##### Table of Contents



Growth Strategy
  
    
    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
  Our features
  Financial analysis tools.
  
    
    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.
  Real-time and historical data.
  29




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##### Table of Contents



News.
  Research reports.
  Online forums.
  Personal portfolio tracking service.
  Our website
  30




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##### 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.
      Our 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
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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.
  Our securities service packages
  Categorized
    
    
    Industry
    
    
    Fundamental
    
    
    Mutual
    
    
    TechnicalMacro
    
    
    sector
    
    
    analysis
    
    
    fund
    
    
    analysis
    
    
    AccessInformation
    
    
    analysis
    
    
    tools
    
    
    analysis
    
    
    tools
    
    
    methodCFO Pro
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    Computer-basedGrand Reference V
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    Computer-basedStorm
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    
    
    
    
    Computer-basedStock Finder
    
    
    ü
    
    
    
    
    
    
    
    ü
    
    
    
    ü
    
    
    
    ü
    
    
    Computer-basedMomentum Tracer
    
    
    
    
    
    
    ü
    
    
    
    ü
    
    
    
    
    
    
    
    ü
    
    
    Computer-basedStock Radar
    
    
    
    
    
    
    
    
    
    
    ü
    
    
    
    
    
    
    
    ü
    
    
    Web-basedSidekick X
    
    
    ü
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Web-basedAnalyst Scoreboard
    
    
    
    
    
    
    ü
    
    
    
    ü
    
    
    
    
    
    
    
    ü
    
    
    Web-basedArbitrager
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ü
    
    
    Web-basedQuick Winner
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ü
    
    
    
    ü
    
    
    Web-based
  
    
    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
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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
  Pricing policy
  33




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Our new service features
  Customer support
  Our content providers
  Shanghai and Shenzhen Stock Exchanges
   Data providers
  34




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##### Table of Contents



Securities advisors and stock brokers
  Banks, insurance companies and trust companies
  News and media conglomerates
  Sales and marketing
 netease.com, sohu.com, 21cn.com, tfol.com, china.com tom.com baidu.com sogou.com netease.com, sohu.com, 21cn.com, tfol.com, china.com tom.com
   35




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Online advertisement
 www.jrj.com
 Product development
   
    
    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.
  Technology and infrastructure
  36




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##### Table of Contents



Web server technology.
  Database technology.
  Remote data aggregation engine.
  Competition
  
    
    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.
   37




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##### Table of Contents



Intellectual property
   www.jrj.com.cn www.jrj.com
  Regulation
  
    
    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.
  Foreign ownership restriction on Internet content provision businesses
  38




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##### Table of Contents



Licenses and permits
      Regulation of Internet content
   39




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##### Table of Contents



Regulation of information security
   Intellectual property rights
   www.jrj.com.cn www.jrj.com
 Website name
  Privacy protection
  Advertising regulation
 40




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##### Table of Contents



C. Organizational structure.
   Country of
    
    
    OwnershipName
    
    Incorporation
    
    
    InterestChina Finance Online (Beijing) Co., Ltd.
    
    China
    
    
    100
    %Fortune Software (Beijing) Co., Ltd.
    
    China
    
    
    100
    %
  
 
 (1)
    
    Jun Ning is our former chairman and chief executive officer. 41




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##### 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. www.jrj.com.cn www.jrj.com
  
    
    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.
  
    
    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




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##### 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.
  D. Property, plants and equipment.
  
 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
 www.jrj.com
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Key factors affecting our operating results and financial condition
  
    
    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.
    Gross revenues
 44




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##### Table of Contents




    
    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.
   Net revenues
  Revenue recognition
  45




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Cost of revenues
  Cost of data.
 Salary and compensation.
 Rent.
 Depreciation.
 Operating expenses
  
    
    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




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General and administrative expenses.
 Product development expenses.
 Sales and marketing expenses.
 Stock-based compensation expenses.
  Stock option plan and option agreements
   47




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##### Table of Contents



Critical accounting policies
  Income taxes.
 Stock-based
compensation.
  Results of operations
  For the year ended December 31,(in thousands of U.S. dollars, except as % of net revenues)(1)
    
    2003
    
    2004
    
    2005Consolidated
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
    
    
    
    93.6Operating 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




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For the year ended December 31,(in thousands of U.S. dollars, except as % of net revenues)(1)
    
    2003
    
    2004
    
    2005Income from operations
    
    
    1,140
    
    
    
    50.2
    
    
    
    3,921
    
    
    
    65.2
    
    
    
    3,229
    
    
    
