UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR | |
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 |
OR | |
o | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________________________ to ________________________________ | |
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 000-33051
CHINESEWORLDNET.COM INC.
(Exact name of registrant as specified in our charter)
Not Applicable
(Translation of Registrant’s name into English)
CAYMAN ISLANDS
(Jurisdiction of incorporation or organization)
APPLEBY SPURLING HUNTER, CLIFTON HOUSE, P.O. BOX 1350GT, GRAND CAYMAN, CAYMAN ISLANDS
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: | NONE |
Name of each exchange on which registered: | NONE |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, U.S. $0.001 Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 10,700,000 shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No
If this report is an annual or transaction report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
o Yes x No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
o Large accelerated filer o Accelerated filer x Non-accelerated filer
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
Indicate by check mark which financial statement item the registrant has elected to follow.
x Item 17 o Item 18
TABLE OF CONTENTS
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS | 5 | |
PART I | ||
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS | 5 |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 5 |
ITEM 3. | KEY INFORMATION | 6 |
ITEM 4. | INFORMATION ON THE COMPANY | 24 |
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 39 |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 39 |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 46 |
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 51 |
ITEM 8. | FINANCIAL INFORMATION | 52 |
ITEM 9. | THE OFFER AND LISTING | 52 |
ITEM 10. | ADDITIONAL INFORMATION | 53 |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | 57 |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 57 |
PART II | 57 | |
ITEM 13. | DEFAULTS, DIVIDENDS ARREARS AND DELINQUENCIES | 57 |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 57 |
ITEM 15. | CONTROLS AND PROCEDURES | 58 |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 58 |
ITEM 16B. | CODE OF ETHICS | 58 |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 59 |
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 59 |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 59 |
60 | ||
ITEM 17. | FINANCIAL STATEMENTS | 60 |
ITEM 18. | FINANCIAL STATEMENTS | 60 |
ITEM 19. | EXHIBITS | 61 |
EX - 4(b)9 | CONSULTING AGREEMENT BETWEEN CHINESEWORLDNET.COM INC. AND GOLDPAC INVESTMENT PARTNERS. | |
EX - 4(b)10 | CONSULTING AGREEMENT BETWEEN CHINESEWORLDNET.COM INC. AND GOLDPAC INVESTMENTS LTD. | |
EX - 4(c)1 | STOCK OPTION PLAN AGREEMENT. | |
EX. - 8. | LIST OF SUBSIDIARIES | |
EX. - 12.1. | CEO CERTIFICATION | |
CFO CERTIFICATION | ||
EX. - 13.1. | CEO CERTIFICATION PURSUANT TO SECTION 906 | |
EX. - 13.2. | CFO CERTIFICATION PURSUANT TO SECTION 906 |
INTRODUCTION AND USE OF CERTAIN TERMS
ChineseWorldNet.Com Inc. is a corporation incorporated under the Company Law (1998 revision) of the Cayman Islands on January 12, 2000. Except as the context otherwise requires, all references in this Annual Report on Form 20-F to “we,” “us,” “our,” “CWN” and the “Company” are to ChineseWorldNet.Com Inc. and our subsidiaries, including NAI Interactive Ltd., a company incorporated under the laws of British Columbia (“NAI”) and ChineseWorldNet.com (Hong Kong) Ltd., a company incorporated under the laws of Hong Kong (“CWNHK”). Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“US GAAP”) and are presented in United States dollars. All monetary amounts contained in this Annual Report are in United States dollars unless otherwise indicated.
Our registered and executive office is located at Appleby Spurling Hunter Group, Clifton House, P.O. Box 1350, Grand Cayman, Cayman Islands. Our North American office and principal place of business is located at Suite 368 – 1199 West Pender Street, Vancouver, British Columbia, Canada V6E 2R1.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in this Form 20-F is as of December 31, 2007 unless otherwise indicated.
The following discussion contains forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products and services, future results and events and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward looking statements are forward looking. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.
These forward-looking statements are subject to risks and uncertainties that could cause our actual results and financial position to differ materially from our historical results, as well as those expressed in, anticipated or implied by these forward-looking statements. These factors include, but are not limited to, the fact that we are an Internet based provider of news and information on small and micro-cap public companies, will need additional financing to develop our activities and will be subject to certain technological and risks doing business in the People’s Republic of China (the “PRC”). These and other factors are set forth in more detail in the Section entitled “Risk Factors” at Item 3 and “Operating and Financial Review and Prospects” at Item 5, as well as elsewhere in this Report. We do not undertake any obligation to revise or update these forward-looking statements to reflect any future events or circumstances.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
This Report on Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934 (the “Exchange Act”) and, as such, there is no requirement to provide any information under this item.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
-5-
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The following table sets forth selected consolidated financial information which has been derived from our consolidated financial statements prepared in accordance with US GAAP for our most recently completed fiscal periods consisting of the years ended December 31, 2007, 2006, 2005, 2004, and 2003. The financial data should be read in conjunction with our consolidated financial statements and notes thereto and “Results of Operations” under “Item 5 - Operating and Financial Review and Prospects.”
Year ended December 31, | ||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||
Income Statements: | ||||||||||||||||
Operating revenues | $ | 1,325,994 | $ | 643,370 | $ | 533,521 | $ | 487,710 | $ | 247,293 | ||||||
Operating profit (loss) before income taxes | 54,133 | (209,883 | ) | (78,030 | ) | (95,946 | ) | (163,313 | ) | |||||||
Net loss | 108,354 | (209,883 | ) | (78,030 | ) | (95,946 | ) | (163,313 | ) | |||||||
Earning (loss ) per share - basic | 0.01 | (0.03 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | |||||||
Earning (loss) per share - diluted | 0.01 | (0.03 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | |||||||
Weighted Average Common shares outstanding – basic | 9,012,328 | 8,200,000 | 8,200,000 | 8,004,384 | 8,000,000 | |||||||||||
Weighted Average Common shares outstanding - diluted | 9,103,713 | 8,200,000 | 8,200,000 | 8,004,384 | 8,000,000 | |||||||||||
Consolidated Balance Sheets: | ||||||||||||||||
Total assets | $ | 2,780,226 | $ | 226,896 | $ | 312,053 | $ | 336,623 | $ | 329,949 | ||||||
Equipment | 22,001 | 22,677 | 16,767 | 22,421 | 23,272 | |||||||||||
Total current liabilities | 373,870 | 439,278 | 170,469 | 119,766 | 239,843 | |||||||||||
Stockholders’ (deficiency) equity | 2,200,694 | (212,382 | ) | (8,416 | ) | 66,857 | 90,106 |
No dividends have been declared or paid in 2007.
B. Capitalization And Indebtedness
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
C. Reasons for the Offer and Use of Proceeds
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
D. Risk Factors
The following discussion in this Annual Report on Form 20-F contains forward-looking statements regarding our business, prospects and results of operations that involve risks and uncertainties. Our actual results may differ materially from the results that may be anticipated by such forward-looking statements and discussed elsewhere in this Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below, as well as those discussed under the captions “Item 4 - Information on the Company” and “Item 5- Operating and Financial Review and Prospects” as well as those discussed elsewhere in this Report. In evaluating our business, prospects and results of operations, readers should carefully consider the following factors in addition to other information presented in this Report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations. See “Cautionary Notice Regarding Forward Looking Statements” above.
-6-
Risk Factors Relating to Our Company and Our Business
Our limited operating history makes it difficult for investors to judge our prospects.
We have a limited history in terms of operation. Potential investors should be aware of the risks associated with such, and expect that most of our revenues in the foreseeable future be applied towards building the company. We offer a suite of services through our financial portals, which require partnerships and collaborations with external parties. There is no guarantee that we will be able to enter into successful partnerships or collaborations. In light of this, we may not achieve profitability.
We may not be able to successfully implement our growth strategies.
We are pursuing a number of growth strategies. Internally, we require constant expansion and development of our content and knowledge base. Externally, we endeavour to create sustainable partnerships, joint ventures and acquisitions with providers of financial products and services. Primarily, we seek out relationships with companies with customers in North America and Asia, offering new services for which there are no established markets, or services where we lack experience and expertise. In light of this, we cannot guarantee that said new services will be commercially viable or delivered in a timely manner.
In addition to premium subscription services to generate revenue on our various websites, we intend to increase website-related revenue through online banner advertising. To date, we have had limited success with online banner advertisement customers, which we attribute to a low number of website content contributors. We intend to increase online banner advertisements by increasing the number of website content contributors. Furthermore, we intend to increase revenue through NAI’s investment seminars and conferences. In order to achieve our aims, we will need to hire additional employees, as well as incur costs related to increasing online advertising and conference revenues. Costs associated with said projects may impede our financial condition and operation results, with no guarantee of success or increase in revenue.
Unforeseen development difficulties with our technological infrastructure may hinder our efforts.
We have undertaken measures to enhance our design and technological infrastructure in order to improve our websites, and intend to continue doing so in the foreseeable future. In the past, we have experienced unexpected web traffic, leading to slow upload times or other problems. While we have worked towards resolving these problems, it can be expected to occur again in the future, hence our continual efforts to upgrade and improve our websites. Unforeseeable developmental difficulties could prevent us from implementing improvements or lead to higher than anticipated costs, and repeated problems in accessing our website can deter visitors from future use. All these, and possibly other problems, will affect our business, its operations and financial condition, unfavourably.
Our business could be materially and adversely affected if we fail to develop or introduce new features and research tools.
Currently, we offer premium subscribers a number of service packages with personalized features and functionalities. If we fail to offer new features or tools on a regular basis, or if such features and tools are not favourably received, our premium subscribers may choose to discontinue their subscription. Alternately, if we fail to offer service packages that provide value, potential subscribers may turn to our competitors rather than use our services. In developing new features and tools, it is probable that we will experience challenges that could delay or prevent launching these new services. Furthermore, said new services may contain errors that are discovered only after launch. Our business could be affected adversely in the aforementioned scenarios.
Our revenues could decline if we fail to attract sufficient numbers of premium subscribers to our personalized service packages or if we fail to retain our existing subscribers.
We depend on the sale of our premium service packages such as MyCWN for a portion of our revenue, where premium subscribers pay a monthly subscription fee of $9.95 or an annual fee of $59.95. We also offer real-time streaming of stock quotes at different levels ranging from $30 to $40 per month. As our premium service packages become more comprehensive and higher priced, we expect that our future revenues and revenue growth will increasingly depend on sales of our premium service packages to a much greater extent than other streams of revenue such as banner advertising. If we fail to attract a sufficient number of subscribers to our premium service packages, our revenues could decline. Moreover, our financial success depends on our ability migrate free subscribers to our premium service packages. We may not be able to continue to develop newer service packages that appeal to subscribers. If we are fail to develop new premium services packages that appeal to our users, or if our users continue to use our free services rather than purchase premium services, our revenues could decline.
-7-
A failure to establish and maintain strategic relationships with other companies could decrease our subscriber and reader base, which may harm our business
We depend on establishing and maintaining content syndication and headline indexing relationships with high-traffic websites for a portion of our current subscriber and reader base. There is intense competition for relationships with these firms and placement on these sites, and we may have to pay significant fees to establish additional content syndication and headline indexing relationships or maintain existing relationships in the future. We may be unable to enter into or successfully renew relationships with these firms or sites on commercially reasonable terms. These relationships may not attract significant numbers of subscribers or readers.
Many companies that we may approach for a strategic relationship or who already have strategic relationships with us also receive financial news and information from other sources. As a result, these companies may be reluctant to enter into or maintain strategic relationships with us. Our business, results of operations and financial condition could be materially adversely affected if we do not establish additional, and maintain existing, strategic relationships on commercially reasonable terms or if any of our strategic relationships do not result in an increase in the number of subscribers or readers of our websites.
Difficulties associated with our brand development may harm our ability to attract subscribers and readers.
We believe that a general increase in competition for online financial services has elevated the importance of brand building and brand awareness. We also believe that maintaining and generating awareness about our websites, www.chineseworldnet.com and www.na-investor.com, as well as their associate brands are important aspects in our efforts to continue to attract users. Our planned products and services may not be widely recognized, and we will need to increase awareness amongst potential users. Despite continued efforts to generate brand awareness, it may be ineffective cost-wise or unsuccessful in reaching potential users. Potential users may not be receptive to our advertising campaigns and/or other efforts. Accordingly, our efforts may be unsuccessful in raising awareness of our websites and their associate brands or in persuading potential users to subscribe to our products or visit our sites.
Our ability to maintain and increase our readership depends on the continued growth in use and efficient operation of the Internet.
The web-based information market is rapidly evolving. Our business would be adversely affected materially if web usage does not continue to grow or grows slowly. Web usage may be inhibited for a number of reasons beyond our control, such as:
· inadequate network infrastructure;
· security and privacy concerns;
· inconsistent quality of service; and
· unavailability of cost-effective, high-speed access to the Internet.
Our readers depend on Internet service providers, online service providers and other website operators for access to our websites. Many of these companies providing such services have filed for bankruptcy. Many have experienced significant service outages in the past and could experience service outages, delays and other difficulties unrelated to our systems. These occurrences could cause our readers to perceive the web in general or our websites in particular as an unreliable medium and, therefore, cause them to use other media to obtain their financial news and information. We also depend on a number of information providers to deliver information and data feeds on a timely basis. Our websites could experience disruptions or interruptions in service due to the failure or delay in the transmission or receipt of this information, which could materially and adversely affect our business, results of operations and financial condition.
-8-
We may be held liable for information retrieved from our website and such potential liability could harm our business.
Because our services can be used to download and distribute information to others, there is a risk that claims may be made against us for defamation, negligence, copyright or trademark infringement or other claims based on the nature and content of that material, such as violation of censorship laws in the PRC. In addition, we do not carry any liability insurance to indemnify us for all liability that may be imposed. Any imposition of liability could have a material adverse effect on our business, results of operations and financial condition.
We may be liable for the content of our electronic and hard copy publishing and such potential liability could harm our business.
We are paid by companies to produce company reviews, which are distributed to target investors by email, mail and published on our website. Our users may request and receive directly from us a hard copy of any such review. We make no recommendation for the purchase of securities in any of our public company clients’ securities and each report contains a disclaimer to that effect. We do not send out unsolicited copies of the reports on our client companies’ behalf. We receive a fee from the client company for preparing the report but receive no underlying interest in the client company’s securities nor do we take any position in those securities.
Although we have a disclaimer on each review, it may be perceived by users that we are endorsing our client companies as an investment. Potential liability issues may arise should our users invest in these companies and lose money based upon an inaccurate perception that we have endorsed such an investment. Liability issues include the defence of a law suit that could be brought by a user seeking compensation for the losses it has suffered which could involve us in costly and time-consuming litigation in defending such a suit. We have no liability insurance in place to protect us against such a potential suit.
A failure of our internal security measures or breach of our privacy protections could cause us to lose subscribers and subject us to liability.
Users who subscribe to our premium subscription-based products are required to supply certain personal information which we use to administer our services. We also require users of some of our free products and features to provide us with certain personal information. Additionally, we rely on security and authentication technology licensed from third parties to perform real-time credit card authorization and verification, and at times rely on third parties, including technology consulting firms, to help protect its infrastructure from security threats. In this regard, our users depend on us to keep their personal information safe and private from third parties. If users perceive that we are not protecting their privacy, or if the technology developed by these third parties does not function as anticipated and our information security measures are breached, our users could be discouraged from registering to use our services, which could have a material adverse effect on our business, results of operations and financial condition.
Our business is dependent on the level of trading activity in PRC’s securities markets. Volatility in PRC’s securities markets could dampen investors’ interest in such markets and adversely affect our revenue and profitability.
Our business is dependent on user demand for market intelligence on various securities markets, including PRC’s securities markets. The demand for investment in PRC’s securities markets has fluctuated with the level of trading activity there. In the last several years, PRC’s securities markets have experienced significant decline. On June 6, 2005, the Shanghai Stock Exchange Index reached its lowest level since March 1997, and over the past five years both the Shanghai Stock Exchange A-Share Index and the Shenzhen Stock Exchange Index have experienced significant decline in index value. If the PRC’s securities markets continue to weaken, and if investors’ interest in PRC’s securities markets continues to decline, our business could be significantly and adversely affected.
-9-
A substantial amount of our revenues are billed on a fixed-price basis which may be subject to cost over-runs and we may incur a loss as a result.
A substantial percentage of our IR/PR business and the planned Portal business, which are explained in more detail under Item 4 - “Information on the Company,” are individual and short-term projects billed on a fixed-price basis as distinguished from a method of billing on a time and materials basis. Our failure to obtain new business in any given quarter or estimate accurately the resources and time required for an engagement, to manage client expectations effectively regarding the scope of services to be delivered for the estimated fees or to complete fixed-price engagements within budget, on time and to clients’ satisfaction could expose us to risks associated with cost overruns, which could have a material adverse effect on our business.
A failure to attract individual investors to our investment seminars and conferences could decrease the attendance of presenting companies at our seminars and conferences, which may adversely affect our revenues.
As part of NAI’s investor relations and public relations services, the organization of Chinese investment seminars represent a significant portion of total revenue. Currently, presenting companies are charged a fee of $4,000 and standard exhibit spaces costs $2,000, while individual investors are invited to attend free of charge. Presenting companies and exhibitors typically attend for the purpose of meeting individual investors, and it is to all parties’ advantage to offer free admission to individual investors. The success of our seminars is dependent upon the number of individual investors that attend, failing to achieve this would result in a decline of presenting companies and exhibitors, thereby affecting the overall revenue of NAI. The existing price to presenting companies and exhibitors may increase in the future, which may also cause a decline in participating companies and exhibitors, thereby affecting our financial condition as a whole.
A failure to maintain strategic relationship with partner companies in organizing financial seminars in PRC may adversely affect our business.
In expanding our financial seminars in PRC, we may depend on establishing and maintaining the partnerships with local companies in PRC, such as agents, internet platform partners, consulting companies, project event organizers, in various disciplines such as marketing our company and/or events, seminar organization and coordination. We may be unable to enter into or successfully renew relationships with these companies or partners on commercially reasonable terms.
Many companies that we may approach for a strategic relationship or who already have strategic relationships with us will have financial commitments and responsibilities involved with our company. Failure to establish or maintain relationships with said companies would significantly affect our business.
A failure to establish and maintain an operation centre in PRC may have adverse effect on our financial seminars organization in PRC
Plans to establish an operation centre in PRC for the purposes of business expansion may involve commercial terms and conditions such as business license registration and technology rights, as well as operation costs such as office rental costs and wages. Failure to establish and upkeep the PRC operation centre will adversely affect the expansion of our business.
We do not own the URLs for our principal websites. If we lose the right to use our two principal website address or URLs, our business could be seriously harmed.
Our two principal website addresses or Uniform Resource Locators (URLs), www.chineseworldnet.com and www.na-investor.com, are currently licensed from Register.com on a yearly basis. As per the Service Agreement with Register.com, there is no guarantee that we can renew the licensing agreement with regard to the two principal website addresses or URLs. If we lose the right to use the www.chineseworldnet.com and www.na-investor.com domain names, they may become property of our competitors or other parties, either of which would have a material adverse effect on our business, prospects, financial condition, results of operation and share price.
If we are not able to respond successfully to technological or industry developments, our business may be materially and adversely affected.
-10-
The online financial data and information services market is characterized by rapid advancements in technology, evolving industry standards and changes in customer needs. New services or technologies may render our existing services or technologies less competitive or obsolete. Responding and adapting to technological developments and standard changes in our industry, the integration of new technologies or industry standards, or the upgrading of our networks may require substantial time, effort and capital investment. In the event that we are unable to respond successfully to technological industry developments, this may materially and adversely affect our business, results of operations and competitiveness.
Our business would be adversely affected if we do not continue to expand and maintain an effective customer support force.
We offer subscribers customer support in English, Cantonese and Mandarin through a North American toll free telephone number. The purpose of customer support is to resolve subscriber issues as well as explain our company’s service offerings. Many staff members involved in customer support are relatively new to the company, and may not have the training or experience to effectively serve our clients. We will need to increase our customer support force as our business expands, as well as provide adequate training. We may not be able to hire and retain employees without short-term disruptions to our operations, and locating multilingual workers is a challenge. Failure to maintain a working customer support team may adversely affect our business.
Our future performance is dependent on our ability to retain key personnel.
Our performance is substantially dependent on the performance of our senior management and key technical personnel. In particular, our success depends on the continued efforts of our senior management team. In addition, we intend to grant stock options to many of our employees in lieu of salary raise. Due to potential fluctuation of our future share price, our employees may have options at strike prices far above the then current share price. As a result, many of our employees may not consider their options to be valuable compensation, and we may need to provide additional compensation, in the form of additional salary, bonuses or equity, in an effort to retain existing employees. Our inability to retain employees, particularly our senior officers, and key sales, technical, marketing and other service personnel in our key revenue producing businesses could have a material adverse effect on our prospects, business, operations, financial conditions and share price.
Our long-term liquidity and capital resources are uncertain.
We believe revenue generated through our current operations, combined with our cash resources, are adequate to fund our current marketing programs in North America. However, we anticipate the need to secure additional financing in order to implement our planned expansion in Asia. We have yet to enter into agreements with respect to additional financing, but expect to raise funds through debt or stock offerings to accredited investors. In the event that an opportunity for acquisition arises, or additional funds are required, we may not be successful in raising the additional capital needed for this purpose. See Item 4 “Information on the Company”.
We face significant competition which could adversely affect our business, financial condition and results of operations.
The online financial data and information services market for the Chinese community in North America is relatively new, with few substantial barriers to entry and is competitive and rapidly changing. The number of financial news and information sources competing for consumers’ attention and spending has increased since we commenced operations and we expect that competition will continue to intensify. We currently compete, directly and indirectly, for paying subscribers and viewers with companies in the business of providing financial data and information services, including publishers and distributors of traditional media, Internet portals providing information on business, finance and investing, dedicated financial information websites, personal stock research software vendors and stock brokerage companies, especially stock brokerage companies with online trading capabilities.
