U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 000-29169
Chinawe.com Inc.
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(Name of small business issuer in its charter)
California 95-4627285
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
488 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes [X] No [ ].
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [X]
The issuer's revenues for the fiscal year ended December 31, 2003 were RMB421,970 (US$50,921).
The aggregate market value of the voting common equity held by nonaffiliates (computed by reference to the closing price of such common equity) on April 12, 2003 was approximately $1,615,131.90.
The number of shares of common stock, par value $.001 per share, outstanding as of April 1, 2003 was 43,800,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format
Yes [ ] No [X]
Forward Looking Statements: This Form 10-KSB contains or incorporates by reference certain statements that may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical facts, that address activities, events or developments that the company intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based on certain assumptions and assessments made by management of the company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. The forward-looking statements included in this Form 10-KSB are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the company's operations, markets, services and prices, and other factors discussed in the company's filings under the Securities Act and the Exchange Act. Stockholders and prospective investors are cautioned that such forward-looking statements are not guarantees of future performance and that actual results, developments and business decisions may differ from those envisaged by such forward-looking statements.
PART I
Item 1. Description of Business.
Chinawe.com Inc. (the "Company", "Chinawe" or "we") is a China-based enterprise using electronic technology on its proprietary bilingual (i.e., Chinese and English) website: Chinawe first launched in 1997, the website has been focused on providing business-to-business e-commerce services whereby members subscribing to its services are allowed access to its site to describe products manufactured by them and being offered for sale to overseas purchasers.
The Company's financial statements for the year ended December 31, 2003 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. For the year ended December 31, 2003, the Company reported a net loss of RMB1,851,771 (US $223,463) and at December 31, 2003 has a stockholders' deficit and a working capital deficit of RMB9,821,751 (US $1,185,243) and RMB9,824,761 (US $1,185,606), respectively. The Company has also experienced difficulty and uncertainty in meeting its liquidity needs. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to address these concerns include:
(1) In June 2001, the Company signed an agreement with China Great Wall Asset Management Corporation ("Great Wall"), a PRC government- controlled financial company. Under the agreement, which has a five-year term with options to renew, the Company is to help Great Wall dispose of non-performing assets (the "Assets") using both the Company's business and e-business networks. The Company, among other things, has the exclusive right to promote the Assets currently held by Great Wall through the Company's complete electronic business intelligence system. In the event that the promotion efforts result in a successful sale of the Assets, the Company is to receive approximately 1.2% to 2% of the gross sales price of the Assets. Against this background, the Company has decided to enter into the business of servicing non-performing loans, including but not limited to, asset auctions and asset securitizations.
(2) The Company is currently negotiating with a financial services company to act as a service provider for such financial services company and provide services relating to the management of a pool of non-performing loans ("NLP") in the PRC. Management believes that engaging in this business will bring a new source of revenue to the Company in the foreseeable future which is expected to allow the Company to erase doubts as to its operating as a going concern.
The Company is also currently evaluating its involvement in a series of NPL transactions and the Company will focus on the NPL business as its core business. Management believes that the new role as a service provider will provide the Company with a higher profit potential and high growth potential in an industry that currently has relatively few competitors.
(3) Upon entering into a servicing agreement as mentioned in Section (2) above, the Company expects to issue an aggregate of five to ten million shares of Common Stock to various finders as compensation for their efforts and contributions in connection with the deal.
(4) During the year, Charter One Investments Limited ("Charter One"), a company controlled by a director, advanced HK$1,000,000 (RMB1,067,300) to the Company (the "Loan") for working capital of the Company. On December 15, 2003, Charter One
and the Company entered into a Memorandum of Understanding whereby Charter One agreed to convert the Loan into 3,800,000 shares of Common Stock of the Company. The Company issued the shares in reliance on the 4(2) exemption under the Securities Act of 1933, as amended.
Chinawe is currently providing an e-marketplace for business-to-business e-commerce services for buyers and suppliers of products made in China. The Company's services will enable buyer and supplier members to efficiently and cost-effectively buy and sell products in an open e-marketplace. Chinawe provides product/suppliers search engines, a message board, sample sale, factory outlet and business-related services covering the entire product sales lifecycle.
Business-to-business activities will be focused on deriving revenue from one or more of (a) membership fees from members; (b) commissions from the sale of goods sold by members; (c) advertising revenues generated from banner advertising on the website; and (d) advisory and other consulting services. The portal established by Chinawe is based in Hong Kong so that Chinawe believes that it is not subject to restrictions on foreign ownership imposed by the PRC.