    43.2Interest income
    
    
    51
    
    
    
    2.3
    
    
    
    294
    
    
    
    4.9
    
    
    
    1,486
    
    
    
    19.9Interest expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense, net
    
    
    (1
    )
    
    
    (0.1
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Exchange gain (net)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366
    
    
    
    4.9Income before income taxes
    
    
    1,190
    
    
    
    52.4
    
    
    
    4,213
    
    
    
    70.1
    
    
    
    5,081
    
    
    
    67.9Income 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
    Cost of revenues
  Gross profit
  Operating expenses
  49




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General and administrative.
 Product development.
 Sales and marketing.
 Income from operations
  Interest income
  Income tax expense
  Net income
  Year ended December 31, 2004 compared to year ended December 31, 2003
 Revenues
 50




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Cost of revenues
  Gross profit
  Operating expenses
  General and administrative.
 Product development.
 51




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Sales
and marketing.
 Income from operations
  Interest income
  Income tax benefit
  Net income
  B. Liquidity and capital resources.
 Cash flows and working capital
   For the year ended December 31,(in thousands of U.S. dollars)
    
    2003
    
    2004
    
    2005Net cash
provided by operating activities
    
    $
    1,506
    
    
    $
    7,023
    
    
    $
    3,059Net 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
    
    
    
    70,596Cash and cash equivalents at end of year
    
    $
    5,806
    
    
    $
    70,596
    
    
    $
    46,168
 52




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Capital resources
      53




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##### Table of Contents




    
    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.
    Restricted net assets
   C. Research and development.
 54




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
    
    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.
  D. Trend information.
  E. Off-balance sheet arrangements.
  F. Tabular disclosure of contractual obligations.
  EquipmentOffice Premises
    
    and Others
    
    Total(in U.S. dollars)Less than 1 year
    
    
    115,569
    
    
    
    115,5691  3 years
    
    
    
    
    
    
    3  5 years
    
    
    
    
    
    
    More than 5 years
    
    
    
    
    
    
    
   G. Quantitative and qualitative disclosures about market risk.
 Interest rate risk
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Foreign currency risk
   H. Recent accounting pronouncements.
   56




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and senior management.
  Name
    
    Age
    
    PositionZhiwei Zhao
    
    
    43
    
    
    Chief Executive Officer and a
member of the Board of DirectorsHugo Shong
    
    
    50
    
    
    Chairman of the Board of DirectorsKheng Nam Lee(1)
    
    
    58
    
    
    DirectorLing Wang(1)(2)(3)
    
    
    43
    
    
    DirectorFansheng Guo(1)(2)(3)
    
    
    50
    
    
    DirectorSam Qian
    
    
    42
    
    
    President and Chief Financial Officer
 
 (1)
    
    Member, audit committee(2)
    
    Member, compensation committee(3)
    
    Member, nominations committee     57




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##### Table of Contents



Biographical Information
 Hugo Shong
 Zhiwei Zhao
 Kheng Nam Lee
 Ling Wang
 Fansheng Guo
 Sam Qian
 B. Compensation of directors and executive officers.
   58




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Directors and officers liability insurance
  Employees stock option plan
     Number ofordinary Shares tobe issued upon
    
    Exercise price perExercise of options
    
    ordinary share
    
    Date of grant
    
    Date of expirationZhiwei Zhao
    
    *
    
    $
    1.12
    
    
    November 15, 2005
    
    November 15, 2015Hugo Shong
    
    *
    
    $
    0.16
    
    
    January 5, 2004
    
    March 5, 2009*
    
    $
    1.04
    
    
    June 15, 2004
    
    March 5, 2009*
    
    $
    1.314
    
    
    February 18, 2005
    
    February 18, 2015Kheng Nam Lee
    
    *
    
    $
    0.16
    
    
    January 5, 2004
    
    March 5, 2009
 59




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##### Table of Contents



Number ofordinary Shares tobe issued upon
    
    Exercise price perExercise 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, 2015Fansheng Guo
    
    *
    
    $
    0.16
    
    
    January 5, 2004
    
    March 5, 2009*
    
    $
    1.04
    
    
    June 15, 2004
    
    March 5, 2009*
    
    $
    1.314
    
    
    February 18, 2005
    
    February 18, 2015Ling Wang
    
    *
    
    $
    0.16
    
    
    January 5, 2004
    
    March 5, 2009*
    
    $
    1.04
    
    
    June 15, 2004
    
    March 5, 2009*
    
    $
    1.314
    
    
    February 18, 2005
    
    February 18, 2015Sam 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 .
  Board committees
  Audit committee.
 