Many of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. This may allow them to adopt our business model and devote greater resources than we can to the development and promotion of service offerings similar to or more advanced than our own. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and offer products and services that achieve greater market acceptance than ours. They may also undercut us by making more attractive offers to our existing and potential employees, content providers and sponsors. New and increased competition could result in price reductions for our research tools, reduced margin or loss of market share, any of which could materially and adversely affect our business, results of operations and financial condition.
-11-
In addition, a number of companies in PRC offer stock quotes, economic and company-specific news, historical stock performance statistics, online chatting regarding individual securities and other features for free over the Internet. If users determine that the information available for free over the Internet is sufficient for their investing needs, they would be unlikely to pay for subscription to our services, thus reducing our revenues and net income and forcing us to develop a new business model. Furthermore, the amount and quality of information available for free over the Internet may expand in the future, reducing the attractiveness of our services and forcing us to spend additional money to develop more sophisticated services in order to compete. There can be no assurance that we would be successful in developing a new business model or more advanced services in response to either of the above challenges. Failure to do so would lead to significant declines in our number of subscribers, revenues and net income.
We may be involved in future litigation over our use of technology rights.
We currently own and license technology from third parties. As we continue to introduce new services that require new technology, we anticipate that we may need to license additional third-party technology. These existing and additional technology licenses may not be available to us on commercially reasonable terms, if at all. In addition, it is possible that in the course of using new technology, we may inadvertently breach the technology rights of third parties and face liability. Our inability to obtain these technology licenses or avoid breaching third party technology rights could delay or compromise our introduction of new services and could materially and adversely affect our business and financial condition.
We cannot be certain that our website content and online services and tools do not or will not infringe upon patents, valid copyrights or other intellectual property rights held by third parties. We may become subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. If found to have violated the intellectual property rights of others, we may be banned from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives. In addition, we may incur substantial expenses in defending against these third party infringement claims, regardless of their merit. Successful infringement or licensing claims against us may result in substantial monetary liabilities, which may materially and adversely affect our business.
We enter into confidentiality agreements with our employees and consultants, and control access to and distribution of our documentation and other licensed information. In spite of these precautions, it may be possible for such persons to breach such precautions or controls or a third-party to copy or otherwise obtain and use our licensed services or technology without authorization, or to develop and apply similar technology independently. In addition, effective copyright, trademark and trade secret protection may be unavailable or limited, and the global nature of the Internet and the media makes it practically impossible to control the ultimate destination of our products. Policing the unauthorized use of our licensed technology is difficult as are the steps necessary to prevent the misappropriation or infringement of our licensed technology. In addition, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, which could result in substantial cost to us, divert our resources and have a material adverse effect on our business, results of operations and financial condition.
Our strategy of expansion through acquisitions has been and will continue to be costly and may not be effective, and we may realize losses on our investments.
We have acquired, and intend to continue to acquire, companies and assets that we believe will enhance our revenue growth, operations and profitability. Our acquisitions may result in the use of significant amounts of cash, dilutive issuances of our common shares and amortization expenses related to goodwill and other intangible assets, each of which could materially and adversely affect our business. These acquisitions involve significant risks, including:
-12-
· | the difficulties of integrating, assimilating and managing the operations, technologies, intellectual property, products and personnel of the acquired business; |
· | the diversion of management attention from other business concerns; |
· | the reduced availability of favourable financing for future acquisitions; |
· | the additional expense associated with acquired contingent liabilities; |
· | our inability to manage adequately the currency, interest rate and equity price fluctuations relating to our acquisitions and investments; |
· | the loss of key employees in acquired businesses; |
· | the risk of being sued by terminated employees and contractors; and |
· | our lack of familiarity with local market and other conditions and business practices. |
If we acquire another business, we would need to integrate, manage and protect our interests in our acquired businesses successfully, and failure to do so could have a material adverse effect on our business, results of operations and financial condition.
If economic and other conditions further deteriorate, or if market or other values continue to fluctuate, we may need to provide for further decreases in value or increased unrealized losses. Our results of operations, financial condition, prospects and share price could be adversely and materially affected, particularly if we are unable to hedge or adequately hedge our exposure to reduced valuations.
Our strategy of expansion through acquisitions may affect our ability to receive favourable financing terms.
Our future acquisitions may result in the use of significant amounts of cash, dilutive issuances of our common shares and amortization expenses related to goodwill and other intangible assets, each of which could materially and adversely affect our financial condition. In addition, there is no guarantee that those acquisitions will actually enhance our revenue, operations and profitability. If those benefits do not materialize as expected, our financial conditions may worsen to include lower cash balance, lower profitability, higher debt level and lower credit rating. These will likely affect our ability to receive favourable debt or equity financing. As a result, we may need to accept a less than favourable financing such as issuing debt at a higher interest rate or issuing common shares at below book value or market value, should we require additional capital for our operations.
Risks Relating to Our Industry
Intense competition could reduce our market share and harm our financial performance.
A number of financial news and information sources compete for consumers’ and advertisers’ attention and spending. We compete for advertisers, readers, staff and outside contributors with many types of companies, including:
· English Content:
- | online services or websites focused on business, finance and investing, such as CBS.MarketWatch.com, CNBC on MSN Money, CNNfn.com, The Wall Street Journal Online, TheStreet.com, Globeinvestor.com, TheNewYorkTimes.com, DowJones.com, SmartMoney.com, and The Motley Fool; |
-13-
- | publishers and distributors of traditional media, including print, radio and television, such as The Wall Street Journal, Fortune, Bloomberg Business Radio and CNBC; |
- | providers of terminal-based financial news and data, such as Bloomberg Business News, Reuters News Service and Dow Jones Markets; |
- | web “portal” companies, such as Yahoo! MSN.com, and America Online; and |
- | online brokerage firms, many of which provide financial and investment news and information, such as Charles Schwab, E*TRADE and TD Waterhouse. |
· | Chinese Content: |
- | web “portal” companies, such as Yahoo! China, Yahoo! Hong Kong, bidu.com, China.com, Taiwan.com, Sina.com, Sohu.com, HongKong.com, Tom.com, 36.com, Netease.com, Yam, and Hinet; |
- | publishers and distributors of traditional media, including print, radio and television, such as Apple Daily, MingPao Daily, SingTao Daily, ChinaByte and Xinhua News Agency; |
- | online brokerage firms, many of which provide financial and investment news and information, such as whsb.com, Cash Online, Pt123.com; and |
- | online services or websites focused on business, finance and investing, such as Chinesefn.com, HKNasdaq.com, Chinese.wsj.com, www.cnyes.com, www.jrj.com . |
Our ability to compete depends on many factors, including the originality, timeliness, insightfulness and trustworthiness of our content and that of our competitors, the ease of use of services developed either by us or our competitors and the effectiveness of our sales and marketing efforts.
Many of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. This may allow them to devote greater resources than we can to the development and promotion of their services. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies (including offering more of their financial news and commentary for free) and make more attractive offers to existing and potential employees, outside contributors, strategic partners and advertisers. Our competitors may develop content that is equal or superior to our content or that achieves greater market acceptance than our content. It is also possible that new competitors may emerge and rapidly acquire significant market share. We may not be able to compete successfully for advertisers, readers, staff or outside contributors, which could materially adversely affect our business, results of operations and financial condition. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect our business, results of operations and financial condition.
We also compete with other websites, television, radio and print media for a share of advertisers’ total advertising budgets. If advertisers perceive the Internet or our websites to be a limited or an ineffective advertising medium, they may be reluctant to devote a portion of their advertising budget to Internet advertising or to advertising on our websites.
Furthermore, we are experiencing increased competition with a growing number of companies in the United States and Canada with respect to our conference and seminar business and IR/PR services. There is a growing trend for these companies to put on trade shows and conferences regarding investing in China, which competes with our business. If we are not able to effectively compete with these companies for the limited marketing budgets of participants, our business may be adversely affected and our financial performance may be harmed.
-14-
Computer equipment problems and failures could adversely affect our business.
Problems or failures in our Internet-related equipment, including our file servers, computers and software could result in interruptions or slow response times on our websites, which could reduce the attractiveness of our websites to advertisers and users. Equipment problems and failures could result from a number of causes, including but not limited to an increase in the number of users of our websites, computer viruses, outside programmers penetrating and disrupting our software systems, human error, fires, floods, power and telecommunications failures, and internal breakdowns. In addition, any disruption in Internet access provided by third parties could have an adverse effect on our ability to provide the services that it proposes to offer to our members which in turn may have an adverse effect on the number of members we are able to attract to our websites.
Our computer network is vulnerable to hacking, viruses and other disruptions.
Inappropriate use of our Internet services or errors or omissions in processing instructions or data available in our computer system or databases could jeopardize the security of confidential information stored in our computer system, which may cause us to lose key clients, expose us to liability for our clients’ losses and prevent us from securing future business, any of which could have a material adverse effect on our prospects, business, financial condition, results of operations and share price.
Inappropriate use of the Internet includes attempting to gain unauthorized access to information or systems—commonly known as cracking or hacking. Our current policies, procedures and configurations for managing our systems, including our computer servers, may not be adequate to protect our facilities and the integrity of our user and customer information. Although we intend to implement security measures to protect our facilities and the integrity of our user and customer information, such measures could be ineffective or circumvented. Alleviating problems caused by computer viruses or other inappropriate uses or security breaches may require interruptions, delays or cessation in our services, in addition to the outages that occur in our systems from time to time for various reasons, including power interruptions, errors in instructions, equipment inadequacy, capacity and other technical problems. We do not carry errors and omissions or other insurance covering losses or liabilities caused by computer viruses or security breaches. Compromises or breaches in the security or integrity of our facilities or customer or user information, or inappropriate use of our Internet services, could subject us to litigation and could adversely affect our customer base, business, prospects, share price, results of operation and financial condition.
Existing and future laws and regulations may increase our costs of doing business and our legal compliance expenditures, and could decrease our readership.
Existing domestic and international laws or regulations and private industry guidelines specifically regulate communications or commerce on the web. Furthermore, laws and regulations that address issues such as user privacy, pricing, online content regulation, taxation of electronic commerce transactions and the characteristics and quality of online products and services are under consideration by federal, state, local and foreign governments and agencies and by private industry groups. Several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet service providers and online services providers in a manner similar to the regulation of long distance telephone carriers and to impose access fees on such companies. The governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. These regulations, if imposed, could increase the cost of transmitting data over the web.
In addition, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. Our business, results of operations and financial condition could be materially and adversely affected by the adoption or modification of laws or regulations relating to the Internet.
The interpretation and application of existing securities laws to web-based financial news providers, including laws governing investment advisors, investment companies and broker/dealers, by the Securities and Exchange Commission and state securities regulators, is a developing area. If, as this area matures, our activity is interpreted as subjecting it to regulation, we could be subject to liability, and our business, results of operations and financial condition could be materially and adversely affected.
-15-
We are also subject to various federal and state regulations concerning the collection and use of information regarding individuals. These laws include the Children’s Online Privacy Protection Act, and state laws which limit or preclude the use of voter registration and drivers’ license information, as well as other laws that govern the collection and use of consumer credit and financial information, including the Gramm-Leach-Bliley Act. Although our compliance with applicable federal and state laws, regulations and industry guidelines has not had a material adverse effect on our business, governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including antitrust and consumer privacy laws, for us and our customers. The U.S. federal and various state governments have been investigating certain Internet companies regarding their use of personal information and have recently proposed limitations on the collection and use of information regarding Internet users. The European Union has enacted its own privacy regulations that may result in limits on the collection and use of certain information from users in Europe. We could incur additional expenses if any new regulations regarding the use of personal information are introduced or if these agencies chose to investigate our privacy practices. Also, as a consequence of governmental legislation or regulation or enforcement efforts or evolving standards of fair information collection practices, we may be required to make changes to our products or services in ways that could diminish the effectiveness of the product or service or our attractiveness to potential customers, which could materially and adversely affect our business, financial condition or results of operations. Any new laws or regulations relating to the web, or certain application or interpretation of existing laws, could decrease the growth in the use of the web, decrease the demand for our websites or otherwise materially and adversely affect our business.
Laws and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent, and new laws and regulations are under consideration by the U.S. Congress and state legislatures. Any legislation enacted or restrictions arising from current or future government investigations or policy could dampen the growth in use of the Internet generally and decrease the acceptance of the Internet as a communications, commercial and advertising medium. The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel, obscenity and personal privacy apply to the Internet and Internet advertising.
Concerns about the security of electronic commerce transactions and confidentiality of information on the Internet may reduce use of our network and impede our growth.
A significant barrier to electronic commerce and communications over the Internet in general has been a public concern over security and privacy, especially the transmission of confidential information. If these concerns are not adequately addressed, they may inhibit the growth of the Internet and other online services generally, especially as a means of conducting commercial transactions. If a well-publicized Internet breach of security were to occur, general Internet usage could decline, which could reduce traffic to our destination sites and impede our growth.
Doing business outside of the United States may subject us to additional risks.
A substantial portion of our business is conducted outside of the United States and as a result, our operations could be subject to various risks such as the possibility of the loss of revenue, property or equipment due to expropriation, nationalization, war, insurrection, terrorism or civil disturbance, the instability of foreign economies, currency fluctuations and devaluations, adverse tax policies and governmental activities that may limit or disrupt markets, restrict payments or the movement of funds or result in the deprivation of contract rights. Additionally, our ability to compete could be adversely affected by foreign governmental regulations that encourage or mandate the hiring of local contractors, or by regulations that require foreign contractors to employ citizens of, or purchase supplies from vendors in a particular jurisdiction. We could also be subject to taxation in a number of jurisdictions, and the final determination of our tax liabilities might involve the interpretation of the statutes and requirements of various domestic and foreign taxing authorities.
-16-
We may rely on electronic commerce as a significant part of our future revenue, but the Internet has not yet been proven as an effective commerce medium in the Greater China region.
Our revenue growth also depends on the increasing acceptance and use of electronic commerce in the region comprised of the PRC, Hong Kong and Taiwan (referred in this Report as “Greater China”). The Internet may not become a viable commercial marketplace in Asia for various reasons, many of which are beyond our control, including inexperience with the Internet as a sales and distribution channel; inadequate development of the necessary infrastructure to facilitate electronic commerce; concerns about security, reliability, cost, ease of deployment, administration and quality of service associated with conducting business over the Internet; and inexperience with credit card usage or with other means of electronic payment in the PRC.
If the Internet does not become more widely accepted as a medium for electronic commerce, our ability to generate increased revenue will be negatively affected.
The ability to block Internet advertising could prevent the expansion of online advertising in Asia.
The development of Web software that blocks Internet advertisements before they appear on a user’s screen may hinder the growth of online advertising. The expansion of ad blocking on the Internet may decrease our revenues because when an ad is blocked, it will not be downloaded from our ad server, which means these advertisements will not be tracked as a delivered advertisement. In addition, advertisers may choose not to advertise on the Internet or on our advertising network because of the use of Internet advertisement blocking software. The use of software that blocks Internet advertisements may materially and adversely affect our business.
The Greater China and Asian Internet industry is a developing market and is not a proven effective commercial medium
The market for Internet services in Greater China and Asia has only recently begun to develop. Since the Internet is an unproven medium for advertising and other commercial services, our future operating results from online advertising and electronic business solutions services will depend substantially upon the increased use of the Internet for information, publication, distribution and commerce and the emergence of the Internet as an effective advertising medium in Greater China and Asia. Many of our customers will have limited experience with the Internet as an advertising medium or sales and distribution channel, and will not have devoted a significant portion of their advertising expenditures or other available funds to Web-based advertising or website development and may not find the Internet to be effective for promoting their products and services relative to traditional print and broadcast media.
Critical issues concerning the commercial use of the Internet in Greater China and elsewhere in Asia, including:
- | security; |
- | reliability; |
- | cost; |
- | ease of deployment; |
- | administration; and |
- | quality of service |
may affect the adoption of the Internet to solve business needs. For example, the cost of access, penetration rate or availability of access to technology, hardware and software may prevent potential users in Asia from using the Internet. Also, the use of credit cards in sales transactions is not common in parts of Asia. Until the use of credit cards, or another viable alternative means of electronic payment, becomes more prevalent, the development of electronic commerce through our portal network will be seriously impeded. In addition, even if suitable payment methods are widely adopted in Asia, consumers will have to be confident that adequate security measures are taken to protect electronic sale transactions conducted over the Internet and prevent fraud.
-17-
Our entry into the Chinese Internet market depends on the establishment of an adequate telecommunications infrastructure in the PRC by the Chinese government
Unlike Taiwan and Hong Kong, where the telecommunications infrastructure is comparable to U.S. standards where private companies compete as ISPs, the telecommunications infrastructure in PRC is not as well developed. In addition, access to the Internet in PRC is accomplished primarily by means of the government’s backbone of separate national interconnecting networks that connect with the international gateway to the Internet. This gateway is owned and operated by the Chinese government, and is the only means of connection to the international Internet network. Although private sector ISPs exist in PRC, almost all access to the Internet is accomplished through ChinaNet, PRC’s primary commercial network, which is owned and operated by the Chinese government. We will rely on this backbone enterprise and telecom companies to provide data communications capacity primarily through local telecommunications lines. As a result, we will continue to depend on the Chinese government to establish and maintain a reliable Internet infrastructure to reach a broader Internet user base in PRC. We will have no means of accessing alternative networks and services in PRC, on a timely basis or at all, in the event of any disruption or failure. The Internet infrastructure in PRC may not support the demands associated with continued growth. If the necessary infrastructure standards or protocols or complementary products, services or facilities are not developed by the Chinese government, our business could be materially and adversely affected.
Political and economic conditions in Greater China are unpredictable and may disrupt our operations if these conditions become unfavourable to our business.
We expect to derive a substantial percentage of our revenues from the Greater China market. Changes in political or economic conditions in the region are difficult to predict and could adversely affect our operations or cause the Greater China market to become less attractive to advertisers, which could reduce our revenues. We intend to maintain a strong local identity and presence in each of the regions in the Greater China market, although we may not be able to maintain effectively this local identity if political conditions were to change.
In addition, economic reforms in the region could affect our business in ways that are difficult to predict. Since the late 1970s, the Chinese government has been reforming the Chinese economic system to emphasize enterprise autonomy and the utilization of market mechanisms. Although we believe that these reform measures have had a positive effect on the economic development in PRC, they may not be effective or benefit our business.
There are economic risks associated with doing business in Greater China.
PRC. The Chinese government has been reforming its economic system since the late 1970s. The economy of PRC has historically been a planned economy, subject to governmental plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe the economic reform and the macroeconomic measures adopted by the Chinese government have had a positive effect on the economic reform and the macroeconomic measures adopted by the Chinese government have had a positive effect on the economic development of PRC, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. In addition, the Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD. These differences include:
PRC | OECD | |||
Economic structure: | Planned economy, but in a slow process of transition to a market economy | Market economy | ||
Level of government involvement in the economy: | Very high | Low to moderate | ||
Level of economic development: | Developing country | Developed countries | ||
Control of foreign exchange: | Government controlled | Market driven | ||
Methods of allocation resources: | Government controlled, but in the slow process of transition to a market economy | Market driven |
-18-
As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries. Changes in the PRC’s political, economic and social conditions, adjustments in policies of the Chinese government or changes in the Chinese’s laws and regulations may adversely affect our results of operations and financial condition. The Chinese economy has experienced significant growth in the past decade, but this growth has been uneven across geographic and economic sectors and has recently been slowing. Such growth may not continue and any slow-down may have a negative effect on our business. The international financial markets in which the securities of the Chinese government, agencies and private entities are traded have experienced significant price fluctuations upon speculation that the Chinese government may devalue the renminbi which could increase our costs relative to our Chinese revenues.
Hong Kong. As part of our expansion plan, a small part of our business will be generated from Hong Kong. Hong Kong is a Special Administrative Region of the PRC (“SAR”) with its own government and legislature. Hong Kong enjoys a high degree of autonomy from PRC under the principle of one country, two systems, however, such autonomy may not continue. The Hong Kong dollar has remained relatively constant due to the U.S. dollar peg and currency board system that has been in effect in Hong Kong since 1983. However, in early 1999, the Hong Kong dollar was subject to currency speculation and the SAR government substantially supported the market for the Hong Kong dollar, both directly and indirectly through the large-scale purchase of securities listed on the Hong Kong Stock Exchange. The historical currency peg of the Hong Kong dollar to the U.S. dollar may not be maintained, and accordingly may adversely affect our business.
Taiwan. A small part of our future revenues may be derived from the Taiwan market. Taiwan has a unique international political status. The Chinese government asserts sovereignty over Taiwan and does not recognize the legitimacy of the Taiwan government. Although significant economic and cultural relations have been established in recent years between Taiwan and PRC, PRC has refused to renounce the possibility that it may at some point use force to gain control over Taiwan. Relations between Taiwan and PRC have been strained since mid-1999 as a result of then-President Lee Teng-Hui’s assertion that relations between the two sides should be conducted on a special state-to-state basis. During the Macau handover ceremony in 1999, President Jiang Zemin reiterated PRC position towards Taiwan, stating that he was confident that Taiwan would soon be reunified with PRC in order to complete PRC’s plans for national reunification. The election of pro-independence candidate Chen Shui-bian as the new President of Taiwan in early 2000, and Taiwan’s recent request to purchase strategic arms and defense technology from the United States have created additional uncertainty to the already tenuous relationship between PRC and Taiwan. Strained relations between Taiwan and PRC could adversely affect our business, results of operations or financial condition. Between late 1997 and early 1999, the NT dollar, the currency of Taiwan, experienced considerable volatility and depreciation as a result of the economic downturn in Asia. Continued volatility and depreciation of the NT dollar could adversely affect our business, results of operations and financial condition. Taiwan has recently experienced a recession primarily due to a reduction in exports due to weakened demand for imported goods in many Asian countries and a continued recession in Taiwan may materially affect our business.
The PRC’s regulation of content distributed on the Internet may adversely affect our business.