We believe that our services provide a number of benefits that will attract a growing number of buyers and suppliers of China-made products to its e-marketplace. As more suppliers offer information and products through Chinawe.com, more buyers will be encouraged to use Chinawe's services, which will result in a network effect, i.e., the value of the Company's services to each member increases significantly with the addition of each new member.
Item 2. Description of Property.
The Company's headquarters are located in Hong Kong. It has a branch office in Guangzhou, the capital of Guangdong Province of China.
Item 3. Legal Proceedings.
We are not engaged in any litigation or governmental proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter ended December 31, 2003.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information:
(a) Trading in the Company's shares of Common Stock presently takes place on the OTC Bulletin Board under the symbol "CHWE".
The following table sets forth the range of high and low bids for our Common Stock for the two most recent fiscal years:
High Low
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2003
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January 1, 2003 - March 31, 2003 .12 .02
April 1, 2003 - June 30, 2003 .07 .03
July 1, 2003 - September 30, 2003 .30 .04
October 1, 2003 - December 31, 2003 .18 .08
2002
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January 1, 2002 - March 31, 2002 .09 .03
April 1, 2002 - June 30, 2002 .10 .03
July 1, 2002 - September 30, 2002 .095 .04
October 1, 2002 - December 31, 2002 .06 .02
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The foregoing quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
On April 12, 2004, our shares of common stock were quoted at $.09 per share.
(b) The number of holders of our Common Stock was approximately 115 on December 31, 2003, computed by the number of record holders, inclusive of holders for whom shares are being held in the name of brokerage houses and clearing agencies.
(c) We have not paid any cash dividends with respect to our Common Stock, nor does our Board of Directors intend to declare cash divideds on our Common Stock in the foreseeable future, in order to conserve cash for working capital purposes.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-KSB. The following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this document.
Overview - Results of Operations
Our financial statements have been prepared assuming that we will continue in business as a going-concern. Presently, we generate no significant income and have incurred net losses since inception. Our prospects must be considered in light of the significant risks, costs and difficulties often encountered by enterprises in their early stages of development, in particular companies in the Internet sector and, more specifically, targeting and operating in the Greater China and Asian markets. As discussed in our financial statements and in this section, we have suffered a net loss of RMB1,851,771 (US $223,463) during the year ended December 31, 2003. At the end of this period we had a stockholders' deficit of RMB9,821,751 (US $1,185,243) and a working capital deficit of RMB9,824,761 (US $1,185,606). The Independent's Auditors Report on the Company's financial statements as of and for the years ended December 31, 2003 and 2001 included a "going concern" explanatory paragraph which means that the Auditors expressed substantial doubt about the Company's ability to continue as a going concern. Management's plans with respect to these matters are described in this section and in our financial statements, and this material does not include any adjustments that might result from the outcome of this uncertainty. There is no guarantee that we will be able to raise the funds and there are no guarantees that we will not require to raise further capital for operations and expansion in the near future.
Our operations have not been, and in the near term are not expected to be, materially affected by inflation or changing prices. We will encounter competition from a variety of firms selling Internet services in its market area. Many of these firms have long-standing customer relationships and are well-staffed and well financed. The Company believes that competition in the Internet industry is based on competitive pricing, although the ability, reputation and support of a marketing network is also significant. The Company does not believe that any recently enacted or presently pending proposed legislation will have a material adverse effect on its results of operations.
Year ending December 31, 2003 compared to the year ending December 31, 2002.
Revenues. Subscription and service income for the year ending December 31, 2003 was RMB421,970 as compared to subscription and service income of RMB582,827 for the year ending December 31, 2002, a decrease of 28%. Other income for the year ending December 31, 2003 was RMB56 as compared to other income of RMB78 for the year ending December 31, 2002, a decrease of 28%.
Expenses. Administrative and general expenses for the year ending December 31, 2003 were RMB2,094,821 as compared to administrative and general expenses of RMB2,200,242 for the year ending December 31, 2002, a decrease of 5%. Loan interest for the year ending December 31, 2003 was RMB178,976, as compared to loan interest of RMB9,364 for the year ending December 31, 2002, an increase of 1,811%, mainly due to the interest payable for a loan from a director in 2003.
As a consequence of the foregoing, our loss from operations increased from RMB1,617,415 for the year ending December 31, 2002 to RMB1,672,851 for the year ending December 31, 2003. Our net loss increased from RMB1,626,701 for the year ending December 31, 2002 to RMB1,851,771 for the year ending December 31, 2003.