    
    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




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
    
    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.
 
    
    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.
 Corporate governance
  61




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Duties of directors
   
    
    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
  D. Employees .
   E. Share ownership.
  62




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
    
    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.
   Name
    
    Number
    
    Percent5% ShareholderIDG 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 officersHugo 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




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##### 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.  
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major shareholders.
  B. Related party transactions .
 CFO Beijing/Fuhua arrangements
   Leasing of equipment
 Equipment Leasing Agreement, dated May 27, 2004, between CFO Beijing and Fuhua.
  Provision of services
 Technical Support Agreement, dated May 27, 2004, between CFO Beijing and Fuhua.
 64




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##### Table of Contents



Amended and Restated Strategic Consulting Service Agreement, dated May 27, 2004, between CFO
Beijing and Fuhua.
  Domain Name Licensing Agreement, dated May 27, 2004, between CFO Beijing and Fuhua.
 www.jrj.com.cn
 Domain Name Licensing Agreement, dated March 20, 2005, among CFO Beijing, Fuhua and us.
 www.jrj.com
 Loans to Jun Ning and Wu Chen
  65




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Loans to CFO Beijing and Fortune Software
  Shareholder rights and corporate governance
 Transfer of ownership when permitted by law
   pro rata
 Voting arrangement
  66




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Share Pledge Agreement
  Financing support
  Indemnifications
  Other related party transactions
 Shareholders Agreement
     67




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##### Table of Contents




    
    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.
  
 ITEM 8. FINANCIAL INFORMATION
 A. Consolidated statements and other financial information.
  Legal Proceedings
  Dividend Policy
  B. Significant changes since December 31, 2004 .
  68




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ITEM 9. THE OFFER AND LISTING
 A. Offering and listing details.
   Sales PriceHigh
    
    LowYearly highs and lowsYear 2004 (from October 15, 2004)
    
    
    15.99
    
    
    
    8.3Year 2005
    
    
    11.14
    
    
    
    5.22Quarterly highs and lowsFourth Quarter 2004 (from October 15, 2004)
    
    
    15.99
    
    
    
    8.30First Quarter 2005
    
    
    11.14
    
    
    
    5.8Second Quarter 2005
    
    
    7.17
    
    
    
    5.22Third Quarter 2005
    
    
    6.52
    
    
    
    5.5Fourth Quarter 2005
    
    
    6.9
    
    
    
    5.52First Quarter 2006
    
    
    9.68
    
    
    
    5.66Monthly highs and lowsNovember 2005
    
    
    6.88
    
    
    
    5.52December 2005
    
    
    6.9
    
    
    
    5.8January 2006
    
    
    6.69
    
    
    
    6.01February 2006
    
    
    9.68
    
    
    
    5.84March 2006
    
    
    6.28
    
    
    
    5.66April 2006
    
    
    7.37
    
    
    
    5.50
 B. Plan of distribution.
  C. Markets.
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D. Selling shareholders.
  E. Dilution.
  F. Expenses of the issue.
  
 ITEM 10. ADDITIONAL INFORMATION
 A. Share capital.
  B. Memorandum and articles of association.
  C. Material contracts.
  D. Exchange controls.
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E. Taxation.
 Hong Kong taxation
 Profits tax.
  Estate duty.
 Stamp duty.
 United States federal income taxation
 71




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##### Table of Contents




    
    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.
    
    
    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.
  72




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U.S. Holders
 Dividends on ADSs
    Sales and other dispositions of ADSs
  Passive Foreign Investment Company
    73




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Non-U.S. Holders
  74




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
    
    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.
  U.S. information reporting and backup withholding rules
   F. Dividends and paying agents.
  G. Statement by experts.
  H. Documents on display.
  www.sec.gov
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##### Table of Contents



I. Subsidiaries information.
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    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
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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
 ITEM 16B. CODE OF ETHICS.
  www.chinafinanceonline.com/investor/governance.asp
 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the Year Ended December 31,2003
    
    2004
    
    2005Audit 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
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  77




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(c) Total Numbers of
    
    (d) Maximum NumbersADSs Purchased as
    
    of ADSs that May(a) Total Number of
    
    (b) Average Price
    
    Part of Publicly
    
    Yet Be PurchasedADSs 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
    
    
    
    478,061June 1,
2005  June
30, 2005 *
    
    
    407,400
    
    
    
    6.75
    
    
    
    407,400
    
    
    