PRC has enacted regulations governing Internet access and the distribution of news and other information. The Ministry of Information Industry (the “MII”) has published implementing regulations that subject online information providers to potential liability for content included on their portals and the actions of subscribers and others using their systems, including liability for violation of Chinese laws prohibiting the distribution of content deemed to be socially destabilizing. Because many Chinese laws, regulations and legal requirements with regard to the Internet are relatively new and untested, their interpretation and enforcement of what is deemed to be socially destabilizing by Chinese authorities may involve significant uncertainty. Under the PRC’s regulations on telecommunications and Internet information services, Internet information service providers are prohibited from producing, duplicating, releasing or distributing any information which falls within one or more of nine stipulated categories of “undesirable content”. These categories cover any information which:
-19-
· | contravenes the basic principles enshrined in the PRC Constitution; |
· | endangers the security or unity of the State; |
· | undermines the State’s religious policies; |
· | undermines public order or social stability; or |
· | contains obscene, pornographic, violent or other illegal content or information otherwise prohibited by law. |
Internet information service providers found to be disseminating information that falls under any of these categories must cease immediately, keep a record of the relevant information, and report to the appropriate government authority.
In addition, the Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. As a result, it is difficult to determine the type of content that may result in liability. We cannot predict the effect of further developments in the Chinese legal system, particularly with regard to the Internet and the dissemination of news content, including the creation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws.
Periodically, the Ministry of Public Security has stopped the distribution of information over the Internet which it believes to be socially destabilizing. The Ministry of Public Security has the authority to cause any local ISP to block any website maintained outside of PRC at our sole discretion. websites that are blocked in PRC include many major news-related websites such as www.cnn.com, www.latimes.com, www.nytimes.com and ww.appledaily.com.hk. The Chinese government has also expressed its intention to closely control possible new areas of business presented by the Internet, such as Internet telephony.
Violations or perceived violations of Chinese laws arising from information displayed, retrieved from or linked to our portals could result in significant penalties, including a temporary or complete cessation of our business in PRC. Chinese government agencies have recently announced restrictions on the transmission of state secrets through the Internet. State secrets have been broadly interpreted by Chinese governmental authorities in the past. We may be liable under these new pronouncements for content and materials posted or transmitted by users on our message boards, virtual communities, chat rooms or e-mails. If the Chinese government were to take any action to limit or eliminate the distribution of information through our portal network or to limit or regulate any current or future applications available to users on our portal network, this action could have a material adverse effect on our business, financial condition and results of operations.
We may be adversely affected by Chinese government regulation of Internet companies.
The Chinese government heavily regulates the Internet sector including the legality of foreign investment in the Chinese Internet sector, the existence and enforcement of content restrictions on the Internet and the licensing and permit requirements for companies in the Internet industry. Because these laws, regulations and legal requirements with regard to the Internet are relatively new, their interpretation and enforcement may involve significant uncertainty. In addition, the Chinese legal system is a civil law system in which decided legal cases have limited binding force as legal precedents. As a result, in many cases it is difficult to determine what actions or omissions may result in liability.
Issues, risks and uncertainties relating to the PRC government regulation of the Chinese Internet sector include the following:
· | China began its fourth year as a World Trade Organization (WTO) member on December 11, 2003 The problems that foreign telecom service providers have faced in accessing China's market should improve in year four as foreign companies will be permitted to establish joint venture operations in domestic or international data services without quantitative restrictions in Beijing, Guangzhou, and Shanghai—though the foreign investment share may not exceed 25 percent. Foreign companies will be able to invest up to 49 percent. Although, PRC was officially admitted to the WTO, it is still not clear how this agreement may be changed in future. |
-20-
· | The numerous and often vague restrictions on acceptable content in the PRC subjects us to potential civil and criminal liability, temporary blockage of our website or complete cessation of our website. For example, the State Secrecy Bureau, which is directly responsible for the protection of state secrets of all Chinese government and Chinese Communist Party organizations, is authorized to block any website it deems to be leaking state secrets or failing to meet the relevant regulations relating to the protection of state secrets in the distribution of online information. |
The interpretation and application of existing Chinese laws and regulations, the stated positions of the MII and possible new laws or regulations have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, Chinese Internet businesses, including our business.
If we do not comply with Chinese regulations relating to our scope of permitted business, Chinese regulators could cause us to discontinue our operations in the PRC.
The Chinese government regulates access to the Internet by imposing strict licensing requirements and requiring ISPs in PRC to use the international inbound and outbound Internet backbones. The Chinese government may require that we obtain a license for Internet access in the future based on new legislation or otherwise. We may not be able to obtain all necessary licenses required in the future, and any future changes in Chinese government policies may impose additional regulatory requirements on us or our service providers, intensify competition in PRC information industry or otherwise have a material adverse effect on our business, financial condition and results of operations.
We are uncertain as to whether the Chinese government will reclassify our business as a media or a retail company, due, among other things, to our acceptance of Internet advertising and electronic commerce related services fees as sources of revenue. Any reclassification could subject us to penalties or fines or significant restrictions on our business. We are also uncertain whether the Chinese government will reclassify our business as a telecommunications business, potentially resulting in significant restrictions on our business.
If we do not comply with Chinese government regulations relating to foreign investment prohibitions, the Chinese government could cause us to discontinue our operations in China.
Chinese government policy prohibits foreign investment in the telecommunications services industry, which it has defined to include Internet-related businesses. We may not be in compliance with current Chinese government policies and the Chinese government may not view our intended business in the PRC as in compliance with these policies or any policies that may be made in the future. If we are not viewed as complying with these policies or any regulations that may be created relating to foreign ownership of Internet- related businesses, the Chinese government could block us from starting our development plan in PRC or take other actions that could harm our business.
Even if we are in compliance with Chinese governmental regulations relating to licensing and foreign investment prohibitions, the Chinese government may prevent us from distributing, and we may be subject to liability for, content that it believes is inappropriate.
The PRC has enacted regulations governing Internet access and the distribution of news and other information. In the past, the Chinese government has stopped the distribution of information over the Internet that it believes to violate Chinese law, including content that it believes is obscene, incites violence, endangers national security, is contrary to the national interest or is defamatory. In addition, we may not publish certain news items, such as news relating to national security, without permission from the Chinese government. Furthermore, the Ministry of Public Security has the authority to cause any local Internet service provider to block any website maintained outside PRC at our sole discretion. Even if we comply with Chinese governmental regulations relating to licensing and foreign investment prohibitions, if the Chinese government were to take any action to limit or prohibit the distribution of information through our network or to limit or regulate any current or future content or services available to users on our network, our business would be harmed.
-21-
We are also subject to potential liability for content on our websites that is deemed inappropriate and for any unlawful actions of our subscribers and other users of our systems under regulations promulgated by the MII. Furthermore, are required to delete content that clearly violates the laws of PRC and report content that we suspect may violate Chinese law. It is difficult to determine the type of content that may result in liability for us, and if we are wrong, we may be prevented from operating our websites.
If we do not comply with Chinese government regulations related to organizing public business and investment seminars and conferences, the Chinese government could cause us to discontinue our seminar services in China.
We typically work with local event organizers in China to help us establish seminars and conferences who we depend on to obtain proper permits in China for these events. However, if the Chinese government found that we are not compliant with their requirements to hold seminars and conferences in China, they may prohibit us from holding future events which would result in a significant restriction to our business and negatively impact our revenues.
Currency fluctuations and restrictions on currency exchange may adversely affect our business, including limiting our ability to convert Chinese renminbi into foreign currencies and, if renminbi were to decline in value, reducing our projected revenues in U.S. dollars.
We intend to generate revenues and incur expenses and liabilities in Chinese renminbi, Taiwan dollars, Hong Kong dollars, Canadian dollars and U.S. dollars. As a result, we are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example, the value of the renminbi depends to a large extent on PRC’s domestic and international economic and political developments, as well as supply and demand in the local market. Since July of 1995, the official exchange rate for the conversion of renminbi to U.S. dollars has been free floating and the renminbi has appreciated slightly against the U.S. dollar. So the renminbi may not continue to remain stable against the U.S. dollar or any other foreign currency. Our results of operations and financial condition may be affected by changes in the value of renminbi and other currencies in which our earnings and obligations are denominated. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future.
Although Chinese governmental policies were introduced in 1996 to allow the convertibility of renminbi into foreign currency for current account items, conversion of renminbi into foreign exchange for capital items, such as foreign direct investment, loans or security, requires the approval of the State Administration of Foreign Exchange, or SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency. We may not be able to obtain all required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the renminbi in the future. Because a significant amount of our future revenues may be in the form of renminbi, our inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to utilize revenue generated in renminbi to fund our business activities outside the PRC.
Terrorist activities and resulting military and other actions could adversely affect our business.
The terrorist acts in New York, Washington, D.C. and Pennsylvania on September 11, 2001 have created an uncertain economic environment and we are unable to predict the impact these events, or the responses thereto, will have on our business. The continued threat of terrorism within the United States and abroad and military action and heightened security measures in response to such threat may cause significant economic disruptions throughout the world. Our business, results of operations and financial condition could be materially and adversely affected to the extent such disruptions result in our inability to effectively market and sell our services and software.
-22-
Risks Related to Our Common Shares and Shareholder Rights
We do not intend to pay cash dividends, so any return on investment to an investor must come from appreciation.
To date, we have not paid a dividend on our common shares and do not intend to do so in the foreseeable future, as we expect any excess funds will be reinvested in implementing our business plan. As a result, any return on investment in our common shares must come from increases in the fair market value and trading price of our common stock.
Our Common Shares became traded on the OTC Bulletin Board in October 2006 and it is considered a “penny stock” and a shareholder’s ability to buy and sell shares in the secondary market may be limited.
On September 25, 2006, we obtained the trading symbol of “CWNOF.OB” and began trading on the OTC Bulletin Board in October 2006. The liquidity of our common shares would continue to be limited, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and the lack of coverage by security analysts and the news media of our company. In addition, any shares quoted on the OTC Bulletin Board would be subject to certain rules and regulations relating to “penny stock.” A “penny stock” is generally defined as any equity security that has a price less than $5.00 per share and that is not quoted on the Nasdaq Stock Market or a national securities exchange. Being a penny stock generally would mean that any broker who wanted to trade in our shares (other than with established customers and certain institutional investors) must comply with certain “sales practice requirements,” including delivery to the prospective purchaser of the penny stock a risk disclosure document describing the penny stock market and the risks associated therewith. In addition, broker-dealers must take certain steps prior to selling a “penny stock,” which steps include:
· | obtaining financial and investment information from the investor; |
· | obtaining a written suitability questionnaire and purchase agreement signed by the investor; and |
· | providing the investor a written identification of the shares being offered and the quantity of the shares. |
If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules could make it more difficult for broker-dealers to sell our common shares, and as a practical matter, these requirements may mean that brokers would be less likely to make recommendations on our shares to its general customers.
Shares eligible for future sale may have a substantial depressing effect on the stock price.
As of December 31st 2007, we have outstanding an aggregate of 10,700,000 shares of common stock, which includes 2,870,000 shares were freely transferable without restriction under the securities Act (excluding any shares purchased in the offering by any person who is or thereby becomes an “affiliate” of us). There were a total of 7,830,000 common stock as “restricted securities”, the term is defined in Rule 144 under the Securities Act.
We are unable to predict the effect that sales of the shares offered hereby, or sales under Rule 144 may have on the then prevailing market price of the shares, but such sales may have a substantial depressing effect on such market price.
All of our officers, directors and 5% or more stockholders have agreed not to, directly or indirectly, issue, agree or offer publicly to sell, grant an option for the purchase or sale of, assign, transfer, pledge, hypothecate, distribute or otherwise encumber or dispose of, any shares of the common stock or other equity securities of ours or other securities convertible unto or exercisable for such shares of the common stock or other equity securities except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company.
-23-
The absence of a prior public market for the shares may lead to high volatility in the stock price.
Prior to our approval for trading there has been no public market for our common stock and there can be no assurance that an active public trading market for our common stock will develop or be sustained. The absence of an active trading market would adversely affect the liquidity of the shares and existing shareholders might have difficulty in selling their shares. In addition, the stock market is subject to price and volume fluctuations affecting the market price for public companies generally, which fluctuations maybe unrelated to the operating results or other circumstances of a particular company. Such fluctuations may adversely affect the liquidity of the shares, as well as the price that holders may achieve for the securities upon any future sale.
Our shareholders may face difficulties in protecting their interests because we are incorporated under Cayman Islands law
Our corporate affairs are governed by our memorandum and articles of association, by the Company Law (1998 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands.
Under the common law of the Cayman Islands, the fiduciary relationship of a director is to us and a director therefore does not usually owe a fiduciary duty to individual shareholders. As a result, it may be difficult for a shareholder to take action against the directors for breach of fiduciary duty.
The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. Cayman Islands law in this area may conflict with jurisdictions in the United States. As a result, our public shareholders may face more difficulties in protecting their interests in the face of actions against the management, directors or our controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
There is uncertainty as to our shareholders’ ability to enforce civil liabilities in the Cayman Islands, Hong Kong, Taiwan and PRC.
We are a Cayman Islands company have no assets located in the United States. A substantial portion of our current operations is conducted in Canada and we expect to expand to Hong Kong, Taiwan and PRC. In addition, all of our directors and officers are nationals and/or residents of countries other than the United States. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of the Cayman Islands, Canada, Hong Kong, Taiwan and, PRC and other jurisdictions would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in the Cayman Islands, Canada, Hong Kong, Taiwan, PRC or other jurisdictions against us or such persons predicated upon the securities laws of the United States or any of our state.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of CWN
ChineseWorldNet.Com Inc. was incorporated on January 12, 2000 under the Company Law (1998 revision) of the Cayman Islands and commenced business in 2000. We are principally based in the Cayman Islands and our operations are primarily conducted in North America and Asia. The address of our principal registered and executive head office is that of our agent, Appleby Spurling Hunter, being: Clifton House, P.O. Box 1350GT, Grand Cayman, Cayman Islands, Telephone (345) 949-4900. Our North American office and principal place of business is located at Suite 368- 1199 West Pender Street, Vancouver, British Columbia, Canada V6E 2R1, Telephone (604) 488-8878.
-24-
There are currently no employees stationed in Toronto. In 2005, we discontinued our lease of business center space in Toronto, which was used by our employees in Vancouver when they travelled to Toronto. Starting February 2005, we began renting a P.O. box at The Toronto Board of Trade at P.O. Box 60, 1 First Canadian Place, Toronto, Ontario, M5X 1C1 which forwards our mail back to our Vancouver office.
On November 1, 2004, we also started operations in Hong Kong through our subsidiary, CWNHK, at their office at Room 1101, St. George’s Building, 2 Ice House Street Central, Hong Kong. CWNHK provides us with a local operation base for CWN’s penetration and expansion plans in the Asian market. There are currently no employees of CWN stationed permanently in Hong Kong.
As of December 31, 2006, we have updated our business model and currently consist of four principal business: (1) the Internet Financial Portal (“Portal”) business, conducted under the ChineseWorldnet.com brand via “www.chineseworldnet.com” website and (2) the Investor Relations / Public Relations (“IR/PR”) business conducted through NAI via a number of media channels including the internet “www.na-investor.com” website, as well as promotional services, (3)the investment seminars/conferences (Conference”) business conducted via the brand of Global Chinese Financial Forum, and (4) the “Online Platform” business conducted through the Rong Zhi Tong Online brand via “www.rzto.com” website. Our IR/PR business was the result of the acquisition of NAI-Interactive Ltd, a Canadian company incorporated under the laws of British Columbia, on January 15, 2000 from Ms. Tim Yee Lau, the wife of our President and Chief Executive Officer, Mr. Joe Tai. The purchase price was 112,500 of our common shares valued at $5,625. Our Conference business is the successful result of and had separated from our IR/PR business. Our Online Platform business was launched as of October 2006 and primarily served as a financing engine that connects professional service providers with small to medium size companies in greater China regions.
Our plan was to first launch our Portal and IR/PR businesses in North America and then to expand all businesses into Hong Kong, the PRC and Taiwan. See “Corporate Strategy and Strategic Business Plan” below for details. We have launched the Portal and IR/PR businesses in North America. On October 26th 2007, we completed a non-brokered private placement of 2,250,000 common shares at a price of $1.08 per share for total proceeds of $2,070,000 with the purpose of expanding all businesses into China in June of 2008, our plans of expanding have been met with the successful formation of the Chinese-Foreign Joint Venture ChineseWorldNet.com (Shanghai) Limited ("Chinese JV") resulting from the signing of a Definitive Joint-Venture Agreement between its subsidiary, ChineseWorldNet (Hong Kong) Ltd. ("ChineseWorldNet") and Shanghai Compass Venture Capital Investment Limited Company. The office of Chinese JV at PuDong in Shanghai will be open in the mid of 2008.
B. Business Overview
Internet Financial Portal Business
Introduction
ChineseWorldNet.com, via our “www.chineseworldnet.com” website, is a financial web-based portal that provides up-to-date financial information and financial management tools in Chinese to our target audience, the Chinese community in North America. Our Portal provides financial news and information on North American blue chip and large cap S&P 500 public companies listed or quoted on the New York Stock Exchange, the American Exchange, NASDAQ and Toronto Stock Exchange, as well as Shanghai Stock Exchange and Shenzhen Stock Exchange and Taiwanese companies and market news by an in-house editorial team, with Hong Kong company and market news provided by our partners. When the Portal was in its development stage, all of the information or services provided through our www.chineseworldnet.com website was free of charge even though certain premium information and services such as premium articles and market commentary were only accessible by registered subscribers, who paid no subscription fee. After the official launch of the www.chineseworldnet.com website in October 2002, we introduced a new level of subscribers called “Premium Subscribers,” who are required to be registered as a subscriber and pay a fee to obtain certain premium and personalized products and services.
-25-
We generate direct revenues from a number of means through the www.chineseworldnet.com website including premium subscription fees and on-line marketing services. See “Revenue Model of the Portal Business” below for further details.
Current Product / Service Offering
Services
The following features are provided free of charge on the www.chineseworldnet.com website to all readers, other than the Premium Services described below for which we charge a fee. Readers are not required to register as subscribers at this time although we may in the future require registration before allowing access to the services described below.
1. Company Profile
This section features a variety of interactive investment tools that enable users to conduct their own financial research, including:
· | Delayed stock quotes; |
· | Summary company profiles; |
· | Analysts’ buy/sell ratings; |
· | Company news; |
· | Insider trading information; |
· | Intraday and Historical stock charts; |
· | Financial Statement Summary; and |
· | Foreign Exchange information. |
2. Markets
This section, which features continuously updated market news stories from about 5 a.m. until 5 p.m. Pacific Standard Time each business day, covers the latest movements of the major indices, the most active stocks, news from foreign markets, earnings news, mergers and acquisitions news and other major market events.
3.Headlines
Throughout the day, we provide headlines and brief news stories that cover the various corporate announcements and news throughout the day.
4. Commentary
This section includes commentary prepared by employees or from outside contributors who write about topics such as money management, technical analysis, currency issues, industry analysis, macroeconomics, fundamental analysis, financial planning, mutual funds, initial public offerings, technology and international investing.
-26-
5. Premium Services
These additional services are provided to Premium Subscribers, who currently pay a monthly subscription fee of $9.95. In addition to the monthly subscription fee, as of May 1, 2005, the annual subscription fee was implemented and is charged at $59.95 per annum. Please see “Corporate Strategy and Strategic Business Plan” section below for details.
a. Personalized Financial Services “MyCWN”
In addition to the provision of financial news and corporate information on public companies in North America and the Greater China region, our www.chineseworldnet.com website also offers to our subscribers, through partnerships and affiliations, additional personalized services such as online investment tools and applications such as portfolio tracking. In October 2002, we launched a platform called “MyCWN” on our www.chineseworldnet.com website that enables members to create a personalized portal to manage their stock portfolios. Registered users can customize their personal stock portfolio and view financial news and information, which will be automatically updated.
b. CWN Research Reports
Subscribers get access to weekly in-depth research reports written by our in-house editing team on individual stocks, the over all market trend, industry, other topics of interest.
c. Real-Time Stock Quotes
Starting in October 2002, we offered real-time streaming stock quotes as an additional premium service for registered users for which we charge a fee. This service is provided through a third-party supplier. The current fee is $30 per month per user for Level 1 real time quotes and $40 per month per user for Level 2 real time quotes as of May 1, 2005. Level 1 represents the basic real-time stock price while Level 2 quotes include the market depth of the trading activity also.
We are in the planning stage for other premium services, such as special investment tools and premium research reports, for the web portal.
Revenue Model for the Portal Business
1. Subscription Fees
Until October 2002, all of the information or services provided through our www.chineseworldnet.com website was offered free of charge even though certain premium information and services such as premium articles and market commentary were only accessible by registered subscribers, who were not required to pay a subscription fee. Since the official launch of the www.chineseworldnet.com website in October 2002, we introduced a new level of subscribers called “Premium Subscribers”, who are required to be registered as subscribers and to pay a subscription fee to obtain access to certain premium and personalized products and services. Basic monthly subscription fees were decreased from $14.95 per user per month to $9.95 per user per month starting June 2005. The Company wanted to attract more subscribers to our website and believed that the most effective way was opening more free content to free subscribers and reducing the monthly fee to paying subscribers. On May 1, 2005, the annual subscription fee was implemented and is charged at $59.95 per annum.
2. Banner Advertising
CWN intends to derive revenue from selling banner advertising to companies on the www.chineseworldnet.com website. The fee for six-month banner advertising ranges between $750 to $1,200 started year 2007 increased from $250 to $500 per month based on an estimated number of times the banner advertising will be seen by readers of the www.chineseworldnet.com website. The fee adjustment was a result of meeting the industry needs. We charge monthly flat fees for the services we provide, and revenue generated from banner advertising is recognized monthly, based on the terms committed by our customers. The amount of fees charged depends on the size and the location of the banner advertisement on our website. There is no adjustment to the monthly fee if the actual clicks differ from the estimated clicks.
-27-
3. Marketing Services for Financial Services
It is our intention that our members will be able to access information on various financial products and service providers such as on-line brokerage, mutual funds, insurance and bonds through logging onto independent on-line Internet based trading platforms of our proposed partners. However, we will not be involved in effecting transactions in securities for the account of others such as the solicitation, negotiation or execution of the transactions. All trading transaction will be performed directly between the subscribers and the partner companies. In order to do so, our members would have to independently register with the on-line trading partner.