Year ending December 31, 2002 compared to the year ending December 31, 2001.
Revenues. Subscription and service income for the year ending December 31, 2002 was RMB582,827 as compared to subscription and service income of RMB2,320,146 for the year ending December 31, 2001, a decrease of 75%. Other income for the year ending December 31, 2002 was RMB78 as compared to other income of RMB13,759 for the year ending December 31, 2001, a decrease of 99%.
Expenses. Administrative and general expenses for the year ending December 31, 2002 were RMB2,200,242 as compared to administrative and general expenses of RMB7,351,710 for the year ending December 31, 2001, a decrease of 70%.
As a consequence of the foregoing, our loss from operations decreased from RMB5,031,564 for the year ending December 31, 2001 to RMB1,617,415 for the year ending December 31, 2002. Our net loss decreased from RMB5,017,805 for the year ending December 31, 2001 to RMB1,626,701 for the year ending December 31, 2002.
Factors That May Affect Future Results
Management's Discussion and Analysis and other parts of this Report contain information based on management's beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to the following:
The markets for many of our product offerings are characterized by rapidly changing technology, evolving industry standards, and frequent new product introductions. Our operating results will depend to a significant extent on our ability to design, develop, or otherwise obtain and introduce new products, services, systems, and solutions and to reduce the costs of these offerings. The success of these and other new offerings is dependent on many factors, including proper identification of customer needs, cost, timely completion and introduction, differentiation from offerings of our competitors, and market acceptance. The ability to successfully introduce new products and services could have an impact on future results of operations.
Fluctuations in Quarterly Results
We have incurred operating losses since inception, and cannot be certain that we will achieve profitability on a quarterly or annual basis in the future. We believe that future operating results will be subject to quarterly fluctuations due to a variety of factors, including, but not limited to:
o Continued growth of business and of the Internet in China;
o Our ability to attract and retain customers and maintain customer satisfaction;
o Technical difficulties or system outages;
o Government regulation;
o Fulfilling contractual obligations under the agreements with China Great Wall Asset Management Corporation and others
o Pricing policies of competitors;
o Ability to attract and retain qualified personnel with Chinese language and Internet industry expertise, in particular technical, sales and marketing personnel;
o The amount and timing of operating costs and capital expenditures relating to expansion of our business and infrastructure;
o The ability to upgrade, develop and maintain our systems and infrastructure; and
o Failure to increase sales.
In addition to the factors set forth above, the Company's operating results will be impacted by the extent to which the Company incurs non-cash charges associated with stock-based arrangements with employees and non-employees.
Liquidity and Capital Resources
On March 15, 2001, Neo Modern Entertainment Corp. ("Neo Modern") completed a merger with Chinawe, a privately-held company incorporated in the State of Delaware, pursuant to an Agreement and Plan of Merger dated October 17, 2000 (the "Merger Agreement"). In conjunction with the terms of the Merger Agreement, Neo Modern changed its name to Chinawe.com Inc. and each outstanding share of Chinawe common stock was converted into 2,876.4565 shares of Neo Modern common stock. All share and per share amounts reflect the conversion.
The Company's financial statements for the year ended December 31, 2003 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. For the year ended December 31, 2003, the Company reported a net loss of RMB1,851,771 (US $223,463) and at December 31, 2003 has a stockholders' deficit and a working capital deficit of
RMB9,821,751 (US $1,185,243) and RMB9,824,761 (US $1,185,606), respectively. The Company has also experienced difficulty and uncertainty in meeting its liquidity needs. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to address these concerns include:
(1) In June 2001, the Company signed an agreement with Great Wall, a PRC government-controlled financial company. Under the agreement, which has a five-year term with options to renew, the Company is to help Great Wall dispose of the Assets using both the Company's business and e-business networks. The Company, among other things, has the exclusive right to promote the Assets currently held by Great Wall through the Company's complete electronic business intelligence system. In the event that the promotion efforts result in a successful sale of the Assets, the Company is to receive approximately 1.2% to 2% of the gross sales price of the Assets. Against this background, the Company has decided to enter into the business of servicing non-performing loans, including but not limited to, asset auctions and asset securitizations.
(2) The Company is currently negotiating with a financial services company to act as a service provider for such financial services company and provide services relating to the management of a pool of NLPs in the PRC. Management believes that engaging in this business will bring a new source of revenue to the Company in the foreseeable future which is expected to allow the Company to erase doubts as to its operating as a going concern.