    36December 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.  
 PART III
 
 ITEM 17. FINANCIAL STATEMENT
  
 ITEM 18. FINANCIAL STATEMENTS
  
 ITEM 19. EXHIBITS
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Index to exhibits
 ExhibitNumber
    
    Description1.1
    
    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)
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ExhibitNumber
    
    Description4.12
    
    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 20064.16
*
    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, 20054.17
*
    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 Limited4.21
*
    Lease Contract for Housing Unit of Corporate Square datedJanuary 19, 2006 between Fortune Software
(Beijing) Co. Ltd. and China Galaxy Securities Company Limited4.22
*
    Lease Contract for Housing Unit of Corporate Square datedJanuary 19, 2006 between Beijing Fuhua
Innovation Technology Co., Ltd. and China Galaxy Securities Company Limited4.23
    
    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, 20054.27
    
    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




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##### Table of Contents



ExhibitNumber
    
    Description4.28
    
    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 200213.2*
    
    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




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##### Table of Contents



CHINA FINANCE ONLINE CO. LIMITED
 
 SIGNATURE
  Date: May 23, 2006
    
    CHINA FINANCE ONLINE CO. LIMITED/s/
Sam QianName:
    
    Sam QianTitle:
    
    President and Chief Financial Officer
 82




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##### Table of Contents



CHINA FINANCE ONLINE CO. LIMITED
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 CONTENTS
    
    PAGEReport of Independent Registered Public Accounting Firm
    
    
    F - 2Consolidated Balance Sheets as of December 31, 2004 and 2005
    
    
    F - 3Consolidated Statements of Operations for the years ended December 31, 2003,
2004 and 2005
    
    
    F - 4Consolidated Statements of Shareholders Equity and Comprehensive Income
for the years ended December 31, 2003, 2004 and 2005
    
    
    F - 5Consolidated Statements of Cash Flows for the years ended December 31, 2003,
2004 and 2005
    
    
    F - 6Notes to the Consolidated Financial Statements
    
    
    F - 7Schedule 1
    
    
    F - 27
 F - 1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 CHINA FINANCE ONLINE CO. LIMITED
    
 F - 2




---



##### Table of Contents



CHINA FINANCE ONLINE CO. LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 (In U.S. dollars, except share data)
 December 31,2004
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    70,596,197
    
    
    $
    46,168,385Accounts receivable
    
    
    33,921
    
    
    
    144,694Income tax recoverable
    
    
    14,573
    
    
    
    Prepaid expenses and other current assets
    
    
    331,943
    
    
    
    1,131,515Deferred tax
assets  current
    
    
    386,325
    
    
    
    64,036Total current assets
    
    
    71,362,959
    
    
    
    47,508,630Cost investment
    
    
    
    
    
    
    15,000,000Property and equipment, net
    
    
    417,002
    
    
    
    512,179Rental deposits
    
    
    30,736
    
    
    
    41,393Goodwill
    
    
    50,534
    
    
    
    50,534Total assets
    
    $
    71,861,231
    
    
    $
    63,112,736Liabilities and shareholders equityCurrent liabilities:Deferred revenue
    
    $
    3,487,258
    
    
    $
    1,859,321Accrued expenses and other current liabilities
    
    
    285,696
    
    
    
    381,693Income tax payable
    
    
    
    
    
    
    40,762Total current liabilities
    
    $
    3,772,954
    
    
    $
    2,281,776Commitments (Note 13)Shareholders equityOrdinary 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
    
    
    
    13,077Additional paid-in capital
    
    
    64,175,132
    
    
    
    64,564,534Treasury 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
    )
    
    
    671,122Retained earnings
    
    
    4,225,563
    
    
    
    8,849,750Total shareholders equity
    
    
    68,088,277
    
    
    
    60,830,960Total liabilities and shareholders equity
    
    $
    71,861,231
    
    
    $
    63,112,736
  F - 3




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In U.S. dollars, except share data)
 Year ended December 31,2003
    
    
    2004
    
    
    2005Gross revenues
    
    $
    2,354,225
    
    
    $
    6,064,363
    
    
    $
    7,626,756Business tax
    
    
    (83,448
    )
    
    
    (47,914
    )
    
    
    (144,590
    )Net revenues
    
    
    2,270,777
    
    
    
    6,016,449
    
    
    
    7,482,166Cost of revenues (including stock-based
compensation of $nil, $825 and $740,
respectively)
    
    
    297,719
    
    
    
    393,841
    
    
    
    482,068Gross profit
    
    
    1,973,058
    
    
    
    5,622,608
    
    
    
    7,000,098Operating expenses:General and administrative
(including stock-based compensation of
$96,311, $286,089 and $365,949,
respectively)
    