Our Portal business has derived no revenue from this services offering. We will not receive transaction-based compensation either from our subscribers or the partner companies. Instead, a flat marketing fee from partner companies will be paid to us based on the number of subscribers opening new accounts.
Investor Relations / Public Relations (“IR/PR”) Business
Introduction
Our IR/PR business was the result of the acquisition of NAI. NAI operates our IR/PR business currently focusing on providing IR/PR services for micro cap and small cap public companies targeting to the Chinese investor community in North America through various media such as the Internet (www.na-investor.com website), publications and investment seminars. Unlike the www.chineseworldnet.com business model, client companies instead of individual investors pay a fee to NAI for the IR/PR services.
Current Product / Service Offering
1. | Internet website (www.na-investor.com) |
NAI operates the www.na-investor.com website which provides IR/PR services to fee-paying North American public company clients who are listed or quoted on small and micro public markets in North America, such as the TSX Venture Exchange, the NASD OTC Bulletin Board and the Toronto Stock Exchange. All information on this website is in Chinese and the website also offers stock quotes, company reviews, newsletters and guide to investing in small and micro-cap companies to readers of the North American Chinese community. Currently, there are over 45,000 registered members for the www.na-investor.com website and it attracts over 1,200,000 readers each month.
Unlike www.chineseworldnet.com, www.na-investor.com is not a financial portal for fee-paying members but an Internet based medium for the dissemination of information from fee-paying companies that want to increase their exposure in the Chinese investor community. There is no fee being charged to individual registered members of the www.na-investor.com website.
2. | Online Marketing Service |
This service aims to increase the publicity and website traffic to targeted audiences for clients companies’ websites. Services include creation of search criteria for Internet based search engines to enable quick access to client companies’ websites, email messages to NAI members and other services like on-line promotional events that can help increase Internet traffic to client companies’ websites. The launch of “Mining Search Engine” was created in November 2006 to focus the promotion of client companies particularly from the mining sector. This services aims to provide and promote companies’ information and news to investors and increase publicity.
-28-
3. | Chinese Webpage Design, Hosting and Maintenance |
NAI can assist client companies to create a Chinese web page for companies that have existing websites in English and would like to have link to a version of their websites in Chinese. These Chinese webpages will also be linked to the www.na-investor.com website in the featured company section. NAI charges a one-time set-up fee plus 12-month maintenance fee in total of $2,400 for this service. Due to the various demand of clients’ needs and the customized services that we provide to client companies; as of January 1, 2006 the fees for this service had been changed to range from $2,000 to $5,000 based on the customized services we arranged in contracts.
4. | Translation Service |
NAI also provides translation services for client companies who want to translate promotional or financial materials from English into Chinese. NAI charges $100 per page for the translation service.
5. | Miscellaneous IR/PR Services |
NAI also provides other miscellaneous IR/PR services to client companies such as design and printing of promotional materials and financial reports. This includes translation services for client companies who want to translate promotional or financial materials from English into Chinese. NAI charges $100 per page for the translation service.
6. | Investment Guides |
NAI started to publish specialty investment publications in 2002. Its first investment handbook was on the mining sector. Companies pay $2,000 each to be profiled in the Chinese language handbook. The handbook is sold through our offices, on-line, and in selected bookstores for CDN$13.80 Canadian. In 2005, we published the Mining Investment Guide, Vol 3. and Chinese stock Investment Guide, Vol 1. In 2006, we published the Mining Investment Guide, Vol 4., and is sold for CDN$29.50 Canadian due to the increased in content. In 2007, we published the Mining Investnent Guide, Vol 5, and is sold for USD$29.95, and Chinese Theme Stocks Investment Guide Vol 2 - A New Chapter of Success, and is sold for USD$29.95.
Future Product / Service Offering
Currently, our IR/PR services are focused on introducing and promoting North American client companies to the Chinese investor community in North America. NAI plans to adopt the same model and expand it to other market segments such as, promoting client companies from Asia to the Chinese investor community of North America and Asian and North American client companies to the Chinese investor community in Asia. In year 2007, NAI had successfully established client base in the mining /recourses sector; and plans to diversify into other sectors such as life science, technology, and industrials. See “Corporate Strategy and Strategic Business Plan.”
Revenue Model of the IR/PR Business
The IR/PR business is marketed via the brand name of NAI. Sources of revenue for the IR/PR business are from each of the current product/service offerings mentioned above such as on-line marketing service, Chinese webpage design, hosting and maintenance, translation services, and miscellaneous IR/PR services.
Conference Business
Introduction & History
Originally, the conference organizing services establish by the company was an integrated aspect of the products and services provided by our IR/PR business. However, because of the success of the conference series in 2006, the conference organizing services were made into a separate aspect of business model.
-29-
Beginning in 2000, NAI has marketed and organized 2 to 4 Chinese investment seminars a year during which, private and public companies pay a sponsorship fee to NAI in order to make presentations about their companies to individual Chinese investors who attend the seminars. While it is free for individual investors to attend the investment seminars, NAI charges a fee of $4,000 per presenting company for organizing these seminars. Similarly, the attendees of the Investment Seminar are notified that it is a client company-sponsored event. Seminars have been held in Vancouver, Toronto, and San Francisco.
In 2003 and 2005, NAI organized several conferences. In 2003, the conferences were named Chinese Financial Forum and in 2004, the Global Chinese Financial Forum to reflect the international nature of the event. In 2004, we filed for trademark protection for the name Global Chinese Financial Forum in Canada. The investment seminar and conference website is www.gcff.ca. As of year 2006, Global Chinese Financial Forum (“GCFF”) had segregated from the IR/PR business. Revenue generated through GCFF is recorded under the revenue model of NAI.
Current Product / Service Offering
GCFF aims to be the largest series of bilingual (Chinese/English) financial functions in North America in the purpose of providing networking environment and opportunities between client companies and participants. The format of GCFF is conducted through exhibition booths and presentation sessions. While client companies can purchase a booth area to showcase and promote their companies, they can also conduct corporate presentations in the industry related topics determined beforehand.
General sponsorship opportunities are available for all conferences. Sponsorship is divided into several categories for interested parties to participate and sponsor our conferences. These categories include Platinum, Gold, Silver, Corporate, and Media. While media sponsorship are offered without any fee, the four levels of sponsorship fees are ranged from $4,000 to $10,000. Currently, individual investor attendees are not charged for admission and registration for attending the conferences. However, when the conferences have reached an appropriate scale, we may begin charging entrance fees to attendees.
Future Product / Service Offering
Currently, GCFF have been held in North American cities such as Vancouver, Toronto, and San Francisco, mainly servicing clientele from North America. In July 2007, GCFF had successfully launched the first China-focus conference at Shanghai, China and provided a network for both service providers and China companies. GCFF plans for the continued success on conference organize at cities in China. GCFF also plans to improve the format and focus on institutional clients as well as establish its own brand name in both North America and Asia. See “Corporate Strategy and Strategic Business Plan.”
Revenue Model for the Conference Business
NAI initially charges $2,000 for a basic exhibition booth per company, as well as sponsorship fees range from $4,000 to $10,000. Starting second quarter of 2007, prices for exhibition booths and sponsorships have increased to $2,500 per exhibition booth and sponsorship fees range from $6,000 to $20,000.
Online Platform Business
Introduction
Rong Zhi Tong Online (“RZTO”) is a platform serving the fast-growing number of private Chinese companies seeking listing and access to capital in North American markets. The official launch of RZTO during October 2006 has initially undertaken our plan to enter the greater China market. RZTO is based on a membership model where both Chinese companies and North American financial service providers will register to connect, access new projects, share ideas and business opportunities.
-30-
Up until December 31, 2007, membership for RZTO was free of charge. Members type range from private and public companies, investment bankers and research analysts, investor relations and stockbrokers, lawyers and accountants, as well as professionals from exchanges and other sectors. Each member is required to provide their company information through a registration form and their company profile is generated from their imputed data. Membership information including name, location, and brief company descriptions is available to public; while contact information, personnel, financial and detail business information are keep confidential and only registered members have access to the database.
Current Product / Service Offering
The platform offers search functions, news update, events announcement, and knowledge exchange to help members network with each other and build an online financing community. RZTO offer the following search functions free of charge and in future might add on more valuable search engines for members.
(1) | Service Providers - This section includes the search of financial service firms and financial service professionals, which classified under different types as well as the location in either North America or Greater China. |
(2) | China Companies - This section includes the search functions in “Search Companies Seeking Financing”, “Search Investors”, and “Search Public Companies”. While members can search companies from various industry sectors listed in the search box for all three of the search functions; they can also search through a number of criteria to narrow their search. These criteria includes: net assets, sales, financing scale, and 3-years sales growth in percentage. We might increase the number of search criteria or improve the search engine functions in the future. |
(3) | Projects - This section includes search functions divided into “Financing Projects” and “Investment Projects”. Members not only can search through industry sectors but also the kind of financing strategies as well as the financing or investing scale. |
(4) | Professional Candidates - This search function provides members an opportunity to find individual professionals members for human resources purpose. The data for individual professional candidates is generated from the registration information required to be a member of RZTO, and we will not undertake verification or investigation of any such information. |
(5) | News - This section currently is under development. |
(6) | Knowledge – This section provides articles and links on industry knowledge. Member companies mostly post articles in a non-regular basis and some articles are posted by our in-house editing team. |
Revenue Model for the Platform Business
Started from October 2006, all members registered with RZTO are on a trial basis and is free of charge. RZTO intends to derive revenue from the membership model, and might arrange a membership fee schedule in the future.
-31-
ChineseWorldNet.com, Inc overall revenues for the years ended December 31, 2007, 2006 and 2005 were as follows. All our revenues from all businesses are recognized in our 100 % owned operating subsidiary NAI Interactive Ltd, which is based in Vancouver, BC in Canada.
Revenues | Year ended Dec 31, 2007 | Year ended Dec 31, 2006 | Year ended Dec.31, 2005 | |||||||
Banner Advertisement | $ | 26,436 | $ | 17,514 | $ | 18,457 | ||||
Translation Service | 5,090 | 3,420 | 10,973 | |||||||
Chinese Webpage Design, Hosting and Maintenance | 169,097 | 71,052 | 89,937 | |||||||
Computer Consultation Service | 0 | 0 | 0 | |||||||
CWN Membership, Online Service | 15,556 | 8,524 | 11,475 | |||||||
Online Marketing Service | 25,826 | 14,880 | 13,107 | |||||||
Miscellaneous IR/PR Service | 223,006 | 170,489 | 169,866 | |||||||
Investment Guides | 85,245 | 78,921 | 42,880 | |||||||
GCFF Conference Service | 775,738 | 251,735 | 174,881 | |||||||
Others | 0 | 26,835 | 1,945 | |||||||
TOTAL REVENUE | 1,325,994 | $ | 643,370 | $ | 533,521 |
Corporate Strategy and Strategic Business Plan
Our goal is to become a global leader in communication and information gateways between investors and service providers worldwide. We offer the Internet-based financial community by providing a diverse range of financial information and news on public companies to Chinese investors in North America and Asia. Through our infrastructure and reader base, we strive to be a partner for various providers of financial products and services for marketing to Chinese investors in North America and Asia. We believe that we have already built a strong foundation with our current and planned product and service offerings of both the Portal and IR/PR business. However, we believe that the IR/PR business has limited potential in Hong Kong and China because these markets are different than the North American markets and are more competitive. Our conferencing business, named Global Chinese Financial Forum, had evolved into a stand-alone business started from 2006 and established forums in major cities at North America & China. By providing a business to business networking environment to companies and service providers, we connect them together by various services we offer. We strive to primarily penetrate the China market and gradually expand towards other cities in Asia. The official launch of RZTO, a platform serving the fast growing number of private companies in China in connection with North American service providers, had initiated more products and services that our company can offer to clients. Together, all four businesses enable us to enter the next phase of our strategic plan which is to expand the reach of our businesses and services to users in Asia with a focus on the Greater China region. We believe that one of the biggest advantages of running an Internet-based business is that we can leverage our existing infrastructure to reach a broader ranger of target customers without a significant capital requirement. Based on this principle, we intend to maintain the operation of our businesses from our Vancouver office in Canada. However, we may consider other expansion options such as partnering with local partners or establishing a direct presence in certain markets.
As part of our proposed expansion into Asia, we started to establish partnership with local China companies in year 2008. We had entered into a joint venture agreement with Shanghai Compass Venture Capital Investment Limited Company on February 1st, 2008, which led to the successful formation of a Chinese-Foreign Joint Venture ChineseWorldNet.com (Shanghai) Limited (“Chinese JV”). The Chinese JV has a physical office located at Eton Place, Pudong Avenue, 555 Suite 1005, Pudong District, Shanghai, P.R. China. The Chinese JV serves three main purposes: (1) It helps building channels to capture the financial information business. (2) It would assist in organizing and coordinating regional marketing activities, such as our Global Chinese Financial Forum (GCFF). China GCFF has been scheduled to be held in Dalian, China from October 30th 2008 to November 1st 2008. (3) This joint-venture will seek other business opportunities including the development of investor relations/public relations business and to create a basis for potential acquisition opportunities and to further the digital financial media business in the Greater China region.
-32-
Details of our proposed expansion strategy of our services into other markets are as follows:
Geographic Market | Target Launch Date of the | Local Presence | ||||||||
Portal Business | IR/PR Business | Online Platform Business | Conferencing Business | |||||||
Canada and the United States | Launched in October 2002 | Launched in 2001 | Launched in October 2006 | Launched in May 2003 | The main operation of both businesses is from the Vancouver office. | |||||
Hong Kong | Launched in 4th Quarter of 2004 | Not Available | Not Available | Not Available | We have already established a local presence in Hong Kong by incorporating ChineseWorldNet.com (Hong Kong) Limited on December 22, 1999. ChineseWorldNet.com (Hong Kong) Limited is 99% owned by us with 1% owned by one of our directors. We established a new office in Hong Kong on November 1, 2004. The market for IR/PR business at Hong Kong has not reach a mature stage and yet difficult for market penetration. | |||||
PRC | 2nd Quarter of 2005 | Not Available | 3rd Quarter of 2007 | 3rd Quarter of 2007 | We may establish a direct presence or seek strategic partners locally to launch the services The market for IR/PR business at PRC has not reach a mature stage and yet difficult for market penetration. | |||||
Taiwan | 3rd Quarter of 2005 | Not Available | Not Available | Not Available | We may establish a direct presence or seek strategic partners locally to launch the services We seek to establish a strong foundation in PRC prior entrance into other markets |
Internet Content Partners:
Through NAI, we have agreements in place with the following internet content partners:
-33-
Company Name | Services Provided | |
ALPHATRADE.COM | ALPHATRADE.COM provides our subscribers real-time streaming stock information for a monthly fee. | |
PR Newswire | We disseminate PR Newswire Chinese news releases for companies in North America, China, Hong Kong, and Taiwan on our www.chineseworldnet.com website. This information is free for viewers. | |
Tanrich Financial Group | Tanrich provides information on the Hong Kong future market and stock market to us in exchange for our commentaries and news on the North American stock markets. | |
Quote123.com | Quote123 will provide news and market commentaries in North America to our website. | |
FMFOREX | FMFOREX will provide foreign exchange data, news, and articles to our website |
There were no significant developments with partners established in 2006. Our major focus during this time was opening up 80% of our paid content to our free subscribers which resulted in a dramatic increase to the traffic of our website www.chineseworldnet.com. Our agreements with PR Newswire and Tanrich Financial Group are service-to service connections which do not directly generate fees. We provide a news channel to PR Newswire for online news media in return for PR Newswire’s content and trademark to be posted on our website. Similarly, Tanrich Financial Group provides Hong Kong market sector news to us for marketing purposes and in return we provide a link on our website to access the Tanrich Financial website. In 2007, we established a new partnership with FMFOREX in order to obtain foreign exchange data and news, while providing complimentary ad space on our website. Our agreements with FMFOREX are service-to-service connections which do not generate revenue for the company.
Technology
None of our application technologies are proprietary to us. The technologies used by us are incorporated from different commercially available software programs. CWN’s application technology includes a collaborative authoring environment to enable different users such as CWN’s in-house programs to work together on creating and managing content for our websites. It enables those who use CWN’s communication applications and content management applications to work together on creating and managing content to CWN’s websites. All users have their own accounts and can belong to any number of sites.
We have two servers to serve our websites in North America. If one of the servers malfunctions, all other traffic is re-directed to the other server. Both servers synchronize with each other every 30 seconds.
Our Primary Markets
The Internet
The number of Internet users in the Asia-Pacific region has continued to increase at an unprecedented rate and has reached nearly 510 million according to the data published by Internet World Stats in March 2007. This figure already surpassed the figures in the whole North America. The percentage of users in the region was 39 percent of the population compared to 28 percent in the rest of the world.
By December 2007, China had 210 million Internet users, which would make China the nation with the second-largest number of Internet users, behind the North America, which had about 238 million users (same data), and ahead of third place Japan with 87.5 million users. The growth of Internet users in China from 2000-2007 is 833.3% compared to 115.7% in United States.
-34-
Hong Kong has a well educated, technologically savvy population. In December 2005, Internet World Statistics reported that there were 4,878,713 Internet users in Hong Kong (representing 69.2% of the population), up from 4,661,589 in May 2004. According to Nielsen/NetRatings, the active web usage in Hong Kong was 2,733,220 in July 2004, while the estimated active digital media universe is 4,878,713.
According to the Internet Subscriber Survey conducted by the FIND team of the Advanced Institute (ACI), Institute for Information Industry (III), under the support of Department of Industrial Technology (DOIT) and Ministry of Economic Affairs (MOEA), it was estimated that there were 15.4 million Internet users in Taiwan as of December 2007. The Internet penetration rate was 67.4%; compared to the same time period in 2000, there was a significant increase and the growth rate is 146%.
In terms of the Chinese market in North America, based upon the surveys described below, we believe that the Chinese population has greater purchasing power than the overall market. According to the independent survey done by ACNielsen at the end of year 2000 of residents in Vancouver, British Columbia, 46% of Chinese adults age 18 and over own a single-detached home. Furthermore, 72% of Chinese immigrants purchase new automobiles and 77% paid in cash for their new automobiles. We believe that these statistics indicate the affluence of Chinese immigrants to North America. Although the survey was only done in Vancouver, we believe this may indicate a trend throughout the major cities in North America. We believe that one of the key statistics is that, as of 2000, 86% of the Vancouver Chinese adults owned a home computer compared to only 50% of the total Canadian population. We believe this justifies the feasibility of a Chinese internet market in North America and their level of disposable income. Another significant market statistic is that of the top 10 media penetration in the Vancouver Chinese population, only one of the media outlets is in the mainstream English language market at 9th place. This suggests that most Chinese immigrants focus more on media in their native Chinese language.
Internet Advertising Market
In December 2002, eMarketer's "Media Spending Outlook 2003" predicted that in contrast to the steady decline seen in U.S. online advertising spending in 2001 and 2002, 2003 online spending would rise slightly to $6.70 billion, up 6.3% from $6.3 billion in 2002. This projected increase would likely be assisted by the general easing of the economic recession. Also, eMarketer estimates that online advertising would make up 2.5% of total US media spending in 2002, rising to 2.8% by 2005.
The actual full year 2003 Internet advertising revenue in the United States was just under $7.3 billion, according to the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) in their Internet Advertising Revenue Report released on April 21, 2004. This represented an overall growth of approximately 21% from 2002.
The Internet advertising market is expected to grow in the coming year. According to data released at the Jupiter/IAB Advertising forum in New York in October 2002, the industry is predicted to grow to $14 billion by 2007. Factors that are cited as driving forces behind increased spending include: continual growth in the online population, growing broadband adoption and smarter inventory control among online publishers. Further, according to the Jupiter Research report, "Online Advertising: Traditional Advertisers, Classifieds Pave Road to Recovery," in 2002, media represented 20% of online advertising spending, financial services contributed 17% and computer hardware and software contributed 12%. For year 2006, eMarketer’s article had quoted data from Internet Advertising Bureau of Canada’s (IAB’s) “2006-07 Canadian Internet Advertising Revenue Report” indicated advertising revenues reached C$1.01 billion. Based on this data, we believe that our services and offerings are well positioned in a market that is continuing to grow.
Investor Relations (“IR”) Market
For the other part of our business, the Investor Relations and Public Relations business, we can refer to a membership survey done by the CIRI (Canadian Investor Relations Institute) in 2000, which reported that the average annual IR budget for a company with a market capitalization below $99 million and between $100 million to $499 million was $257,000 CDN and $485,000 CDN, respectively. There are about 15,000 public companies in North America, and based on these numbers, we estimate the total IR market in North American to be $2.5 billion annually.
The IR/PR market in Greater China is not well-established yet. However, that means that we could become one of the industry leaders in this area due to our existing infrastructure. A main problem of the Hong Kong Growth Enterprise Market (“GEM”), the stock exchange for micro-small cap start-up companies, is that there is very limited liquidity in terms of stock trading due to low market awareness of companies listed in GEM. With the number of listed companies increasing in the PRC and the existing well-established financial systems and markets in Hong Kong and Taiwan, we believe that the IR/PR business potential in the Greater China region is favourable.
-35-
Conference / Seminar Market
Because our conference business targets Chinese companies seeking to invest and establish business connections with North American servicing firms, we believe our market will grow substantially with the increasing number of Chinese outward direct investments (ODI). For year 2005 figure by the Commerce Ministry, China’s ODI rose 26% to US$6.9 billion, and the PRC’s policy on economic development had attracted investment from North American firms.
According to the annual survey that was done jointly by the Asia Pacific Foundation of Canada (APF Canada) and the China Council for the Promotion of International Trade (CCPIT) on December 2006, there have been an increasing number of companies from China that involve ODI. In which over 40 percent of the surveyed companies are intend to invest overseas within the next 3 to 5 years period. The survey result also indicated the existing ODI targets foreign markets, and merging with and acquiring foreign firms is becoming one of the options for Chinese companies’ ODI. In particular, the three most preferred method of future Chinese ODI are establishing sales offices, setting up equity joint ventures with local firms and merging and acquiring foreign assets or firms. With the growing figures of overseas investment and the economic development between North America and Asia, we believe the growth of our conference business will be substantial in both scale and scope.