The Company is also currently evaluating its involvement in a series of NPL transactions and the Company will focus on the NPL business as its core business. Management believes that the new role as a service provider will provide the Company with a higher profit potential and high growth potential in an industry that currently has relatively few competitors.
(3) Upon entering into a servicing agreement as mentioned in Section (2) above, the Company expects to issue an aggregate of five to ten million shares of Common Stock to various finders as compensation for their efforts and contributions in connection with the deal.
(4) During the year, Charter One, a company controlled by a director, advanced the Loan for working capital of the Company. On December 15, 2003, Charter One and the Company entered into a Memorandum of Understanding whereby Charter One agreed to convert the Loan into 3,800,000 shares of Common Stock of the Company.
Our current cash balances will not be sufficient to meet our working capital and capital expenditure requirements for the next six months. However, if the Company enters into a servicing agreement with the financial services company, as described above, within the coming months, the Company expects to receive fees on a regular basis, which in management's opinion should be sufficient to meet the Company's working capital and capital expenditure requirements going forward. We currently are engaged in discussions with a number of companies regarding strategic acquisitions or investments. Although these discussions are ongoing, no definitive agreements have been signed and there can be no assurance that any of these discussions will result in actual acquisitions. In addition, we may seek to raise funds for any possible acquisitions or investments by offering debt or equity to the public. There is no guarantee that we will be able to raise the funds. Thereafter, we may need to raise additional funds in order to meet funding requirements of a more rapid expansion plan, potential acquisitions, development of new or enhanced products or services, in response to competitive pressures or to acquire technologies or complimentary products or businesses.
Quantitative And Qualitative Disclosures About Market Risk
We are not exposed to a material level of market risks due to changes in interest rates. We do not have outstanding debt instruments and we do not maintain a portfolio of interest-sensitive debt instruments.
We expect to derive a significant portion of revenues in the form of Renminbi and, therefore, may be exposed to significant foreign currency risks in the future. During the fiscal years ended December 31, 2003 and December 31, 2002, we did not engage in hedging activities to mitigate the impact of changes in foreign exchange rates. We may in the future use foreign currency forward exchange contracts as a vehicle for hedging purposes.
Critical Accounting Policies And Estimates
Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.
We recognize subscription and service income from members over the period of subscription and to the extent of services rendered in accordance with the terms of subscription and service agreements.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would results in an additional general and administrative expense in the period such determination was made.
We do not have any of the following:
o Certain trading activities that include non-exchange traded contracts accounted for at fair value.
o Relationships and transactions with persons or entities that derive benefits from any non-independent relationships other than related party transactions discussed herein.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to the Company.
RISK FACTORS
Set forth below are certain risks and uncertainties relating to our business. These are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business. If any of the following risks actually occur, our business, operating results or financial condition could be materially adversely affected.
Risks Relating To Our Business
IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS BECAUSE WE HAVE A LIMITED OPERATING HISTORY
If we do not successfully address these risks and uncertainties, our business, operating results and financial condition will be materially adversely affected.
WE HAVE A HISTORY OF LOSSES, WE EXPECT TO LOSE MONEY IN THE FUTURE AND WE MAY NOT ACHIEVE OR SUSTAIN PROFITABILITY
WE REQUIRE ADDITIONAL FUNDS TO IMPLEMENT OUR CURRENT PLANS AND FINANCE FUTURE GROWTH
Our business model assumes that we will have substantial additional funds to implement the full range of products and services we plan to offer.
We will seek to obtain additional funds through sales of equity and/or debt, or other external financing in order to fund our current operations and to achieve our business plan. We cannot assure that any additional capital resources will be available to us, or, if available, will be on terms that will be acceptable to us. Any additional equity financing will dilute the equity interests of existing security holders. If adequate funds are not available or are not available on acceptable terms, our ability to execute our business plan and our business could be materially and adversely affected.