    
    400,270
    
    
    
    727,349
    
    
    
    1,740,117Product development (including stock-based
compensation of $nil, $920 and $1,610,
respectively)
    
    
    148,871
    
    
    
    172,997
    
    
    
    236,438Sales and marketing (including stock-based
compensation of $nil, $1,500 and $2,482,
respectively)
    
    
    283,964
    
    
    
    801,481
    
    
    
    1,794,569Total operating expenses
    
    
    833,105
    
    
    
    1,701,827
    
    
    
    3,771,124Income from operations
    
    
    1,139,953
    
    
    
    3,920,781
    
    
    
    3,228,974Interest income
    
    
    51,220
    
    
    
    293,862
    
    
    
    1,486,276Other (expense) income, net
    
    
    (1,243
    )
    
    
    (1,579
    )
    
    
    Exchange gain
    
    
    
    
    
    
    
    
    
    
    365,965Income before income tax benefit (expense)
    
    
    1,189,930
    
    
    
    4,213,064
    
    
    
    5,081,215Income tax
benefit (expense)  Current
    
    
    
    
    
    
    384,277
    
    
    
    (457,028
    )Net income
    
    
    1,189,930
    
    
    
    4,597,341
    
    
    
    4,624,187Dividends on preference shares
    
    
    (351,489
    )
    
    
    
    
    
    
    Income attributable to ordinary shareholders
    
    $
    838,441
    
    
    $
    4,597,341
    
    
    $
    4,624,187Income per share-basic
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.05Income per share-diluted
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.04Shares used in calculating basic
net income per share
    
    
    20,124,153
    
    
    
    38,912,491
    
    
    
    94,341,061Shares used in calculating diluted
net income per share
    
    
    72,562,516
    
    
    
    90,092,668
    
    
    
    104,781,492Dividends
declared per preference share
    
    $
    0.01
    
    
    $
    
    
    
    $
    
  F - 4




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##### Table of Contents



CHINA FINANCE ONLINE CO. LIMITED
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME
(In U.S. dollars, except share data)
 Accumulatedother
    
    
    RetainedSeries A convertible
    
    
    Series B convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Deferred
    
    
    comprehensive
    
    
    earnings
    
    
    Totalpreference shares
    
    
    preference shares
    
    
    Ordinary shares
    
    
    paid-in
    
    
    
    
    
    
    stock-based
    
    
    income
    
    
    (accumulated
    
    
    shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    Treasury stock
    
    
    compensation
    
    
    (loss)
    
    
    deficit)
    
    
    equity
    
    
    incomeBalance 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
    )
    
    $
    3,946,928Issuance 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
    
    
    
    328Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,189,930
    
    
    
    1,189,930
    
    
    
    1,189,930Dividends 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
    
    
    $
    1,190,258Issuance 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
    
    
    
    4,597,341Balances as of December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,329,933
    
    
    
    12,814
    
    
    
    64,175,132
    
    
    
    
    
    
    
    (325,221
    )
    
    
    (11
    )
    
    
    4,225,563
    
    
    
    68,088,277
    
    
    $
    4,597,144Repurchase
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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    276,976Stock options issued to non-employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,689
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,689Amortization of deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258,092
    
    
    
    
    
    
    
    
    
    
    
    258,092Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    671,133
    
    
    
    
    
    
    
    671,133
    
    
    
    671,133Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,624,187
    
    
    
    4,624,187
    
    
    
    4,624,187Balance 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 - 5




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##### Table of Contents



CHINA FINANCE ONLINE CO. LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
 Year ended December 31,2003
    
    
    2004
    
    
    2005Operating activities:Income attributable to ordinary shareholders
    
    $
    838,441
    
    
    $
    4,597,341
    
    
    $
    4,624,187Dividends on preference shares
    
    
    351,489
    
    
    
    
    
    
    
    Net income
    
    
    1,189,930
    
    
    
    4,597,341
    
    
    
    4,624,187Adjustments to reconcile net income to net cash
provided by operating activities:Stock-based compensation
    
    
    96,311
    
    
    
    289,334
    
    
    
    370,781Depreciation
    
    
    105,478
    
    
    
    133,208
    
    
    
    129,833Loss on disposal of property and equipment
    
    
    1,339
    
    
    
    463
    
    
    
    9,686Changes in assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (33,921
    )
    
    
    (110,773
    )Income tax recoverable
    
    
    (283,284
    )
    
    
    268,711
    
    
    
    14,573Prepaid expenses and other current assets
    
    
    3,768
    
    
    