Competition
The Internet based financial services industry is very competitive. The Greater China and Asian Internet markets have an increasing number of entrants because Internet start-up costs are low. In addition, the Internet industry is relatively new and subject to continuing definition. As a result, many of our competitors may better position themselves to compete in the market as the Internet market matures. We believe that, taken separately, each of our services has competition from companies with longer operating histories in the Internet market, greater name recognition, larger customer bases and databases and significantly greater financial, technical and marketing resources. Any of our present or future competitors may provide products and services that provide significant performance, price, creative or other advantages over those offered by us. We may not be able to compete successfully against our current or future competitors.
There are three primary competitors offering websites that contain financial services in Chinese (as well as other services) although neither is offering exactly the same-targeted financial services.
· Chineseinvestors.com Inc. operates the www.chinesefn.com website, is a leading financial portal that provides US stock market information and news. This company’s main business model is the online advertising revenue from financial services corporations such as Scottrade, E*Trade, Charles Schwab, Sutton Online or internet related companies like AT&T and GYC Telecom. Chineseinvestors.com does not have an established IR/PR business model that can generate on-going revenues for the company.
· Sina.com is the most established Chinese news and media website, with over one million registered users. Sina.com offers websites for Chinese in North America, Taiwan, PRC and Hong Kong, as well as news, information on finance, life, shopping, chat, e-mail, games, horoscope and a search engine.
· China Finance Online Inc., based in the PRC, serves investors in China by providing news, research reports, commentaries, streaming data, quotes of the China’s Stock Market. Their principal website is www.jrj.com.cn with over 1 Million paid subscribers.
-36-
Additionally, our competition with respect to user traffic, ease of use and functionality also include Chinese language based web search and retrieval companies such as Yahoo! China, Sina.com, Netease, Sohu, Shanghai Online, ChinaByte and Netvigator (which is owned by PCCW). Our competition with respect to strategic expertise, technical knowledge and problem solving skills for web design include, as well as many unknown smaller companies who may offer this service, Internet integrators and website design and development companies such as iXL Inc., Modem Media, Proxicom, Inc., One to One Media Limited, Eureka Digital Limited, Dragon Creative International and Core Solutions Limited.
Our competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to qualified personnel, distribution partners, advertisers and content providers. Further, ISP’s, web browsers and web content providers may be perceived by advertisers as having more desirable websites for placement of advertisements. Additionally, some or all of these competitors may develop web search and retrieval services that are equal or superior to those we offer our users and may achieve greater market acceptance than our offerings in the area of performance, ease of use and functionality.
Intellectual Property, Government Approvals and Regulations
Our application technology is not protected by any patents or copyrights nor do we intend to seek any such protection. Without patent or copyright protection, we may not be able to prevent duplication or use of our technology by competitors. There are currently no material effects of government regulations on our business.
-37-
C. Organizational Structure
ChineseWorldNet.Com Inc was incorporated under the Company Law (1998 revision) of the Cayman Islands on January 12, 2000. Our principal executive and registered office is located at Appleby Spurling Hunter Group, Clifton House, P.O. Box 1350, Grand Cayman, Cayman Islands. Our North American office and principal place of business is located at Suite 368 – 1199 West Pender Street, Vancouver, British Columbia, Canada V6E 2R1.
CWN is a holding company which owns 100% of NAI Interactive Ltd. (“NAI”) and 99% of Chineseworldnet.com (Hong Kong) Limited (“CWNHK”). 1% of CWNHK is owned by Mr. Lui Chi Cheong, a director and major shareholder of CWN. Our portal business is operated under CWN with our associated brand, ChineseWorldNet.com and website www.chineseworldnet.com, while our IR/PR business is operated under NAI. In addition, NAI employees are engaged to build the www.chineseworldnet.com website including our content for CWN.
NAI is a British Columbia company incorporated on November 13, 1998. We acquired NAI on January 15, 2000 from Ms. Tim Yee Lau, the wife of our President and Chief Executive Officer, Mr. Joe Tai, for a purchase price of 112,500 of our common shares valued at $5,625. NAI’s head office is located at #368-1199 West Pender Street, Vancouver, B.C., V6E 2R1.
(“CWNHK”) is a Hong Kong company incorporated on December 22, 1999. CWNHK is 99% owned by us with 1% owned by one of our directors. Since June 2004, CWNHK’s office has been located to Room 1101, St. George’s Building, 2 Ice House Street Central, Hong Kong. CWNHK provides us with a local operation base for CWN’s penetration and expansion plans in the Asian market.
At December 31, 2007, we had a total of 18 employees, all full-time employees, of which 17 are employees of NAI. Our President and CEO is the only employee directly hired by CWN. All employees are located in the Vancouver office in Canada.
As part of our proposed expansion into Asia, on October 13, 2000, we purchased 100,000 common shares in the capital of Technology City Holdings Limited (“TCHL”), a Hong Kong incorporated company, representing 4.167% of the then issued and outstanding shares of TCHL, for US$100,000. TCHL is a multi-media, Internet-based financial information provider focusing on listed securities in Hong Kong. The purpose of this investment was to provide content supply from TCHL to the www.chineseworldnet.com website. This includes market and content information focusing on public companies listed on the GEM in Hong Kong. On December 31, 2002, we determined that the recovery of the investment in relation to future projected cash flows from the investment in TCHL was doubtful and there was no market available to liquidate the subscribed shares. We therefore wrote down the value of our investment to a nominal value of $1.
On November 2, 2000, we completed a private placement with certain individuals who purchased 2,000,000 of our common shares at a price of $0.40 per common share for gross proceeds of $800,000. The proceeds from this private placement were used for general working capital purposes. On May 31, 2004, we raised $150,000 through issuing 3 year, 5% convertible debentures.
-38-
On October 29, 2004, we issued 200,000 new shares to acquire the remaining assets of TCHL, which included HK$540,000 in cash and equipment, from Marrick Investments Limited. Marrick Investments Limited nominated its sister company, Datacom Venture Limited to be the record owner the shares. Datacom Venture is a majority shareholder of ChineseWorldNet.com. See Item 7 - Major Shareholders and Related Party Transactions.
On September 25, 2006, we obtained the trading symbol of “CWNOF.OB” and our common stock has been approved for trading on the OTC Bulletin Board. The company contains 8,200,000 outstanding shares as at December 31, 2006, and 8,450,000 fully diluted shares in the share price of USD $1.00.
On January 18, 2007, the 3 year 5% convertible debentures (2004) had been converted into common shares. On March 1, 2007, we raised $250,000 through issuing 3 year, 6% convertible note with warrants. On October 11, 2007, we completed a private placement with certain individuals and issued 2.25 million shares at $1.08 per common share for the gross proceeds of $2.43 million.
D. Property, Plants and Equipment
We do not own any real property. As of December 31, 2007 we owned $14,235 (2006: $15,541 & 2005: $11,822) in computer equipment and computer software and $7,766 (2006: $7,136 & 2005: $4,945) in office furniture. We have a lease agreement for the Vancouver office (Address: #368 - 1199 West Pender Street, Vancouver, British Columbia, Canada V6E 2R1). There is no lease for the Toronto office because we rent a mailbox facility at the Toronto Board of Trade.
ITEM 4A . UNRESOLVED STAFF COMMENTS
The Company is not an accelerated filer, a large accelerated filer or a well-known seasoned issuer and, as such there is no requirement to provide any information under this item.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
This discussion and analysis is of our operating results and our financial position for the fiscal years ended December 31, 2007, 2006 and 2005, and should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto provided at Item 17.
A. Results of Operations
Years Ended December 31, 2007, 2006 and 2005
For the year ended December 31, 2007, net income was $54,133 on revenue of $1,325,994. Overall, revenues in 2007 increased 106% from 2006 levels, while net income was $54,133 in 2007 as compared with net loss of $209,883 in 2006. For the year ended December 31, 2006, net loss was $209,883 on revenue of $643,370. Overall, revenues in 2006 increased from 2005 levels, while the net loss was further increased from $78,030 in 2005 to $209,883.
Year ended December 31, 2007 compared to year ended December 31, 2006
Revenues
The increasing number of publicly listed companies from the mining industry sector, and our business expansion towards conference business are the main factors for the increase in our overall revenues. Our core services includes: Banner Advertisements, Chinese Webpage Design and Hosting, Miscellaneous IR/PR Service, and GCFF Conference Services, from which we derived most of our revenues and revenue growth in 2007.
-39-
Revenue Growth Trend
With the improvement of overall economic markets and increase in the revenues from our core services, we expect our revenue will continue to grow as we focus on core services expansion. Primarily, we intend to concentrate our resources on expanding our sales and marketing force with respect to our Conference service in China and IR/PR services, which we anticipate will produce most of the revenue growth for our operations.
Banner Advertisement
The increase in revenue for Banner Advertisement from $17,514 for fiscal year 2006 to $26,436 for fiscal year 2007 is due to the increase in advertising-related business on our website.
Translation Service
The number of translation projects had slightly increased for the fiscal year of 2007, thus revenue incresed from $3,420 from year 2006 to $5,090 for year 2007.
Chinese Webpage Design, Hosting and Maintenance
The revenues for Chinese Webpage Design - Hosting and Maintenance increased substantially from $71,052 in fiscal 2006 to $169,097 in fiscal 2007. This is primarily due to the significant increase of client companies involve in Chinese micro-site development and hosting in 2007.
Computer Consultation Services
Revenues from Computer Consultation services were $0 in fiscal 2007, as we discontinued this service in fiscal year of 2005.
CWN Membership, Online Services
CWN Membership & Online service revenues increased from $8,524 from fiscal 2006 to $15,556 in fiscal 2007. This is due to the increase in number of membership subscribers.
Miscellaneous IR/PR services
Revenues from IR/PR services increased from $170,489 in fiscal 2006 to $223,006 in fiscal 2007. The revenue growth is due to the increasing number of our feature companies having subscribed to our premium services under the establishment of NAI Interactive Ltd. This group of high-profile clients was willing to spend more in fees in order to market their companies to the Chinese market.
Investment Guides
The increase in revenue in our Investment Guides business from $78,921 in fiscal 2006 to $85,245 in fiscal 2007 is primarily due to the depreciation of US currency in 2007. The business generated from sponsorship of investment guides in 2007 has approximately same as last year.
GCFF Conference Service
The revenue generated from Conference business had significantly increased from $251,735 in fiscal 2006 to $775,738 in fiscal 2007. This is due to the significant success of our annual events that held in Shanghai. The GCFF conference in China generated almost half of the total revenue from conferences. While the number of conferences had remained the same, the number of client companies and sponsors that exhibit at the conferences had increased substantially. We anticipate the revenue generate from the conference service will continue to rise as the scale and scope of the conference continues to grow.
Other Revenues
Other revenue items, such as Online Marketing Services, were $25,826 in fiscal 2007 as compared to $14,880 in fiscal 2006. The numbers of customers increase for our online marketing services in the fiscal 2007 when compared to the fiscal 2006.
Expenses
Total expenses for fiscal 2007 were $1,269,431, up from $861,894 in fiscal 2006. Expenses related to travel and entertainment and operating increased with increasing revenue and activities. The substantial increase in our operating expenses is principally from an increase in our advertising and promotion of our GCFF event fees, consulting fees, salary fees and travel & entertainment fees, while our legal fees and bad provision cost decreased. We expect our operating expenses will continue to increase for the foreseeable future, while the rate of increase will depend on our business expansion in advertising and promotion, as well as our human resource requirements. Since we intend to focus on expanding our sales and marketing staff for our Conference business in Canada & China and our promotional efforts for our IP/PR Services, we expect that it will be these specific expenses which will have the largest increase.
-40-
Advertising and Promotion
Our advertising and promotional expenses increased greatly from $49,836 in fiscal 2006 to $286,439 in fiscal 2007 mainly due to the increased sales in GCFF China event in 2007.
Accounting and Legal
Our accounting and legal fees decreased from $97,742 in fiscal 2006 to $58,022 in fiscal 2007. The decrease resulted from the change of our auditor in fiscal 2006 from Ernst & Young LLP to Chang Lee LLP, and the decrease in professional fees for legal services work performed for us in 2007. The decrease was also resulted from drafting of the respond letters to the SEC regards to the 20 F amendment in 2006.
Printing
Printing expenses changed to $39,972 for fiscal 2007 from $40,152 for fiscal 2006 primarily associated with the printing of publication and promotional materials. Our printing expenses mainly involve printing of Mining Investment Guide, as well as the promotional materials for conference business expansion such as brochures and pamphlets.
Rent and Operating
The office rental cost increased from $53,797 in fiscal 2006 to $72,427 fiscal 2007 due to the move to a larger office space from August 2006.
Salaries and benefits
Salaries and benefit expenses increased to $465,494 in fiscal 2007 from $347,990 in fiscal 2006 primarily due to the increase in the number of staff and compensation payments.
Travel and entertainment
Travel expenses increased to $136,344 in fiscal 2007 from $86,442 in fiscal 2006 due to business development activity expansion in Asia for the purpose of increasing our business overseas, and management making numerous associated trips to Asia and within North America.
Other Expenses
Other expenses, such as consulting fees, office and miscellaneous, and telephone fees increased from $83,559 in fiscal 2006 to $172,695 in fiscal 2007. This is mainly due to the increased levels of business development activity and greater expenditures on information technology. Another consulting agreement of yearly fees of $60,000 is signed with Goldpac Investments Ltd. in 2007. The Company incurred accretion expense of $13,755 from convertible debenture issued in 2007. Stock options granted to directors and employees during 2007 also cost $22,222 under stock based compensation.
Other Income (Loss)
Our other income (loss) line items primarily consist of interest and sundry income from our liquid investments that are deposited with banks and other financial institutions; as well as foreign exchange gain or loss derived from currency exchange transactions. We generally deposit our excess cash in interest bearing or mutual fund accounts. As a result, the other income in our income statement decreased to $(2,430) in 2007 from $8,641 in fiscal 2006.
-41-
Year ended December 31, 2006 compared to year ended December 31, 2005
Revenues
The increasing number of publicly listed companies from the mining industry sector, and our business expansion towards conference business are the main factors for the increase in our overall revenues. Our core services includes: Banner Advertisements, Chinese Webpage Design and Hosting, Miscellaneous IR/PR Service, and GCFF Conference Services, from which we derived most of our revenues and revenue growth in 2006.
Revenue Growth Trend
With the improvement of overall economic markets and increase in the revenues from our core services, we expect our revenue will continue to grow as we focus on core services expansion. Primarily, we intend to concentrate our resources on expanding our sales and marketing force with respect to our Conference service and IR/PR services, which we anticipate will produce most of the revenue growth for our operations.
Banner Advertisement
The slightly decrease in revenue for Banner Advertisement from $18,457 for fiscal year 2005 to $17,514 for fiscal year 2006 is due to the insignificant decrease in viewership of our website.
Translation Service
The number of translation projects had decreased substantially for the fiscal year of 2006, thus revenue declined from $10,973 from year 2005 to $3,420 for year 2006.
Chinese Webpage Design, Hosting and Maintenance
The revenues for Chinese Webpage Design - Hosting and Maintenance decreased from $89,937 in fiscal 2005 to $71,052 in fiscal 2006. This is primarily due to the slight decline of client companies involve in Chinese micro-site development and hosting.
Computer Consultation Services
Revenues from Computer Consultation services were $0 in fiscal 2006, as we discontinued this service in fiscal year of 2005.
CWN Membership, Online Services
CWN Membership & Online service revenues decreased from $11,475 from fiscal 2005 to $8,524 in fiscal 2006. This is due to the slight decrease in number of membership subscribers. Subsequently, our portal traffic had continues to remain consistent and there has been no significant decrease in the use of the online services we provide to subscribers.
Miscellaneous IR/PR services
Revenues from IR/PR services increased from $169,866 in fiscal 2005 to $170,489 in fiscal 2006. The revenue growth is due to the increasing number of our feature companies having subscribed to our premium services under the establishment of NAI Interactive Ltd. This group of high-profile clients was willing to spend more in fees in order to market their companies to the Chinese market.
Investment Guides
The revenue increase in our Investment Guides business from $42,880 in fiscal 2005 to $78,921 in fiscal 2006 is primarily due to the production of our year 2006 Mining Investment Guide. The Mining Investment Guide 2006 had not only doubled in number of pages, as well as the number of copies published.
GCFF Conference Service
The revenue generated from Conference business had increased from $174,881 from fiscal 2005 to $251,735 for fiscal 2006. This is due to the significant success of our annual events that held in different cities worldwide. While the number of conferences had remained the same, the number of client companies and sponsors that exhibit at the conferences had increased substantially. We anticipate the revenue generate from the conference service will continue to rise as the scale and scope of the conference continues to grow.
-42-
Other Revenues
Other revenue items, such as Online Marketing Services, Interest and Others, were $41,715 in fiscal 2006 as compared to $15,052 in fiscal 2005. The number of customers remains approximately the same for our online marketing services in the fiscal 2006 when compared to the fiscal 2005. Starting from August 2006, we have provided corporate services to a private company including filing, telephone and computer usage, as well as provide an office space. As this is a non-core service we had classified under the item of Interest & Others.
Expenses
Total expenses for fiscal 2006 were $861,894, up from $617,886 in fiscal 2005. Expenses related to travel and entertainment, rent and operating increased with increasing revenue and activities. The increase in our operating expenses is principally from an increase in our accounting and legal fees and printing fees, while our advertising and promotion cost decreased slightly. We expect our operating expenses will continue to increase for the foreseeable future, while the rate of increase will depend on our business expansion in advertising and promotion, as well as our human resource requirements. Since we intend to focus on expanding our sales and marketing staff for our Conference business and our promotional efforts for our IP/PR Services, we expect that it will be these specific expenses which will have the largest increase.
Advertising and Promotion
Our advertising and promotional expenses decreased from $50,813 in fiscal 2005 to $49,836 in fiscal 2006 mainly due to the increased awareness of CWN in our market and our reduced reliance on promotion to produce this awareness.
Accounting and Legal
Our accounting and legal fees increased from $56,504 in fiscal 2005 to $97,742 in fiscal 2006. The increase resulted from the change of our legal consulting firm in fiscal 2006 from Hodgson Russ LLP to Baker & McKenzie LLP, and the increase in professional fees for audit and legal services work performed for us. The increase was also resulted from drafting of the respond letters to the SEC regards to the 20 F amendment for fiscal year of 2005.
Printing
Printing expenses decreased to $40,152 for fiscal 2006 from $10,086 for fiscal 2005 primarily associated with the printing of publication and promotional materials. Our printing expenses increase substantially due to the printing of Mining Investment Guide 2006 had increased in both number of pages and copies, as well as the promotional materials for conference business expansion such as brochures and pamphlets.
Rent and Operating
The office rental cost increased from $35,182 in fiscal 2005 to $53,797 fiscal 2006 due to the move to a larger office space from August 2006.
Salaries and benefits
Salaries and benefit expenses increased to $347,990 in fiscal 2006 from $292,930 in fiscal 2005 primarily due to the increase in the number of staff and compensation payments.
Travel and entertainment
Travel expenses increased to $86,442 in fiscal 2006 from $57,043 in fiscal 2005 due to business development activity expansion in Asia for the purpose of increasing our business overseas, and management making numerous associated trips to Asia and within North America.
Other Expenses
Other expenses, such as consulting fees, office and miscellaneous, and telephone fees increased from $67,143 in fiscal 2005 to $83,559 in fiscal 2006. This is due to the increased levels of business development activity and greater expenditures on information technology.
-43-
Other Income (Loss)
Our other income (loss) line items primarily consist of interest and sundry income from our liquid investments that are deposited with banks and other financial institutions; as well as foreign exchange gain derived from currency exchange transactions. We generally deposit our excess cash in interest bearing or mutual fund accounts. As a result, the other income line in our income statement increased to $8,641 in 2006 from $6,335 in fiscal 2005.
For year ending December 31, | |||||||
2007 | 2006 | ||||||
Revenues | |||||||
Banner Advertisement | $ | 26,436 | $ | 17,514 | |||
Translation Service (Company Review, Company Newsletter) | 5,090 | 3,420 | |||||
Chinese Webpage Design, Hosting and Maintenance | 169,097 | 71,052 | |||||
Computer Consultation Service | 0 | 0 | |||||
CWN Membership, Online Service | 15,556 | 8,524 | |||||
Online Marketing Service | 25,826 | 14,880 | |||||
Miscellaneous IR/PR Service | 223,006 | 170,489 | |||||
GCFF Conference Service (Investment Seminar in year 2005) | 775,738 | 251,735 | |||||
Investment Guides | 85,245 | 78,921 | |||||
Interest and others | 26,835 | ||||||
TOTAL REVENUE | 1,325,994 | $ | 643,370 | ||||
Expenses | |||||||
Advertising and promotion | $ | 286,439 | $ | 49,836 | |||
Accounting and legal | 58,022 | 97,742 | |||||
Consulting | 84,000 | 24,000 | |||||
Depreciation | 6,923 | 6,271 | |||||
Accretion on convertible debenture | 13,755 | ||||||
Non-cash compensation changes | |||||||
Financial charges – related parties | |||||||
Interest (imputed) – related parties | 63 | 1,178 | |||||
Interest expense on long term debt | 12,500 | 7,500 | |||||
Office and miscellaneous | 69,622 | 44,298 | |||||
Printing | 39,972 | 40,152 | |||||
Provision (recovery) for Bad and doubtful debts | (17,425 | ) | 87,427 | ||||
Rent and operating | 72,427 | 53,797 | |||||
Salaries and benefits | 465,494 | 347,990 | |||||
Stock Based Compensation | 22,222 | 0 | |||||
Telephone | 19,073 | 15,261 | |||||
Travel and entertainment | 136,344 | 86,442 | |||||
TOTAL OPERATING EXPENSES | $ | 1,269,431 | $ | 861,894 | |||
Other Income (Loss) | (2,430 | ) | 8,641 | ||||
INCOME (LOSS) BEFORE INCOME TAXES | $ | 54,133 | $ | (209,883 | ) | ||
Deferred income taxes recovery | 54,221 | - | |||||
NET INCOME (LOSS) FOR THE YEAR | $ | 108,354 | $ | (209,883 | ) |
Currency
We maintain our accounting records in U.S. dollars. The reporting and functional currency of NAI is the Canadian dollar and the current rate method of translation was used. We translate our assets and liabilities at the exchange rate prevailing as of the balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. Foreign exchange gains and losses are deferred and shown separately in shareholders’ equity.