OUR MANAGEMENT HAS LIMITED EXPERIENCE OPERATING A PUBLIC COMPANY
WE MAY FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS, INVESTMENTS, STRATEGIC PARTNERSHIPS OR OTHER VENTURES, INCLUDING WHETHER SUCH TRANSACTIONS CAN BE LOCATED, COMPLETED AND THE OTHER PARTY INTEGRATED WITH OUR BUSINESS ON FAVORABLE TERMS
As part of our long-term growth strategy, we may seek to acquire or make investments in complementary businesses, technologies, services or products or enter into strategic relationships with parties who can provide access to those assets, if appropriate opportunities arise. From time to time, we may enter into discussions and negotiations with companies regarding our acquiring, investing in, or partnering with their businesses, products, services or technologies. We may not identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on commercially acceptable terms or at all. Acquisitions often involve a number of special risks, including the following:
o we may experience difficulty integrating acquired operations, products, services and personnel;
o we may be unable to retain acquired subscribers;
o the acquisition may disrupt our ongoing business;
o we may not be able to successfully incorporate acquired technology and rights into our service offerings and maintain uniform standards, controls, procedures, and policies;
o we may not be able to retain the key personnel of the acquired company;
o the businesses we acquire may fail to achieve the revenues and earnings we anticipated; and
o we may ultimately be liable for contingent and other liabilities, not previously disclosed to us, of the companies that we acquire.
We may not successfully overcome problems encountered in connection with potential future acquisitions. In addition, an acquisition could materially adversely affect our operating results by:
o diluting security holders' ownership interest;
o causing us to incur additional debt; and
o forcing us to amortize expenses related to goodwill and other intangible assets.
Any of these factors could have a material adverse effect on our business. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions.
IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS WILL SUFFER
If the Internet and the business-to-business e-marketplace becomes as widely used in China as we expect and as estimates suggest and our business grows correspondingly, this rapid growth will place a significant strain on our managerial, operational, financial and information systems resources. To accommodate any significant increase in our size and manage our growth, we must implement and improve these systems and attract, train, manage and retain qualified employees. These demands will require us to add new management personnel and develop new expertise. If we fail to successfully manage our growth, our ability to maintain and increase our subscriber base will be impaired and our business will suffer.
It is impossible to predict how entry into the World Trade Organization will affect China's economy or the manner in which it conducts business domestically and internationally.
NETWORKS ARE SUBJECT TO SECURITY RISKS AND INAPPROPRIATE USE BY INTERNET USERS THAT COULD INTERRUPT OUR SERVICES
The future success of our business will depend on the security of the networks of third parties over which we have no control. Despite implementation of security measures, we remain vulnerable to computer viruses, sabotage, break-ins and similar disruptive problems caused by subscribers or other Internet users.
OUR SERVICES AND REPUTATION MAY BE ADVERSELY AFFECTED BY SOFTWARE DEFECTS
Our services depend on complex software developed by third parties. Software often contains defects, particularly when first introduced or when new versions are released. These defects could cause service interruptions that damage our reputation, increase our service costs, cause us to lose revenue, delay market acceptance or divert our development resources, any of which could materially adversely affect our business, operating results and financial condition. We may not discover software defects that affect our services or enhancements until we deploy the software.
RISKS RELATING TO DOING BUSINESS IN CHINA
OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF THE INTERNET IN CHINA
Our future success substantially depends on continued growth in the use of computer and the Internet in China. Although we believe that computer and Internet usage in China will continue to grow as it has in the past, we cannot be certain that this growth will continue or that it will continue in its present form. The growth of computer usage and the Internet in China is constrained by the cost of computers and other Internet access devices to Chinese people relative to their annual income and current technology infrastructure and no assurance can be given that computers or other Internet access devices will be offered at prices within the budget of the average Chinese consumer or that the technological infrastructure will be enhanced. If Internet usage declines in China or evolves away from our business, our growth will slow or stop and our financial results will suffer.
INCREASED GOVERNMENT REGULATION MAY INCREASE OUR COST OF DOING BUSINESS OR CAUSE US TO CHANGE THE WAY WE CONDUCT OUR BUSINESS
Any new legislation or regulation adopted by the PRC regarding the Internet, or the application or uncertainty relating to the application of existing laws and regulations to the Internet, could materially adversely affect our business, operating results and financial condition. Legislation could impair the growth of the Internet and decrease the acceptance of the Internet as a communications and commercial medium. This could decrease the demand for our services, increase our cost of doing business or otherwise have a material adverse affect on our business, financial condition and operating results. Further, the growth and development of the Internet messaging market may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business online. These laws may impose additional burdens on our business. For example, because we rely on the collection and use of personal data from our users for targeting advertisements, any laws or regulations that restrict our ability to collect or use such information may harm us. Hong Kong has enacted laws or adopted regulations that prevent Internet companies or Web portals from selling any information collected from users.
REGULATION OF THE INTERNET AND INFORMATION INDUSTRY IN THE PRC MAY ADVERSELY AFFECT OUR BUSINESS
The PRC has enacted regulations governing the provision of ISP services, Internet access and the distribution of news and other information. The Chinese government regulates access to the Internet by imposing strict licensing requirements and requiring ISPs in China to use the international inbound and outbound Internet backbones. Our vendors of these services have obtained all licenses required to offer Internet access services in the parts of the PRC where we conduct business, but there can be no assurance that such licenses will be retained.