    (239,513
    )
    
    
    (799,572
    )Deferred tax assets
    
    
    
    
    
    
    (386,325
    )
    
    
    322,289Rental 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
    
    
    
    95,997Income tax payable
    
    
    
    
    
    
    
    
    
    
    40,762Net cash provided by operating activities
    
    
    1,505,763
    
    
    
    7,022,620
    
    
    
    3,059,169Investing 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
    
    
    
    276,976Proceeds 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
    )
    
    
    671,133Net 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
    
    
    
    70,596,197Cash and cash equivalents, end of year
    
    $
    5,805,670
    
    
    $
    70,596,197
    
    
    $
    46,168,385Supplemental disclosure of cash flow informationIncome taxes paid
    
    $
    283,284
    
    
    $
    16,621
    
    
    $
    93,977Interest 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
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##### 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
    
    OwnershipCompany name
    
    incorporation
    
    incorporation
    
    interestChina 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.
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##### 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  continuedIn 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.
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##### 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  continuedIn 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 presentationThe 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 consolidationThe 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 equivalentsCash 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.
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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  continuedUse of estimatesThe 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 uncertaintiesThe 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, netProperty 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 yearsComputer equipment
    
    5 yearsFurniture, fixtures and equipment
    
    5 yearsMotor vehicle
    
    5 years
 Impairment of long-lived assetsThe 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.
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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  continuedGoodwillThe 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 recognitionThe 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.
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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  continuedRevenue recognition  continuedThe 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 investmentFor 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 translationThe 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.
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##### 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  continuedForeign currency riskThe 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 expensesThese 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 costsThe 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 taxesDeferred 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 incomeComprehensive income includes foreign currency translation adjustments.
Comprehensive income is reported in the statements of shareholders equity.Fair value of financial instrumentsFinancial 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 compensationThe 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.
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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  continuedStock-based compensation  continuedHad 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
    
    
    2005Income attributable to ordinary
shareholders as reported:
    
    $
    838,441
    
    
    $
    4,597,341
    
    
    
    4,624,187Add: Stock-based compensation as reported
    
    
    
    
    
    
    33,192
    
    
    
    13,589Less: 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
    
    
    
    2,702,127Basic income per share:As reported
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.05Pro forma
    
    $
    0.04
    
    
    $
    0.11
    
    
    $
    0.04Diluted income per share:As reported
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.04Pro 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
    
    2005Option grantsAverage risk-free rate of return
    
    
    
    
    
    
    1.87
    %
    
    
    3.37
    %Weighted average expected option life
    
    
    
    
    
    2.41 years
    
    2.94 yearsVolatility rate
    
    
    
    
    
    
    73.78
    %
    
    
    65.08
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
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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  continuedIncome per shareBasic 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 standardsIn 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.
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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  continuedRecently issued accounting standards  continuedIn 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




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##### 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
  December 31,2004
    
    
    2005Interest receivable
    
    $
    92,113
    
    
    $
    562,673Prepaid expenses
    
    
    123,156
    
    
    
    470,926Staff advances and other receivables
    
    
    6,803
    
    
    
    75,612Advances to suppliers
    
    
    109,871
    
    
    
    22,304$
    331,943
    
    
    $
    1,131,515
 4. COST INVESTMENT
  5. PROPERTY AND EQUIPMENT, NET
  December 31,2004
    
    
    2005Technology infrastructure
    
    $
    569,065
    
    
    $
    626,188Computer equipment
    
    
    136,207
    
    
    
    113,569Furniture, fixtures and equipment
    
    
    132,015
    
    
    
    88,580Motor vehicle
    
    
    
    
    
    
    62,288837,287
    
    
    
    890,625Less: accumulated depreciation
    
    
    (420,285
    )
    
    
    (378,446
    )$
    417,002
    
    
    $
    512,179
 6. GOODWILL
 F - 17




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##### 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
  7.
    