-44-
Foreign currency fluctuations may have an impact on our financial condition. However, we do not engage in any foreign currency hedge transactions.
Inflation
We do not believe that inflation will have a material adverse effect on our financial condition. Traditionally, the PRC and Canada have not been countries that experienced a substantial increase in inflation.
B. Liquidity and Capital Resources
As of December 31, 2007, we had cash and cash equivalents of $2,638,614. As of that date, we did not have any outstanding debt or line of credit. We believe that our current cash, cash equivalents, and cash flow are sufficient to satisfy our cash requirements to further expand our business and other future development in Asian for the next few years. Our primary cash requirements relate to our operational expenses. Our principal sources of funding consist of advances from related parties in fiscal 2005 and fiscal 2003, and advances from non-related parties in fiscal 2004. In fiscal 2007, we raise additional capital through private placement offerings of common shares. The Company received net proceeds of $2,070,000 in connection with the private placement. In March 2007, the Company also issued a convertible debt in the amount of $250,000 at an interest rate of 6%. In the meantime, we are less likely to seek debt financing from lending institutions or other private lending. Our operational expenditures have been, and are expected to continue to be, funded through our operations and existing capital financing resources. Our uses of cash include general overhead and human resource costs, such as salaries, promotional expenses and rental fees related to our seminars and conferences and production costs of our publications. There were no private placements or acquisitions completed in the year 2003, 2005 or 2006. In 2004, we completed a private placement financing of $150,000 by issuing three year 5% convertible debentures. The debentures were fully converted into 250,000 common shares of the Company in January 2007.
C. Research and Development, Patents and Licenses
We are not engaged in research and development activities and have no patents.
D. Trend Information
A few favourable industry and economic trends may in the future have a material impact on our revenues including: the general financial market turnaround, which will increase demand for financial information services and spending on investor relations/public relations; increasing interest of Asian companies looking to enter North American financial markets; and the increased attention to corporate governance and disclosure. We believe these trends may lead to an increase in demand for our services, which could lead to increase in sales of our services. However, the investor relations/public relations area in Asia is still in its development stage, which may affect the launch of our company’s investor relations/public relations services in Asia. Continued growth in China and interest in the Chinese markets is key to our future profitability and to increasing revenues. There are no known trends with relation to the production of our services.
E. Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
-45-
F. Tabular Disclosure of Contractual Obligations
Payments due by period | ||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||
Long-Term Debt Obligations | 250,000 | 250,000 | ||||||||||||||
Capital (Finance) Lease Obligations | ||||||||||||||||
Operating Lease Obligations | $ | 293,681 | $ | 84,802 | $ | 162,654 | $ | 46,225 | ||||||||
Purchase Obligations | ||||||||||||||||
Other Long-Term Liabilities | ||||||||||||||||
Total | $ | 543,681 | $ | 84,802 | $ | 412,654 | $ | 46,225 | $ | 0 |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following tables set forth all directors and executive officers of CWN and our subsidiary NAI as of December 31, 2007, with each position and office held by them in CWN. Each director’s term of office expires at the next annual general meeting of shareholders.
CWN
– Directors and Officers as of December 31, 2007
Name | Age | Office Held Since | Position with CWN | |||
Joe K.F. Tai | 44 | January 12, 2000 | President, Chief Executive Officer and Director | |||
Kelvin Szeto (1) | 47 | June 1, 2006 | Chief Operating Officer & Chief Financial Officer | |||
Chi Cheong Liu (2) | 48 | January 12, 2000 | Treasurer and Director | |||
Chi Kong Liu (2) | 47 | January 12, 2000 | Director | |||
Andy S.W. Lam (3) | 58 | March 8, 2004 | Director | |||
Vivien Leung (4) | 30 | February 1, 2007 | Corporate Secretary |
-46-
(1) | Kelvin Szeto became acting Chief Operating Officer and acting Chief Financial Officer of the Company on April 1, 2005. He was permanently appointed to the positions on June 1, 2006. |
(2) | Two of our Directors, Chi Cheong Liu and Chi Kong Liu are brothers. There are no other family relationships between our directors and executives. |
(3) | Andy Siu Wing Lam was appointed as a Director in March 2004. |
(4) | Vivien Leung was appointed as a Corporate Secretary as of February 1, 2007 and resigned in April 2008. In the meantime, Gilbert Chan is temporarily responsible to this duty until we find the replacement. |
NAI
– Directors and Officers as of December 31, 2007
Name | Age | Position with NAI | ||
Kelvin Szeto | 47 | President, Secretary and Director | ||
Gilbert Chan | 32 | Vice President – Marketing and Project Development | ||
Lixin Yang | 37 | Vice President - Editing |
The business background and principal occupations of CWN and NAI’s officers and directors for the preceding five years are as follows:
ChineseWorldNet.com Inc.
Joe K. F. Tai
Mr. Tai has served as President, Chief Executive Officer and a director of CWN since January 12, 2000. Mr. Tai has 15 years of experience in international business and has also served as Managing Partner of Goldpac Investments Ltd., a venture capital company. Mr. Tai was also involved with a start-up of an international computer manufacturing company with our corporate office in Vancouver, British Columbia, sales office in Calgary, Alberta, and manufacturing facilities in Hong Kong and PRC and annual sales exceeding Cdn$30 million. In addition, Mr. Tai is a director of Medifocus Inc. and China Goldcorp Ltd., both listed on the TSX Venture Exchange.
Kelvin Szeto
Mr. Szeto has served as Chief Operating Officer and Chief Financial Officer of CWN since June 1, 2006. Between April 1, 2005 and June 1, 2006, Mr. Szeto was acting Chief Operating Officer and acting Chief Financial Officer of CWN. Mr. Szeto has served as NAI’s President, Secretary and Director since November 13, 2001. Prior to the appointment as the President of NAI, Mr. Szeto served as the Secretary, Director and Vice President Operation since January 12, 2000. Mr. Szeto was involved in the start up of an international computer manufacturing company with our corporate office in Vancouver, British Columbia, sales office in Calgary, Alberta and manufacturing facilities in Hong Kong and PRC and annual sales exceeding Cdn$30 million.
Chi Cheong Liu
Mr. Liu has been a director of CWN since January 2000. Mr. Liu has served as President of Chigo Engineering Company, a security engineering firm, for the last 17 years. In addition, Mr. Liu is also a venture capitalist specializing in biotechnology and technology investments.
Chi Kong Liu
Mr. Liu has been a director of CWN since January 2000. Mr. Liu served as President and owner of S & B Trading Company Limited, a diamond and jewellery wholesaler. In addition, Mr. Liu is also a venture capitalist specializing in biotechnology and technology investments.
Andy S. W. Lam
Mr. Lam was appointed director of CWN on March 8, 2004. Mr. Lam is currently a director of CWNHK. Mr. Lam is a Justice of the Peace appointed by the Hong Kong Government. He is a successful businessman with over 19 years of experience in strategic investment and planning. Mr. Lam has sat on the board of a number of publicly listed companies on Hong Kong Stock Exchange and served on several government committees and tribunals in Hong Kong. Mr. Lam is a CPA and holds a MBA degree from Oklahoma City University.
-47-
NAI Interactive Ltd.
Kelvin Szeto
Mr. Szeto has served as NAI’s President, Secretary and Director since November 13, 2001. Prior to the appointment as the President of NAI, Mr. Szeto served as the Secretary, Director and Vice President Operation since January 12, 2000. Mr. Szeto was involved in the start up of an international computer manufacturing company with our corporate office in Vancouver, British Columbia, sales office in Calgary, Alberta and manufacturing facilities in Hong Kong and PRC and annual sales exceeding Cdn$30 million. Mr. Szeto also serves as Chief Operating Officer and Chief Financial Officer of CWN.
Gilbert Chan
Mr. Chan has acted as the Vice President -Marketing and Project Development for NAI since June, 2000. Mr. Chan has extensive experience working as a project manager for different websites. Mr. Chan holds a Bachelor Degree in Applied Science from University of British Columbia.
Lixin Yang
Mr. Yang was promoted to the position of VP - Editing of NAI on March 1, 2004. Mr. Yang has been part of the Editing Department since June 2002. He is responsible for content development and overseeing the Editing Department. Mr. Yang has over ten years working experience in commercial banking, investment banking and investment consulting fields in China and holds a MBA from Vrije University Brussels, Belgium.
B. Compensation
The following table provides information regarding the direct or indirect remuneration paid during the 2007 fiscal year to the directors and officers of CWN, including our subsidiaries, in office as of December 31, 2007:
Annual Compensation | ||||||||
Name and Principal Position | Year | Salary | Bonus | Other Annual Compensation | ||||
Joe K. F. Tai President, Chief Executive Officer and Director | 2007 | Nil(1) (2) | Nil | Nil | ||||
Chi Cheong Liu (1) (2) Treasurer and Director | 2007 | Nil(2) | Nil | Nil | ||||
Chi Kong Liu Director | 2007 | Nil | Nil | Nil | ||||
Andy S.W. Lam Director | 2007 | Nil | Nil | Nil | ||||
Kelvin Szeto Chief Operating Officer and Chief Financial Officer of CWN; (3) President, Secretary and Director of NAI | 2007 | $43,200 | Nil | Nil | ||||
Gilbert Chan VP Marketing and Project Development of NAI | 2007 | $43,200 | Nil | Nil | ||||
Lixin Yang VP Editing of NAI | 2007 | $31,277 | Nil | Nil |
(1) | We have a consulting agreement with Goldpac Investment Partners Ltd. for 2007, 2006 and 2005 for $24,000 per year. Goldpac Investment Partners Ltd. is a company owned by Chi Cheong Liu, one of our directors. |
-48-
(2) | Joe Tai and Chi Cheong Liu are shareholders and do not receive salaries. |
(3) | Kelvin Szeto was appointed as Chief Operating Officer and Chief Financial Officer of CWN on June 1, 2006. |
Pension Plans
We do not provide retirement benefits for directors, senior management or employees.
C. Board Practices
Directors hold office for a term of one year or until the next annual meeting of shareholders at which directors are elected. All of the current directors have served since January 12, 2000, other than Andy S.W. Lam who was appointed to the board in March 2004 following the resignation of Ken Cai in January 2004. Our officers are appointed by the board and serve at the board’s discretion.
We have not entered into service contracts with any of our directors. We have entered into consulting agreements with Goldpac Investments Ltd and Goldpac Investment Partners Ltd., which are partially owned and wholly owned respectively by Mr. Chi Cheong Liu, one of our directors. Currently, we have one consulting agreement with Goldpac Investment Partners Ltd. in force, and we extended the terms of this consulting agreement to December 31, 2007. We have also one consulting agreement entered with Goldpac Investments Ltd. in force, ending December 31, 2007.
As of December 31, 2007, we did not have either an Audit Committee or a Compensation Committee.
D. Employees
As of December 31, 2007, we had a total of 18 employees, all full-time, of which 17 are employees of NAI. Our President and Chief Executive Officer is the only employee hired by CWN. All 18 employees are located in our Vancouver office. There had been as many as 3 employees based in Toronto; however, since the end of 2002, we no longer have employees there. There are currently no full-time employees in Hong Kong.
E. Share Ownership of Directors and Senior Management
The following table sets forth certain information regarding the ownership of our common shares as of March 31, 2008 by each of the directors and members of senior management in office as of March 31, 2008. The percentage owned is based on 10,700,000 shares outstanding as of March 31, 2008.
-49-
As at March 31, 2008
Name and Title | Share Ownership | % Share Ownership | |||||
Joe Tai (1) President, CEO and Director | 250,000 | 2.33 | % | ||||
Chi Cheong Liu Director | 1,896,667 | 17.73 | % | ||||
Chi Kong Liu Director | 570,000 | 5.33 | % | ||||
Lixin Yang (3) Vice President, Editing of NAI | 10,000 | 0.09 | % | ||||
Kelvin Szeto Chief Operating Officer and Chief Financial Officer of CWN; (4) President, Secretary and Director of NAI | 150,000 | 1.40 | % | ||||
Gilbert Chan Vice President, Marketing and Project Development of NAI | 50,000 | 0.47 | % | ||||
Andy S.W. Lam (5) Director | 0 | — | |||||
All Directors and Senior Management as a group | 2,926,667 | 27.35 | % |
(1) | Includes 112,500 common shares held by Ms. Tim Yee Lau, spouse of Joe Tai, which was acquired in exchange for all issued and outstanding shares of NAI Interactive Ltd. |
(2) | Mr. Lixin Yang was appointed Vice President, Editing in March 2004. |
(3) | Mr. Kelvin Szeto was appointed Chief Operating Officer and Chief Financial Officer of CWN on June 1, 2006. |
(4) | Mr. Andy S. W. Lam was appointed Director in March 2004. |
Stock Options
We adopted the 2007 Stock Option Plan, or the Plan, on October 11, 2007, under which we could issue share options with the right to purchase up to 550,000 ordinary shares to our directors, officers, and key employees. We did not grant options to individual consultants and advisors.
As at December 31, 2007,we have a total number of 540,000 options that are unvested. All of the options we granted on October 11, 2007 with an exercise price of $1.08 per share and expire on October 11, 2012. All of the options granted under the Plan to our directors and officers have a vesting period of 1 to 5 years.
A copy of our Stock Option Plan is filed as an exhibit to this Annual Report.
Key Employees | Job Title | Share Granted | ||
Joe Tai | President & CEO | 180,000 | ||
Kelvin Szeto | Senior Vice president of Operations | 100,000 | ||
Gilbert Chan | Senior Vice President of Marketing & Investors Relations | 50,000 | ||
Board of Directors | ||||
Joe Tai | Director | 25,000 | ||
Andy Lam | Director | 25,000 | ||
Liu Chi Cheong | Director | 25,000 | ||
Simon Liu | Director | 25,000 | ||
Employees | ||||
Frank Feng Feng | Systems Administrator | 20,000 | ||
Mary Weixin Zhang | Editor | 10,000 | ||
Jin Xu | Editor | 10,000 | ||
Lixin Yang | Vice-President of Editing | 15,000 | ||
Kai Bei Yang | Business Development & Analyst | 15,000 | ||
Fornia Wai Ting Lau | Business Development Manager | 20,000 | ||
Karl Por So | Web Developer | 10,000 | ||
Vivien Ka Ki Leung | Corporate Secretary | 10,000 (Forfeited) | ||
Kwok Keung Pang | Accounting Officer | 10,000 |
-50-
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major shareholders
The following table sets forth, as at March 31 2008, certain information with respect to the beneficial ownership of our common shares by each shareholder known by us to be the beneficial owner of more than 5% of our outstanding common shares. The percentage ownership is based on 10,700,000 shares outstanding as of March 31 2008.
Unless otherwise indicated by footnote, we believe that the beneficial owners of the common shares listed below, based on information furnished by such owners, have sole investment and voting power with respect to such common shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the United States Securities and Exchange Commission and generally includes voting or investment power with respect to securities.
As at March 31, 2008
Name of Shareholder | Number of Common Shares | Percentage of Shares Beneficially Owned (%) | |||||
Chi Cheong Liu | 1,730,000 | 16.17 | % | ||||
Vcanland China Holdings Ltd. | 1,500,000 | 14.02 | % | ||||
Goldpac Investment Partners Ltd. | 1,166,667 | 10.90 | % | ||||
Datacom Venture Limited (1) | 600,000 | 5.61 | % | ||||
Chi Kong Liu | 580,000 | 5.42 | % | ||||
Monica Law | 570,000 | 5.33 | % |
(1) 200,000 shares were issued to Datacom Ventures, which is the nominee for Marrick Investments, in connection with the purchase of the remaining assets of Technology City Holdings Ltd.
Since we had private placements and conversion of common shares from debenture, there had been significant change in percentage ownership of the above major shareholders. The shares they held had been diluted.
As far as is known to us, and except as disclosed herein, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or any other person or entity. The shareholders, who own five percent or more of our common shares, do not have voting rights which are different than our other shareholders who own our common shares.
United States Shareholders
As of December 31, 2007, we had three registered shareholders with addresses in the United States, holding less than 0.25% of the outstanding common shares.
-51-
B. Related party transactions
In 2007, we renewed our consulting agreement for the period January 1 – December 31, 2007 and paid $24,000 ($2,000 per month) in consulting fees to Goldpac Investment Partners Ltd., a company owned by Chi Cheong Liu, one of our directors and a holder of 16.2% of our outstanding shares. Goldpac Investment Partners Ltd. is a holder of 10.9% of our outstanding shares. In 2007, we paid $24,000 in consulting fees to Goldpac Investment Partners Ltd.
In 2007, we signed a new consultant agreement for the period January 1 – December 31, 2007, and paid $60,000 ($5,000 per month) in consulting fees to Goldpac Investments Ltd., a company partially own by Chi Cheong Liu, one of our directors. Mr. Joe Tai is the Managing Partner of Goldpac Investments Ltd. and Mr. Joe Tai also is our President & CEO. Goldpac Investments Ltd. is a holder of 1.87% of our outstanding shares.
None of our directors or senior officers and no associates or affiliates of any of them is or has been indebted to us or our subsidiaries at any time.
C. Interests of Experts and Counsel
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
ITEM 8. FINANCIAL INFORMATION
A. Financial Statements
This Annual Report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2007, 2006 and 2005, including our consolidated balance sheets as of December 31, 2007 and 2006, and the consolidated statements of loss and deficit for the years ended December 31, 2007, 2006 and 2005, and the notes to those statements and the auditor’s reports thereon.
B. Significant Changes
There have been no significant changes in our business in the period from December 31, 2007 until the date of this document.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Shares of our common stock are currently quoted on the OTC Bulletin Board under the symbol “CWNOF.OB.” For the periods indicated, the following table sets forth the high and low bid prices per share of common stock, as reported by the OTC Bulletin Board. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. On June 4, 2008, the closing bid price per share of our common stock was $0.75.
-52-
Periods | High | Low | |||||
Fiscal Year 2007 | |||||||
Last Quarter (October 2007 December 2007) | $ | 1.50 | $ | 1.25 | |||
Fiscal Year 2008 | |||||||
First Quarter (January-March 2008) | $ | 1.30 | $ | 1.20 | |||
Second Quarter (April – June 4, 2008) | $ | 1.25 | $ | 0.50 | |||
Period from December 2007 through May 2008 | |||||||
December 2007 | $ | 1.50 | $ | 1.25 | |||
January 2008 | $ | 1.30 | $ | 1.30 | |||
February 2008 | $ | 1.30 | $ | 1.20 | |||
March 2008 | $ | 1.25 | $ | 1.25 | |||
April 2008 | $ | 1.25 | $ | 1.25 | |||
May 2008 | $ | 1.00 | $ | 0.50 |
B. Plan of Distribution
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
C. Markets
Our common shares are quoted on the Over-the-Counter Bulletin Board of the National Association of Securities Dealers, Inc. under the symbol “CWNOF.OB.”
D. Selling Shareholders
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
E. Dilution
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
F. Expenses of the Issue
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
-53-
B. Memorandum and Articles of Association
There have been no changes to the Memorandum or Articles of Association, or Cayman Islands Law with respect to rights and powers of directors and shareholders since our 20-F Registration Statement (SEC file no. 000-33051) was filed on July 3, 2002. Such discussion is hereby incorporated by reference into this Annual Report.
C. Material Contracts
On June 06, 2006, we entered into a office lease agreement for our current offices located at Suite 368 - 1199 West Pender Street, Vancouver, British Columbia, Canada V6E 2R1. The term of the lease is for 5 years from August 2006. Monthly payments are CAD$6,484.67 plus applicable taxes.
We also entered in an Exchange Agreement with Marrick Investments in April 2004 to acquire the remaining assets of Technology City Holdings Ltd. Under the agreement, we issued 200,000 new shares in October 2004 to Datacom Venture Limited, nominee of Marrick Investments Ltd.
Please see “Item 4 – Information on the Company” and the exhibits to this Annual Report.
We have not entered into other materials contracts other than in the ordinary course of business during 2007.
D. Exchange Controls
Cayman Islands
We are organized under the laws of the Cayman Islands. We do not believe there are any decrees or regulations under the laws of the Cayman Islands applicable to us restricting the import or export of capital or affecting the remittance of dividends or other payments to non-resident holders of our common stock. There are no restrictions under CWN’s Articles of Incorporation or Memorandum of Association or under Cayman Islands law as currently in effect that limit the right of non-resident owners to hold or vote our common shares or to receive dividends thereon. There is uncertainty as to whether the Courts of Cayman Island would (i) enforce judgments of United States Courts obtained against us or our directors and officers predicated upon the civil liability provisions of the federal securities laws of the United States or (ii) entertain original actions brought in Cayman Island Courts against us or such persons predicated upon the federal securities laws of the United States. There is no treaty in effect between the United States and Cayman Island providing for such enforcement.
Canada
There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-residents. Dividends paid to US residents, however, are subject to a 15% withholding tax or a 5% withholding tax for dividends if the shareholder is a corporation owning at least 10% of the outstanding voting shares of the Company pursuant to Article X of the reciprocal tax treaty between Canada and the US.
Except as provided in the Investment Canada Act (the "ICA"), which has provisions that restrict the holding of voting shares by non-Canadians, there are no limitations specific to the rights of non-Canadians to hold or vote the common shares under the laws of Canada, or in the charter documents of the Company or its subsidiaries.