    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  December 31,2004
    
    
    2005Accrued expenses
    
    $
    189,726
    
    
    $
    262,889Value added tax payable
    
    
    90,715
    
    
    
    51,612Other taxes payable
    
    
    663
    
    
    
    40,303Accrued welfare benefits
    
    
    4,592
    
    
    
    26,889$
    285,696
    
    
    $
    381,693
 8. STOCK OPTIONS
   F - 18




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##### 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  continuedOptions to non-employeesThe 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
    
    2005Options to non-employees:Average risk-free rate of return
    
    
    2
    %
    
    
    3.48
    %Weighted average expected option life
    
    2 years
    
    2.14 yearsVolatility rate
    
    
    73.78
    %
    
    
    56.96
    %Dividend yield
    
    
    
    
    
    
    
  Year ended December 31,2004
    
    2005Weighted
    
    
    
    
    
    WeightedNumber
    
    average
    
    Number
    
    averageof options
    
    exercise price
    
    of options
    
    exercise priceOutstanding at beginning of year
    
    
    
    
    
    
    
    
    
    
    12,492,988
    
    
    $
    0.18Granted
    
    
    12,517,988
    
    
    $
    0.18
    
    
    
    5,003,000
    
    
    $
    1.29Exercised
    
    
    
    
    
    
    
    
    
    
    (1,731,500
    )
    
    $
    0.16Cancelled
    
    
    (25,000
    )
    
    $
    0.17
    
    
    
    (514,000
    )
    
    $
    1.05Outstanding at end of year
    
    
    12,492,988
    
    
    $
    0.18
    
    
    
    15,250,488
    
    
    $
    0.52
  2004
    
    2005Options
    
    $
    0.011
    
    
    $
    0.17
 F - 19




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##### 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 outstanding
    
    
    
    
    
    Options exercisableWeightedaverage
    
    Weighted
    
    
    
    
    
    Weightedremaining
    
    average
    
    
    
    
    
    averageNumber
    
    contractual
    
    exercise
    
    Number
    
    exerciseoutstanding
    
    life
    
    price
    
    exercisable
    
    priceOrdinary 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
  9. INCOME TAXES
    F - 20




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##### 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
   December 31,2003
    
    
    2004
    
    
    2005Deferred tax assets:Revenue recognition
    
    $
    
    
    
    $
    386,325
    
    
    $
    64,036Net operating loss carryforwards
    
    
    15,185
    
    
    
    10,217
    
    
    
    47,781Deferred tax assets
    
    
    15,185
    
    
    
    396,542
    
    
    
    111,817Valuation allowance
    
    
    (15,185
    )
    
    
    (10,217
    )
    
    
    (47,781
    )Deferred tax
assets, net  current
    
    $
    
    
    
    $
    386,325
    
    
    $
    64,036
     F - 21




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##### 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
  Year ended December 31,2003
    
    2004
    
    2005%
    
    %
    
    %PRC enterprise income tax
    
    
    27.0
    
    
    
    27.0
    
    
    
    27.0Tax exemption and tax relief granted to
PRC subsidiaries
    
    
    (27.0
    )
    
    
    (35.8
    )
    
    
    (18.0
    )
    
    
    
    (8.8
    )
    
    
    9.0
 10. SHAREHOLDERS EQUITY
      F - 22




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##### 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
           F - 23




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##### 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
  Year ended December 31,2003
    
    
    2004
    
    
    2005Income attributable to ordinary
shareholders (numerator),
basic and diluted
    
    $
    838,441
    
    
    $
    4,597,341
    
    
    $
    4,624,187Shares (denominator):Weighted average ordinary shares
outstanding used in computing
basic income per share
    
    
    20,124,153
    
    
    
    38,912,491
    
    
    
    94,341,061Plus: Weighted average
preference shares
    
    
    52,438,363
    
    
    
    40,505,966
    
    
    
    Incremental shares from assumed
conversions of stock options
    
    
    
    
    
    
    10,674,211
    
    
    
    10,440,431Weighted average ordinary shares
outstanding used in computing
diluted income per share
    
    
    72,562,516
    
    
    
    90,092,668
    
    
    
    104,781,492Income per share-basic
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.05Income per share-diluted
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.04
  12. MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION
  F - 24




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##### 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
  13. COMMITMENTS
   Year ending2006
    
    $
    115,569
 14. SEGMENT AND GEOGRAPHIC INFORMATION
    F - 25




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##### 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
  F - 26




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##### Table of Contents



Schedule 1
  CHINA FINANCE ONLINE CO. LIMITED
Financial information of Parent Company
Balance sheets
 December 31,(in U.S. dollars)
    
    2004
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    59,745,660
    
    
    $
    2,782,027Prepaid expenses and other current assets
    
    
    79,252
    
    
    
    37,026Total current assets
    
    
    59,824,912
    
    
    
    2,819,053Investments in subsidiaries
    
    
    8,857,533
    
    
    
    29,111,000Long-term investment
    
    
    
    
    
    
    15,000,000Loans receivable from subsidiaries
    
    
    
    
    
    
    13,990,000Goodwill, net
    
    
    50,534
    
    
    