The ICA requires a person who is not a Canadian resident (a "non-Canadian") making an investment, which would result establish a new Canadian business or which would result in the acquisition of control of a Canadian business (i.e. the gross value of the assets of which exceed a certain monetary threshold), to identify, notify, or file an application for review with the Investment Review Division of Industry Canada ("IRD"). The notification procedure involves a brief statement of information about the investment on a prescribed form to be filed by the investor within 30 days following implementation of the investment. Specific investments are subject to review under the ICA. It is intention of the IRD that investments requiring only notification will proceed without government intervention.
-54-
The following investments by non-Canadians are subject to review under the ICA:
1. | An investment is reviewable if there is an acquisition of a Canadian business and the asset value of the Canadian business being acquired equals or exceeds the following thresholds: | ||
(a) | For non-World Trade Organization ("WTO") investors, the threshold is $5 million for a direct acquisition and $50 million for an indirect acquisition; the $5 million threshold will apply however for an indirect acquisition if the asset value of the Canadian business being acquired exceeds 50% of the asset value of the global transaction; | ||
(b) | Except as specified in paragraph (c) below, a threshold is calculated annually for reviewable direct acquisitions by or from WTO investors. The threshold for 2005 is $250 million. Pursuant to Canada's international commitments, indirect acquisitions by or from WTO investors are not reviewable; | ||
(c) | The limits set out in paragraph (a) apply to all investors for acquisitions of a Canadian business that: | ||
(i) | engages in the production of uranium and owns an interest in a producing uranium property in Canada; | ||
(ii) | provides any financial service; | ||
(iii) | provides any transportation services; or | ||
(iv) | is a cultural business. | ||
2. | Notwithstanding the above, any investment which is usually only notifiable, including the establishment of a new Canadian business, and which falls within a specific business activity, including the publication and distribution of books, magazines, newspapers, film or video recordings, audio or video music recordings, or music in print or machine-readable form may be reviewed if an Order-in-Council directing a review is made and a notice is sent to the Investor within 21 days following the receipt of a certified complete notification. |
With reference to 1 (a) above, generally speaking, an acquisition is direct if it involves the acquisition of control of the Canadian business or of its direct or indirect Canadian parent and an acquisition is indirect if it involves the acquisition of control of a non-Canadian direct or indirect parent of an entity carrying on the Canadian business. No change of voting control will be deemed to have occurred if an investor acquires less than one-third of the voting control of a Canadian corporation.
With reference to 1(a) above, a WTO investor, as defined in the ICA, includes an individual who is a national of a member country of the WTO or who has the right of permanent residence in relation that WTO member, a government or government agency of a WTO investor-controlled corporation, a limited partnership, trust or joint venture that is neither WTO-investor controlled or Canadian controlled of which two-thirds of its board of directors, general partners or trustees, as the case may be, are any combination of Canadians and WTO investors.
The ICA exempts certain transactions from notification and review, including, among others,
1. | An acquisition of voting shares if the acquisition were made in the ordinary course of that persons' business as a trader or dealer in securities; |
-55-
2. | An acquisition of control of the company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the ICA; |
3. | The acquisition of voting interests by any person in the ordinary course of a business carried on by that person that consists of providing, in Canada, venture capital on terms and conditions not inconsistent with such terms and conditions as may be fixed by the Minister; and |
4. | Acquisition of control of the company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the company, through the ownership of voting interests, remains unchanged. |
Currently ninety percent of our operations are in Canadian dollars.
Chinese Currency
The Chinese currency is the Renminbi (“RMB”). It is not freely convertible although the Chinese government has emphasized that full convertibility is the long-term goal. Full convertibility, probably after some transitional period, will be a condition precedent to membership in the World Trade Organization, for which PRC has applied. The People’s Bank of China, PRC’s central banking authority, publishes the Renmini exchange rate against the U.S. dollar every day based on the trading price between the two currencies of the previous day on the Inter-Bank Foreign Exchange Market established in Shanghai in 1994. In addition, the People’s Bank of China publishes the Renminbi exchange rates against other major foreign currencies. Designated banks participate on the Inter-Bank Foreign Exchange Market through a computer network connected with major cities in the PRC.
Foreign exchange is administered by the State Administration of Foreign Exchange (“SAFE”), and its local branch offices, all of which are subject to the supervision of the People’s Bank of China. SAFE has established regulations relating to outward remittance by foreign investors of their share of net profit or dividends and final repatriation of their investments, in foreign currency. Subject to payment of applicable taxes, foreign investors may remit out of PRC, in foreign exchange, profit or dividends derived from a source within PRC. Swap centres have been established to assist foreign investment enterprises to balance their foreign currency income and expenses by converting surplus local currency earnings into foreign exchange and vice versa without their having to wait for central allocation. The central foreign exchange adjustment centre is in Beijing and other centres have been established in the coastal cities, Special Economic Zones and other major cities, municipalities and autonomous regions. Remittances by foreign investors of any other amounts (including, for instance, principal and interest on debt and proceeds of sale arising from a disposal by a foreign investor of any of our or his investments in PRC) out of PRC is subject to the approval of the SAFE.
E. Taxation
Cayman Island Income Tax Consequences
CWN is organized under the laws of Cayman Islands. At present, there is no Cayman Islands profit tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by our United States shareholders, except shareholders ordinarily resident in the Cayman Islands. There is currently no reciprocal tax treaty between Cayman Islands and the United States regarding withholding taxes.
F. Dividends and Paying Agents
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
-56-
G. Statement by Experts
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
H. Documents on Display
Any documents referred to in this Annual Report on Form 20-F may be inspected at our principal office located at Suite 368 – 1199 West Pender Street, Vancouver, British Columbia, Canada V6E 2R1 during normal business hours.
The Company's filings with the Securities and Exchange Commission, and the exhibits thereto, are available for inspection and copying at the public reference facilities maintained by the Securities and Exchange Commission in Judiciary Plaza, Room 1024, 450 Fifth Street N.W., Washington, D.C., 20549. Copies of these filings may be obtained from these offices after the payment of prescribed fees. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. These filings are also available on the Securities and Exchange Commission's website at www.sec.gov.
I. Subsidiary Information
This item is not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This item is not applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
This Report on Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.
PART II
ITEM 13. DEFAULTS, DIVIDENDS ARREARS AND DELINQUENCIES
There has not been a material default in the payment of principal, interest, a sinking or purchase fund instalment, or any other material default not cured within 30 days, relating to any indebtedness of us or any of our significant subsidiaries. No payment of dividends is in arrears.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There has been no modification of the instruments defining the rights of holders of any class of the Company’s registered securities. There has been no modification or qualification of the rights evidenced by any class of the Company’s registered securities by issuing or modifying any other class of securities. There are no assets securing any class of the Company’s registered securities. There has been no change in the last financial year to the trustee of the Company’s registered securities.
-57-
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
In our initial Annual Report on Form 20-F for the year ended December 31, 2007, we reported that we performed an evaluation under the supervision and with the participation of management, including our Chief Executive Officer/Chief Financial Officer, as of December 31, 2007, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, we concluded our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures currently in effect and concluded that we had and will continue to implement the following procedures to ensure the effective of our internal control. Including, (i) the engagement of an outside accountant as a consultant to supplement our technical resources and to provide technical support and guidance on accounting issues within the Company, and (ii) the practise of bi-weekly meetings among management and staff in the Company, including our corporate secretary, Chief Executive Officer, Chief Financial Officer and other personnel, to review and evaluate our internal controls and procedures and improve internal education with respect to accounting reviews in order to ensure those involved in financial reporting understand and apply appropriate accounting analysis.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Company’s board of directors serves as its audit committee. The board has designated Mr. Andy S.W. Lam as its audit committee financial expert. Mr. Lam is an independent audit committee member, as defined by the rules of the Nasdaq Stock Market.
ITEM 16B. CODE OF ETHICS
On October 29, 2004, the Company adopted a Code of Ethics (the “Code of Ethics”). A copy of our Code of Ethics is filed as an exhibit to this Annual Report. Our Code of Ethics will be made available in print, free of charge, to any person requesting a copy in writing from our secretary at our North American headquarters in Vancouver, British Columbia, Canada.
-58-
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees billed by our auditors, Chang Lee LLP in 2007 and 2006. In 2006, for professional services rendered to us during the past two fiscal years ended December 31, 2007 and 2006. Our Board of Directors has considered these fees and services and has determined that the provision of these services is compatible with maintaining the independence of that firm.
Year Ended December 31, 2007 | Year Ended December 31, 2006 | ||||||
Audit Fees (1) | $ | 30,000 | $ | 32,000 | |||
Audit-Related Fees (2) | $ | 0 | $ | 0 | |||
Tax Fees (3) | $ | 0 | $ | 0 | |||
All Other Fees | $ | 0 | $ | 0 | |||
Totals | $ | 30,000 | $ | 32,000 |
(1) | “Audit Fees” represent fees for the audit of our annual financial statements, review of our interim financial statements and review in connection with our statutory and regulatory filings. |
(2) | “Audit-Related Fees” represent fees for assurance and related services that are related to the performance of the audit. |
(3) | “Tax Fees” represent fees for tax compliance, tax advice and tax planning. |
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Neither the Company, nor any affiliated purchaser of the Company, has purchased any of the Company’s securities during 2007.
-59-
PART III
ITEM 17. FINANCIAL STATEMENTS
All financial statements herein are stated in accordance with accounting principles generally accepted in the United States. The following Financial Statements pertaining to our consolidated financial statements are filed as part of this Annual Report:
Page # | ||||
Report of Independent Accountants | F-2 | |||
Auditor’s Report from Chang Lee LLP (formerly, Vellmer & Chang) | F-2 | |||
Auditor’s Report from Ernst & Young LLP | F-3 | |||
Auditor’s Report from Moore Stephens Ellis Fosters Ltd | F-3 | |||
Year-end Consolidated Balance Sheets as of December 31, 2006 and 2005 | F-4 | |||
Year-end Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2006, 2005 and 2004 | F-5 to F-6 | |||
Year-end Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 | F-7 | |||
Year-end Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 | F-8 | |||
Notes to Consolidated Financial Statements | F-9 to F-21 |
ITEM 18. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to “Item 17 – Financial Statements and Exhibits.”
-60-
ITEM 19. EXHIBITS
Exhibit No. | Document Description | |
1 | (1) | Articles of Association, Memorandum of Association and Certificate of Incorporation of CWN |
2 | (2) | Form of Convertible Debenture dated May 31, 2004 |
4(b)1 | (1) | Content Partnership Agreement between NAI and Yahoo! Holdings (Hong Kong) Limited, dated January 1, 2001. |
4(b)2 | (1) | Partnership Agreement between CWN and ALPHATRADE.COM, dated April 16, 2002. |
4(b) 3 | (2) | Content Partnership Agreement with PR Newswire dated May 1, 2004 |
4(b) 4 | (2) | On-Line Content Partnership Agreement with Tanrich Financial Management Ltd. dated July 12, 2004 |
4(b) 5 | (2) | Consulting Agreement between CWN and Goldpac Investment Partners Ltd. dated January 1, 2003 |
4(b) 6 | (2) | Consulting Agreement between CWN and Goldpac Investment Partners Ltd. dated January 1, 2004 |
4(b) 7 | (2) | Lease Agreement dated July 25, 2003 between Wertman Development Corporation and NAI |
4(b) 8 | (2) | Exchange Agreement between CWN and Marrick Investments Ltd. |
4(b) 9 | ** | Consulting Agreement between CWN and Goldpac Investment Partners Ltd. dated January 1, 2007 |
4(b) 10 | ** | Consulting Agreement between CWN and Goldpac Investments Ltd. dated January 1, 2007 |
4(c) 1 | ** | Stock Option Plan Agreement dated October 1, 2007 |
8 | ** | List of Subsidiaries |
11.1 | (3) | Code of Ethics |
12.1 | ** | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
12.2 | ** | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
13.1 | ** | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 |
13.2 | ** | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 |
** | Filed herewith |
(1) | Incorporated by reference to Exhibits of Registrant’s Registration Statement on Form 20-F (file no. 000-33051) filed on July 3, 2002. |
(2) | Incorporated by reference to Exhibits of Registrant’s Annual Report on Form 20-F (file no. 000-33051) filed on June 30, 2005. |
(3) | Incorporated by reference to Exhibits of Registrant’s Annual Report on Form 20-F (file no. 000-33051) filed on December 3, 2004. |
-61-
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F, and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: June 26, 2008
ChineseWorldNet.com Inc., |
a Cayman Islands Corporation |
/s/Joe Kin Foon Tai |
JOE KIN FOON TAI |
President, Chief Executive Officer and Director |
-62-
Consolidated Financial Statements
Chineseworldnet.com Inc. & Subsidiaries
(Expressed in U.S. Dollars)
December 31, 2007 and 2006
-F-1-
Chang Lee LLP
Chartered Accountants
505-815 Hornby Street
Vancouver, B.C., V6Z 2E6
Tel: 604-688-3776
Fax: 604-688-3373
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CHINESEWORLDNET.COM INC. & SUBSIDIAIRES
We have audited the accompany consolidated balance sheets of Chineseworldnet.com Inc. & Subsidiaries (“the Company”) as at December 31, 2007 and 2006 and the related consolidated statements of stockholders’ (deficiency) equity, operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstance, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles in the United States of America.
The accompanying consolidated financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from inception and requires additional financing for its intended business operations. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Vancouver, Canada | “ CHANG LEE LLP” |
May 17, 2008 | Chartered Accountants |
-F-2-
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Chineseworldnet.com Inc. & Subsidiaries
We have audited the accompanying consolidated balance sheet of Chineseworldnet.com Inc. & Subsidiaries (“the Company”) as at December 31, 2005, and the related consolidated statements of stockholders’ (deficiency) equity, operations and cash flows for the year ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements as of December 31, 2004 were audited by other auditors and whose report dated March 28, 2005 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.
As described in Note 10, the accompanying consolidated financial statements of the Company as at December 31, 2005 and for the year then ended have been restated. We therefore withdraw our previous report dated June 9, 2006.
Vancouver Canada,
June 9, 2006 (except as to Notes 10 and 11 which are as of November 30, 2006)
Ernst & Young LLP |
/s/ Ernst & Young LLP |
Chartered Accountants |
-F-3-
Chineseworldnet.com Inc. & Subsidiaries
CONSOLIDATED BALANCE SHEETS
As at December 31 | (Expressed in U.S. Dollars) | ||||||
2007 | 2006 | ||||||
$ | $ | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | 2,638,614 | 156,918 | |||||
Available for sales securities [note 3] | 4 | 4 | |||||
Accounts receivable | 36,183 | 35,364 | |||||
Prepaid expenses and deposits | 24,101 | 11,933 | |||||
Deferred income tax assets [note 6] | 18,325 | - | |||||
Total current assets | 2,717,227 | 204,219 | |||||
Equipment [note 4] | 22,001 | 22,677 | |||||
Deferred income tax assets | 40,998 | - | |||||
Total assets | 2,780,226 | 226,896 | |||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIENCY) EQUITY | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | 141,466 | 106,153 | |||||
Due to related parties, non-interest bearing [note 7] | 29,802 | 76,910 | |||||
Deferred revenue | 202,602 | 106,215 | |||||
Convertible debentures – current [note 5] | - | 150,000 | |||||
Total current liabilities | 373,870 | 439,278 | |||||
Convertible debentures [note 5] | 205,662 | - | |||||
Total liabilities | 579,532 | 439,278 | |||||
Commitments [note 9] | |||||||
Subsequent event [note 10] | |||||||
Stockholders’ (deficiency) equity [note 8] | |||||||
Common stock | |||||||
Authorized | |||||||
100,000,000,000 common shares with a par value of $0.001 per share | |||||||
Issued and outstanding 10,700,000 common shares | 10,700 | 8,200 | |||||
Additional paid-in capital | 3,494,224 | 1,196,346 | |||||
Accumulated other comprehensive income | 30,285 | 25,941 | |||||
Deficit | (1,334,515 | ) | (1,442,869 | ) | |||
Total stockholders’ (deficiency) equity | 2,200,694 | (212,382 | ) | ||||
Total liabilities and stockholders’ (deficiency) equity | 2,780,226 | 226,896 |
See accompanying notes
-F-4-
Chineseworldnet.com Inc. & Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIENCY) EQUITY
Year ended December 31 | (Expressed in U.S. Dollars) |
Accumulated | Total | |||||||||||||||||||||
Additional | Comprehensive | other | Stockholders’ | |||||||||||||||||||
Common stock | paid-in | income | comprehensive | (deficiency) | ||||||||||||||||||
Shares | Amount | capital | (loss) | (Deficit) | income (loss) | equity | ||||||||||||||||
# | $ | $ | $ | $ | $ | $ | ||||||||||||||||
Balance, December 31, 2004 | 8,200,000 | 8,200 | 1,194,166 | — | (1,154,956 | ) | 19,447 | 66,857 | ||||||||||||||
Imputed interest on amounts due to related parties | — | — | 1,002 | — | — | — | 1,002 | |||||||||||||||
Components of comprehensive income (loss): | ||||||||||||||||||||||
Net loss for the year | — | — | — | (78,030 | ) | (78,030 | ) | — | (78,030 | ) | ||||||||||||
Foreign currency translation adjustment | — | — | — | 1,804 | — | 1,804 | 1,804 | |||||||||||||||
Change in net unrealized loss on available for sale securities | — | — | — | (49 | ) | — | (49 | ) | (49 | ) | ||||||||||||
Comprehensive income (loss) | (76,275 | ) | ||||||||||||||||||||
Balance, December 31, 2005 | 8,200,000 | 8,200 | 1,195,168 | (1,232,986 | ) | 21,202 | (8,416 | ) |
-F-5-
Chineseworldnet.com Inc. & Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIENCY) EQUITY (cont’d.)
Year ended December 31 | (Expressed in U.S. Dollars) |
Accumulated | Total | |||||||||||||||||||||
Additional | Comprehensive | other | stockholders’ | |||||||||||||||||||
Common stock | paid-in | income | comprehensive | (deficiency) | ||||||||||||||||||
Shares | Amount | capital | (loss) | (Deficit) | income (loss) | equity | ||||||||||||||||
# | $ | $ | $ | $ | $ | $ | ||||||||||||||||
Balance, December 31, 2005 | 8,200,000 | 8,200 | 1,195,168 | (1,232,986 | ) | 21,202 | (8,416 | ) | ||||||||||||||
Imputed interest on amounts due to related parties | — | — | 1,178 | — | — | — | 1,178 | |||||||||||||||
Components of comprehensive income (loss): | ||||||||||||||||||||||
Net loss for the year | — | — | — | (209,883 | ) | (209,883 | ) | — | (209,883 | ) | ||||||||||||
Foreign currency translation adjustment | — | — | — | 4,736 | — | 4,736 | 4,736 | |||||||||||||||
Change in net unrealized loss on available for sale securities | — | — | — | 3 | — | 3 | 3 | |||||||||||||||
Comprehensive income (loss) | (205,144 | ) | ||||||||||||||||||||
Balance, December 31, 2006 | 8,200,000 | 8,200 | 1,196,346 | (1,442,869 | ) | 25,941 | (212,382 | ) | ||||||||||||||
Conversion of 250,000 common shares from | ||||||||||||||||||||||
Convertible Debenture | 250,000 | 250 | 149,750 | 150,000 | ||||||||||||||||||
Shares issued for private placement | 2,250,000 | 2,250 | 2,067,750 | 2,070,000 | ||||||||||||||||||
Beneficiary conversion feature (Note 5) | 29,047 | 29,047 | ||||||||||||||||||||
Share purchase warrants (Note 5) | 29,046 | 29,046 | ||||||||||||||||||||
Stock options granted | 22,222 | 22,222 | ||||||||||||||||||||
Imputed interest on amounts due to related parties | — | — | 63 | — | — | — | 63 | |||||||||||||||
Components of comprehensive income (loss): | ||||||||||||||||||||||
Net loss for the year | — | — | — | 108,354 | 108,354 | — | 108,354 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | 4,344 | 4,344 | 4,344 | ||||||||||||||||
Change in net unrealized loss on available for sale securities | — | — | — | — | ||||||||||||||||||
Comprehensive income (loss) | 112,698 | |||||||||||||||||||||
Balance, December 31, 2007 | 10,700,000 | 10,700 | 3,494,224 | (1,334,515 | ) | 30,285 | 2,200,694 |
See accompanying notes
-F-6-
Chineseworldnet.com Inc. & Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31 | (Expressed in U.S. Dollars) | |||||||||
2007 | 2006 | 2005 | ||||||||
$ | $ | $ | ||||||||
Revenue | 1,325,994 | 643,370 | 533,521 | |||||||
Expenses | ||||||||||
Advertising and promotion | 286,439 | 49,836 | 50,813 | |||||||
Audit and legal | 58,022 | 97,742 | 56,504 | |||||||
Consulting fees | 84,000 | 24,000 | 24,000 | |||||||
Depreciation | 6,923 | 6,271 | 8,084 | |||||||
Accretion on convertible debenture | 13,755 | - | - | |||||||
Interest (non-cash imputed interest - related parties) | 63 | 1,178 | 1,154 | |||||||
Interest expense on long-term debt | 12,500 | 7,500 | 7,500 | |||||||
Office and miscellaneous | 69,622 | 44,298 | 30,959 | |||||||
Printing | 39,972 | 40,152 | 10,086 | |||||||
Provision (recovery) for bad and doubtful debts | (17,425 | ) | 87,427 | 31,447 | ||||||
Rent and operating | 72,427 | 53,797 | 35,182 | |||||||
Salaries and benefits | �� | 465,494 | 347,990 | 292,930 | ||||||
Stock Based Compensation | 22,222 | - | - | |||||||
Telephone | 19,073 | 15,261 | 12,184 | |||||||
Travel and entertainment | 136,344 | 86,442 | 57,043 | |||||||
1,269,431 | 861,894 | 617,886 | ||||||||
Other income (loss) | ||||||||||
Interest and sundry income | 34,761 | 8,388 | 5,763 | |||||||
Foreign exchange (loss) gain and other losses | (35,522 | ) | 760 | 31 | ||||||
Gain (loss) on sale of available for sale securities | (1,669 | ) | — | 541 | ||||||
Write off of equipment | — | (507 | ) | — | ||||||
Other income (loss), net | (2,430 | ) | 8,641 | 6,335 | ||||||
Loss (income) before income taxes | 54,133 | (209,883 | ) | (78,030 | ) | |||||
Deferred income tax recovery | 54,221 | - | - | |||||||
Net income (loss) for the year | 108,354 | (209,883 | ) | (78,030 | ) | |||||
Earning (loss) per share - basic | 0.01 | (0.03 | ) | (0.01 | ) | |||||
- diluted | 0.01 | (0.03 | ) | (0.01 | ) | |||||
Weighted average number of common shares | ||||||||||
outstanding - basic | 9,012,328 | 8,200,000 | 8,200,000 | |||||||
Weighted average number of common shares | ||||||||||
Outstanding – diluted | 9,103,713 | 8,200,000 | 8,200,000 |
See accompanying notes
-F-7-
Chineseworldnet.com Inc. & Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 | (Expressed in U.S. Dollars) | |||||||||
2007 | 2006 | 2005 | ||||||||
$ | $ | $ | ||||||||
OPERATING ACTIVITIES | ||||||||||
Net loss for the year | 108,354 | (209,883 | ) | (78,030 | ) | |||||
Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||||
Provision for bad debt / doubtful debt | 24,459 | 87,427 | — | |||||||
Depreciation | 6,923 | 6,271 | 8,084 | |||||||
Accretion on convertible debenture | 13,755 | - | - | |||||||
Interest (imputed) - related parties | 63 | 1,178 | 1,154 | |||||||
Deferred income tax recovery | (54,221 | ) | - | - | ||||||
Stock based compensation | 22,222 | - | - | |||||||
Write off of equipment | — | 507 | - | |||||||
Loss (gain) on sale of available for sale securities | — | — | — | |||||||
Foreign exchange gain and loss | 22,014 | — | (489 | ) | ||||||
Write down (recovery) of investment | — | — | — | |||||||
Changes in non-cash working capital items: | ||||||||||
Accounts receivable | (19,139 | ) | (63,497 | ) | 55,530 | |||||
Prepaid expenses and deposits | (10,013 | ) | (1,784 | ) | (5,952 | ) | ||||
Accounts payable and accrued liabilities | (29,839 | ) | 26,523 | 22,483 | ||||||
Deferred revenue | 69,867 | 96,030 | 223 | |||||||
Due to shareholder | (3,787 | ) | — | — | ||||||
Net cash provided by (used in) operating activities | 150,658 | (57,228 | ) | 3,003 | ||||||
FINANCING ACTIVITIES | ||||||||||
Advances from related parties | — | — | 24,347 | |||||||
Convertible debenture issuance | 250,000 | — | — | |||||||
Proceed of private placement | 2,070,000 | — | — | |||||||
Net cash provided by financing activities | 2,320,000 | — | 24,347 | |||||||
INVESTING ACTIVITIES | ||||||||||
Purchase of equipment | (2,413 | ) | (12,903 | ) | (1,884 | ) | ||||
Proceeds on disposal of available for sale securities | — | — | 1,536 | |||||||
Net cash provided by (used in) investing activities | (2,413 | ) | (12,903 | ) | (348 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 13,451 | 830 | (10,553 | ) | ||||||
Increase (decrease) in cash and cash equivalents | 2,481,696 | (69,301 | ) | 16,449 | ||||||
Cash and cash equivalents, beginning of year | 156,918 | 226,219 | 209,770 | |||||||
Cash and cash equivalents, end of year | 2,638,614 | 156,918 | 226,219 | |||||||
Supplemental disclosure of cash flow information | ||||||||||
Cash paid for interest, net of interest capitalized | 12,500 | 7,500 | 7,500 | |||||||
Cash paid for income taxes | — | — | — |
See accompanying notes
-F-8-
1. NATURE OF OPERATIONS
The Company was incorporated under the laws of Cayman Islands on January 12, 2000. On January 15, 2000 the Company acquired 100% of the issued and outstanding shares of NAI Interactive Ltd. (“NAI”), a company incorporated under the laws of British Columbia, Canada. The Company also has a dormant wholly-owned subsidiary ChineseWorldNet.com HK Limited (“CWN HK”) incorporated under the laws of Hong Kong.