    50,534Total assets
    
    $
    68,732,979
    
    
    $
    60,970,587Liabilities and shareholders equityCurrent liabilities:Accrued expenses and other current liabilities
    
    $
    148,274
    
    
    $
    121,040Amount due to a subsidiary
    
    
    496,428
    
    
    
    18,587Total current liabilities
    
    $
    644,702
    
    
    $
    139,627Shareholders equityOrdinary 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
    
    
    
    13,077Additional paid-in capital
    
    
    64,175,132
    
    
    
    64,564,534Treasury stock
    
    
    
    
    
    
    (13,200,394
    )Deferred stock compensation
    
    
    (325,221
    )
    
    
    (67,129
    )Accumulated other comprehensive (loss) income
    
    
    (11
    )
    
    
    671,122Retained earnings
    
    
    4,225,563
    
    
    
    8,849,750Total shareholders equity
    
    
    68,088,277
    
    
    
    60,830,960Total liabilities and shareholders equity
    
    $
    68,732,979
    
    
    $
    60,970,587
 F - 27




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##### Table of Contents



CHINA FINANCE ONLINE CO. LIMITED
Financial information of Parent Company
Statements of operations
 December 31,(in U.S. dollars)
    
    2003
    
    
    2004
    
    
    2005Operating expenses:General and administrative
    
    $
    33,815
    
    
    $
    60,094
    
    
    $
    692,453Stock-based compensation
    
    
    96,311
    
    
    
    289,334
    
    
    
    370,781Total operating expenses
    
    
    130,126
    
    
    
    349,428
    
    
    
    1,063,234Loss from operations
    
    
    (130,126
    )
    
    
    (349,428
    )
    
    
    (1,063,234
    )Interest income
    
    
    
    
    
    
    184,836
    
    
    
    560,772Equity in earnings of subsidiaries
    
    
    1,320,056
    
    
    
    4,761,933
    
    
    
    5,126,649Income before income taxes
    
    
    1,189,930
    
    
    
    4,597,341
    
    
    
    4,624,187Income tax expense
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    1,189,930
    
    
    
    4,597,341
    
    
    
    4,624,187Dividends on preference shares
    
    
    (351,489
    )
    
    
    
    
    
    
    Income attributable to ordinary shareholders
    
    $
    838,441
    
    
    $
    4,597,341
    
    
    $
    4,624,187
 F - 28




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##### Table of Contents



CHINA FINANCE ONLINE CO. LIMITED
Financial information of Parent Company
Statements of shareholders equity and other comprehensive income
 Accumulatedother
    
    
    RetainedSeries A convertible
    
    
    Series B convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Deferred
    
    
    comprehensive
    
    
    earnings
    
    
    Totalpreference shares
    
    
    preference shares
    
    
    Ordinary shares
    
    
    paid-in
    
    
    
    
    
    
    stock-based
    
    
    income
    
    
    (accumulated
    
    
    shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    Treasury stock
    
    
    compensation
    
    
    (loss)
    
    
    deficit)
    
    
    equity
    
    
    incomeBalance 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
    
    
    $
    202,182Issuance 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
    
    
    
    328Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,189,930
    
    
    
    1,189,930
    
    
    
    1,189,930Dividends 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
    
    
    $
    1,190,258Issuance 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
    
    
    
    4,597,341Balances as of December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,329,933
    
    
    
    12,814
    
    
    
    64,175,132
    
    
    
    (325,221
    )
    
    
    (11
    )
    
    
    4,225,563
    
    
    
    68,088,277
    
    
    $
    4,597,144Repurchase
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
    
    
    
    671,133Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,624,187
    
    
    
    4,624,187
    
    
    
    4,624,187Balance 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
    
    
    2005Operating activities:Income attributable to ordinary shareholders
    
    $
    838,441
    
    
    $
    4,597,341
    
    
    
    4,624,187Dividends on preference shares
    
    
    351,489
    
    
    
    
    
    
    
    Net income
    
    
    1,189,930
    
    
    
    4,597,341
    
    
    
    4,624,187Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:Stock-based compensation
    
    
    96,311
    
    
    
    289,334
    
    
    
    370,781Equity 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
    )
    
    
    42,226Amount 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
    
    
    
    
    
    
    
    
    
    
    5,373,183Issuance of ordinary shares to an employee
    
    
    
    
    
    
    94
    
    
    
    276,976Proceeds 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
    )
    
    
    671,133Net 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
    
    
    
    59,745,660Cash and cash equivalents, end of the year
    
    $
    1,332,653
    
    
    $
    59,745,660
    
    
    $
    2,782,027Supplemental 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