The Company’s business is to provide online internet services through its Chinese world-wide website. The online internet services comprise banner advertisements, web page hosting and maintenance, on line promotion for customers, translation services, investment seminars, investment handbooks, website contest events, and subscription fees. These services are considered as one segment based upon the Company’s organizational structure, the way in which these operations are managed and evaluated by management, the availability of separate financial results and materiality considerations.
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has recurring losses since its inception and requires additional funds to maintain and expand its intended business operations. Management’s plans in this regard are to raise debt or equity financing as required which the Company has been able to finance the operations through a series of equity and debt financings. From August to October 2007, the Company received net proceeds of $2,070,000 in connection with the private placement. In March 2007, the Company issued a convertible debt in the amount of $250,000 at an interest rate of 6%. However, additional fund is still required to fund the Company’s anticipated business expansion.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. All material inter-company accounts and transactions have been eliminated upon consolidation.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of the net recoverable value of assets, allowance for doubtful accounts, asset impairment and stock based compensation. Management makes its best estimate of the ultimate outcome of these items based on historical trends and other information available when the financial statements are prepared. Actual amounts may ultimately differ from those estimates.
-F-9-
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Equipment
Equipment is recorded at cost, net of accumulated amortization.
Depreciation on equipment is provided on a declining-balance basis over its expected useful lives at the following annual rates:
Furniture and fixtures | 20 | % | ||
Computer equipment | 30 | % |
Cash equivalents
Cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturity of three months or less when purchased. As at December 31, 2007, the Company held $2,574,291 [2006 - $134,234] in cash equivalents.
Foreign currency translations
The Company, NAI and CWN HK maintain their accounting records in their functional currencies of U.S. dollars, Canadian dollars and HK dollars, respectively. However, the Company reports in U.S. dollars. Foreign currency transactions in the foreign subsidiaries are translated into their functional currency using the exchange rate in effect for the period end for assets and liabilities, and revenues and expenses are translated using the exchange rate in effect at that date. At the period end, monetary assets and liabilities are re-evaluated into the functional currency by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations.
Assets and liabilities of the foreign subsidiaries are translated into the reporting U.S. dollars at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rates. Gain and losses from such translations are included in stockholders’ equity, as a component of other comprehensive income.
-F-10-
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Advertising expenses
The Company expensed advertising costs as incurred. Advertising expenses for the years ended December 31, 2007, 2006 and 2005 were $286,439, $49,836 and $50,813 respectively.
Income taxes
The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in income tax rates is included in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.
Comprehensive income
The Company accounts for comprehensive income under the provisions of Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders’ Equity. The Company’s comprehensive income (loss) consists of net earnings (loss) for the year, foreign currency translation adjustments and unrealized gain (loss) on available-for-sale securities.
Financial instruments and concentration of risks
Fair value of financial instruments is made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
-F-11-
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
The carrying value of cash and cash equivalents, available for sale securities, accounts receivable, accounts payable and accrued liabilities and due to related parties approximates the fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant interest, risk arising from these financial instruments.
The Company has cash and cash equivalents with various financial institutions, which may exceed insured limits throughout the year. The Company is exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the institution. However, the Company does not anticipate non-performance. As at December 31, 2007, the Company had $2,237,142 (2006 - $nil) in a bank beyond insured limits.
Concentration of credit risk with respect to trade receivables are limited due to the Company’s large number of diverse customers. The Company does not require collateral or other security to support financial instruments subject to credit risk.
The Company operates and incurs significant expenditures outside of the United States of America and is exposed to foreign currency risks due to the fluctuation between the Canadian dollar and the U.S. dollar.
Available for sale securities
Marketable securities are classified as available for sale securities and are recorded at market value. Unrealized holding gains and losses on available for sale securities are excluded from income and charged to Accumulated other comprehensive income as a separate component of stockholders’ equity until realized.
Non-monetary transactions
The Company entered into agreements for the supply of content for the Company’s websites in exchange for advertising, consisting primarily of links to the supplier’s websites. The Company accounted for these transactions in accordance with Accounting Principles Board No. 29 “Accounting for Nonmonetary Transactions” (“APB 29”) and with Emerging Issues Task Force No. 99-17 “Accounting for Advertising Barter Transactions” (“EITF 99-17). No cash was exchanged between the parties in any of these transactions. These transactions have been recorded at a zero value, being the carrying amount of the content supplied.
-F-12-
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Revenue recognition
Revenue consists of two main sources:
1. | fees from banner advertisement, web page hosting and maintenance, on-line promotion and translation services, advertising and promotion fees for customers in the Company’s Chinese financial newspaper, sponsorship fees from investment seminars and forums, all of which sales prices are fixed and determinable at the time the contracts are signed and there are no provisions for refunds contained in the contracts. These revenues are recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. |
2. | fees from membership subscriptions. These revenues are recognized over the term of the subscription. |
Fees received in advance and require continuing performance obligation are deferred and recognized as revenue systematically over the period of services provided to customers.
Long-lived assets impairment
Long-term assets of the Company are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value has become impaired, in accordance with the guidance established in Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.
Stock-based compensation
The Company has adopted the fair value method of accounting for stock-based compensation as recommended by the Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-based Compensation.
The Company has granted stock options to directors and certain employees for services provided to the company under this method. The company recognizes compensation expense for stock options awarded based on the fair value of the options at the grant date using the Black-Scholes option pricing model. The fair value of the options is amortized over the vesting period.
-F-13-
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d.)
Earning (Loss) per share
Earning (loss) per share is computed using the weighted average number of common shares outstanding during the period. The Company has adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per Share. Diluted earning (loss) per share is equal to basic loss per share because there is no potential dilutive securities.
Accounts receivable
Accounts receivable are recorded at face value, less an allowance for doubtful accounts. The allowance for doubtful accounts is an estimate calculated based on an analysis of current business and economic risks, customer credit-worthiness, specific identifiable risks such as bankruptcies, terminations or discontinued customers, or other factors that may indicate a potential loss. The allowance is reviewed on a regular basis, at least annually, to ensure that it adequately provides for all reasonably expected losses in the receivable balances. An account may be determined to be uncollectible if all collection efforts have been exhausted, the customer has filed for bankruptcy and all recourse against the account is exhausted, or disputes are unresolved and negotiations to settle are exhausted. This uncollectible amount is written off against the allowance. For the fiscal year 2007, the Company incurred an (recovery) expense for bad and doubtful accounts receivable in the amount of $(17,425) (2006 - $87,427; 2005 - $31,447) and recorded uncollectible accounts receivable written off and foreign exchange difference of $ (2006 - $2,471; 2005 - $53,611).
New accounting pronouncements
In September 2006, FASB issued SFAS No. 157,“Fair Value Measurements,” which establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under the accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for fiscal year, including financial statements for an interim period within the fiscal year. The Company is currently evaluating the impact, if any, that SFAS No. 157 will have on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined whether it will elect the fair value option for any of its financial instruments.
In December 2007, the FASB issued SFAS No. 141 (Revised) "Business Combinations". SFAS 141 (Revised) replaces SFAS 141 "Business Combination" and establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008. We do not expect that SFAS 141 (Revised) will have any impact on our historical financial statements upon adoption.
-F-14-
In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements". SFAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect that SFAS 160 will have any impact on our historical financial statements upon adoption.
In March 2008, the FASB issued FASB Statement No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and Hedging Activities". SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations.
-F-15-
3. AVAILABLE FOR SALE SECURITIES
Available for sale securities consist of marketable securities and are summarized as follows:
Gross | Gross | Accumulated | ||||||||||||||
unrealized | unrealized | unrealized | Market | |||||||||||||
Cost | gains | losses | losses | value | ||||||||||||
$ | $ | $ | $ | $ | ||||||||||||
December 31, 2005 | 1,009 | — | (1,008 | ) | (1,008 | ) | 1 | |||||||||
Change during the year | — | — | 3 | 3 | 3 | |||||||||||
December 31, 2006 | 1,009 | — | (1,005 | ) | (1,005 | ) | 4 | |||||||||
Change during the year | - | - | - | - | - | |||||||||||
December 31, 2007 | 1,009 | - | (1,005 | ) | (1,005 | ) | 4 |
During the fiscal year 2007, the Company acquired marketable security of total $245,000 and disposed the said marketable securities for $243,331 which resulted a total loss of $1,669.
4. EQUIPMENT
Accumulated | Net book | |||||||||
Cost | amortization | value | ||||||||
$ | $ | $ | ||||||||
2007 | ||||||||||
Furniture and fixtures | 25,358 | 17,592 | 7,766 | |||||||
Computer equipment | 82,367 | 68,132 | 14,235 | |||||||
107,725 | 85,724 | 22,001 | ||||||||
2006 | ||||||||||
Furniture and fixtures | 20,427 | 13,291 | 7,136 | |||||||
Computer equipment | 68,206 | 52,665 | 15,541 | |||||||
88,633 | 65,956 | 22,677 |
-F-16-
5. CONVERTIBLE DEBENTURES
In fiscal year 2004, the convertible debentures were issued to an investor and a related company owned by a director as a working capital credit facility of $50,000 and $100,000 respectively with advances secured by two unregistered three-year convertible debentures, which are due on May 31, 2007. Simple interest accrues at 5% per annum on the amount of principal outstanding. The debentures are convertible into common shares of the Company upon the Company completing its registration statement with the relevant securities commission. The amount of the debenture remaining outstanding is convertible into one fully paid and non-assessable common share of the Company at a price per share that is equal to the higher of: 1) the 30-day closing average price of its common shares on its principal market which shall initially be the OTC Bulletin Board discounted at 20% calculated from the date the conversion notice is received by the Company, or 2) US$0.60 per share, prior to maturity.
At any time during the term of the debenture, should the common shares of the Company trade for a period of 30 consecutive trading days at an average closing price exceeding $0.80 per common share, the Company shall have the option, exercisable by providing the subscriber with written notice, of shortening the subscriber’s right to convert the outstanding amount to a period of thirty (30) days from the date of such notice. If the subscriber does not exercise his right of conversion, the debenture will no longer be convertible to common shares. The entire $150,000 of convertible debenture has been classified as a liability.
In accordance with EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, no beneficial conversion feature was calculated on the issuance of the convertible debenture.
In January 2007, the Company issued 250,000 common stocks of the Company for the settlements of the above convertible debentures at $0.60 per share.
On March 1, 2007, convertible debentures were issued to an investor as a working capital of $250,000 with advances secured by an unregistered three-year convertible debenture, which are due on February 28, 2010. Simple interest accrues at 6% per annum on the amount of principal outstanding. The debentures are convertible into common shares of the Company upon the Company completing its registration statement with the relevant securities commission. The principal amount of this note may be converted at a conversion price to US$1.00 per share, in whole or in part, by the Holder at any time until the note is repaid in full by the Company. In connection with the issuance of the convertible debenture, the investor also received 75,000 warrants which are exercisable at any time between March 1, 2007 and February 28, 2010 at a price of $1.30 per share. Each warrant converts into one common stock.
In accordance with EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, the Company recorded $29,046, $29,047 and $191,907 to the share purchase warrants, beneficial conversion feature and convertible debt, respectively.
During the fiscal year 2007, $13,755 was accreted to the convertible debenture. A summary of convertible debenture as follows:
December 31, | December 31, | ||||||
2007 | 2006 | ||||||
Convertible debentures - face value | |||||||
Due May 31, 2007 - unsecured and interest bearing at 5% | $ | - | $ | 150,000 | |||
Due February 28, 2010 - unsecured and interest bearing at 6% | 250,000 | - | |||||
250,000 | 150,000 | ||||||
Less interest (effective interest rate: 2007 - 16.4%; 2006 - 5%) | (58,093 | ) | - | ||||
Accretion | 13,755 | - | |||||
Total | 205,662 | 150,000 | |||||
Less current portion | - | (150,000 | ) | ||||
$ | 205,662 | $ | - |
-F-17-
6. INCOME TAXES
The parent company is not subject to income taxes.
Income tax expense varies from the amount that would be computed from applying the combined federal and provincial income tax rate to loss before taxes as follows:
2007 | 2006 | 2005 | ||||||||
$ | $ | $ | ||||||||
Net loss for the year | 54,133 | (209,883 | ) | (78,030 | ) | |||||
Statutory Cayman Islands corporate tax rate | 0 | % | 0 | % | 0 | % | ||||
Anticipated tax recovery | — | — | — | |||||||
Change in tax rates resulting from: | ||||||||||
Impact of foreign exchange movement | 12,238 | 1,273 | (8,644 | ) | ||||||
Impact of BC rate change | - | (6,074 | ) | 10,127 | ||||||
Foreign tax rate differential | 64,176 | (46,700 | ) | (3,931 | ) | |||||
Others | 4583 | 3,647 | 417 | |||||||
Recognition of non- capital loss carryforwards | (82,686 | ) | ||||||||
Benefit of losses not recognized | 1,689 | 47,854 | 2,031 | |||||||
— | — | — |
The significant components of the Company’s deferred tax assets are as follows:
2007 | 2006 | 2005 | ||||||||
$ | $ | $ | ||||||||
Non-capital loss carryforwards | 191,601 | 275,570 | 228,282 | |||||||
Equipment and furniture | 17,223 | 15,476 | 14,243 | |||||||
208,824 | 291,046 | 242,525 | ||||||||
Valuation allowance | (149,501 | ) | (291,046 | ) | (242,525 | ) | ||||
Net deferred income tax assets | 59,323 | — | — |
-F-18-
6. INCOME TAXES (cont’d.)
The Company has available non-capital losses for Canadian income tax purposes which may be carried forward to reduce taxable income in future years. If not utilized, the non-capital losses in the amount of $611,550 expire as follows:
$ | ||||
2009 | 317,052 | |||
2010 | 146,251 | |||
2014 | 15,473 | |||
2015 | 2,908 | |||
2026 | 129,866 | |||
611,550 |
7. STOCKHOLDERS EQUITY
Common Stocks
On January 28, 2007, the Company issued 250,000 common stocks for the settlement of convertible debentures of $150,000.
On October 26, 2007, 2,250,000 common stocks were issued in connection of a private placement at a price of $1.08 for a total of $2,070,000.
Stock Options
On October 11, 2007, the Company granted key officers and directors 550,000 stock options , which expire on October 11, 2012 with each stock option entitling its holder to purchase one common share at $.1.08.
As at December 31, 2007, the Company has 540,000 stock options outstanding:
Number of Options | Weighted Average Exercise Price | ||||||
Balance, December 31, 2006 | - | $ | - | ||||
Granted | 550,000 | 1.08 | |||||
Forfeited | (10,000 | ) | 1.08 | ||||
Balance, December 31, 2007 | 540,000 | $ | 1.08 |
Exercise price | Outstanding | Exercisable | |||||||||||||||
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Number of Options | Weighted Average Exercise Price | |||||||||||||
$ | 1.08 | 540,000 | $ | 1.08 | 4.78 | - | $ | 1.08 | |||||||||
540,000 | $ | 1.08 | 4.78 | - | $ | 1.08 |
-F-19-
7. STOCKHOLDERS EQUITY (cont’d.)
Stock options (cont’d.)
During the fiscal year 2007, the weighted average fair value of stock options granted in the year was $0.93 and compensation expense of $22,222 was recognized for options granted during the year and vesting over time using the Black-scholes option pricing model. The fair value of each option granted is estimated on the date of grant using the Black-Schole option pricing model with weighted average assumptions for grants as follows:
2007 | 2006 | ||||||
Risk-free interest rate | 4.36 | % | - | ||||
Expected life of options | 5 years | - | |||||
Annualized volatility | 90.6 | % | - | ||||
Dividend rate | 0 | % | - |
Share purchase warrants
A summary of share purchase warrants is as follows:
Expiry | Exercise Price | Number | |||||
February 28, 2010 | $ | 1.30 | 75,000 |
8. RELATED PARTY TRANSACTIONS
[a] | In 2007, the Company incurred $84,000 [2006 - $24,000, 2005 - $24,000] in consulting fees to two companies related to a director of the Company, of which $39,000 was payable as at December 31, 2007. |
[b] In 2007, the Company paid $86,400 [2006 - $68,600, 2005 - $nil] salary to senior officers of the Company.
[c] | As at December 31, 2007, the Company has non-interest bearing advances from a stockholder and director of $29,802 [2006 - $76,910]. In 2007, the Company recorded imputed interest of $63 [2006 - $1,178, 2005 - $1,154] at an interest rate of 4% per annum on these advances. |
[d] | Included in accounts payable, $30,233 [2006 - $14,187] was payable to a director and a senior officer of the Company. |
[e] As at December 31, 2007, the Company provided an advance of $2,562 (2006 - $nil) to a director as a prepaid expenses.
All related party transactions were entered into in the normal course of business and are recorded at the exchange amount established and agreed to between the related parties.
9. COMMITMENTS
The Company has entered into operating leases for automobile and office space. Minimum future rental payments under these leases are as follows:
$ | ||||
2008 | 84,802 | |||
2009 | 83,412 | |||
2010 | 79,242 | |||
2011 | 46,225 | |||
293,681 |
-F-20-
10. SUBSEQUENT EVENTS
[a] | Subsequent to the year end,, ChineseWorldNet (Hong Kong) Ltd. the Company’s subsidiary, signed a Definitive Joint-Venture Agreement with Shanghai Compass Venture Capital Investment Limited Company. The Chinese JV had successfully obtained its business license in April 2008 with a physical office located at Shanghai, P.R. China. The initial capitalization of Chinese JV was set at RMB 5,000,000. |
[b] | Subsequent to the year end, .the Company entered a new consulting agreement with Silver Lake Investment Partners, Limited controlled by a director of the Company. The Company will be charged $2,000 per month for the consulting fee from January 1 to December 31, 2008. |
[c] | Subsequent to the year end, the Company entered a new consulting agreement with Goldpac Investments Ltd. controlled by a director of the Company. The Company will be charged $5,000 per month for the consulting fee from January 1, 2008 to December 31, 2008. |
11. COMPARATIVE FIGURES
Certain of comparative figures have been reclassified to conform with the presentation adopted in the current period.
-F-21-