We also note that the Chinese legal system is a civil law system in which decided legal cases have little precedential value. As a result, in many cases 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, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. 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 Web site maintained outside of China at its sole discretion. Web sites that are blocked in China include many major news-related Web sites such as www.cnn.com, www.latimes.com, www.nytimes.com and www.appledaily.com.hk. These laws will affect the Chinese language Web portal which we propose to develop in the future.
The Chinese government has also expressed its intention to closely control possible new areas of business presented by the Internet, such as Internet telephony. We cannot provide assurance that we will be able to obtain any necessary license required in the future or that future changes in Chinese government policies affecting the provision of ISP services, information services, including the provision of online services, will not impose additional regulatory requirements on us or our strategic partners, intensify competition in the Chinese information industry or otherwise have a material adverse effect on our business, financial condition and results of operations.
THERE ARE ECONOMIC RISKS ASSOCIATED WITH DOING BUSINESS IN CHINA
The PRC economy has experienced significant growth in the past decade, but such growth has been uneven across geographic and economic sectors and has recently been slowing. There can be no assurance that such growth will not continue to decrease or that any slow down will not have a negative effect on our business. The PRC economy is also experiencing deflation which may continue in the future. The current economic situation may adversely affect our profitability over time as expenditures for advertisements may decrease due to the results of slowing domestic demand and deflation. In October, 1998, the Guangdong International Trust and Investment Corporation, an investment holding company of Guangzhou Province, was declared insolvent and shut down by the PRC government. Subsequently many other similarly situated PRC provincial investment holding companies have defaulted on their loans and experienced financial difficulties. As a result, our clients and suppliers may have limited access to credit that may adversely affect our business. In addition, the international financial markets in which the securities of the PRC government, agencies and private entities are traded also have experienced significant price fluctuations upon speculation that the PRC government may devalue the Renminbi which could increase our costs relative to our PRC revenues.
RESTRICTIONS ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO UTILIZE OUR REVENUES EFFECTIVELY
We expect to derive a significant portion of revenues in the form of Renminbi. Although Chinese governmental policies were introduced in 1996 to allow greater convertibility of the Renminbi, significant restrictions still remain. We can provide no assurance that the Chinese regulatory authorities will not impose greater restrictions on the convertibility of the Renminbi. Any future restrictions on currency exchanges may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside the PRC.
A CHANGE IN CURRENCY EXCHANGE RATES COULD INCREASE OUR COSTS RELATIVE TO OUR REVENUES
We expect to generate a portion of our revenues and to incur expenses and liabilities in Chinese Renminbi and U.S. dollars. As a result, we are subject to the effects of exchange rate fluctuations with respect to any of these currencies. We have not entered into agreements or purchase instruments to hedge our exchange rate risks although we may do so in the future.
RISKS RELATING TO OUR STOCK
POSSIBLE DELISTING OF OUR STOCK FROM TRADING ON THE ELECTRONIC BULLETIN BOARD
Our common stock is listed on the electronic bulletin board of the over-the-counter market. Once delisted, we cannot predict when, if ever, our class of common stock would be re-listed for trading on the electronic bulletin board or any other market or exchange as the approval to re-list the common stock is subject to review by the NASD.
BECAUSE OUR COMMON STOCK PRICE IS BELOW $5.00, WE ARE SUBJECT TO ADDITIONAL RULES AND REGULATIONS.
The SEC has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions. Our common stock presently is a "penny stock". Because our stock is a "penny stock", it is subject to rules that impose additional sales practice requirements on broker/dealers who sell our securities to persons other than established customers and accredited investors. There can be no assurance that the common stock will trade for $5.00 or more per share, or if so, when.
Although we desire to list the common stock on the Nasdaq SmallCap Market and intend to apply for a listing on the SmallCap market at such time as we meet the listing criteria, there can be no assurance that we will ever qualify.
Absent Nasdaq SmallCap Market or other Nasdaq or stock exchange listing, trading, if any, in common stock will, as it presently is, continue in the "Electronic Bulletin Board" administered by the National Association of Securities Dealers, Inc. As a result, you may find it difficult to dispose of or to obtain accurate quotations as to the market value of the common stock.
WE HAVE NO INTENTION TO PAY DIVIDENDS
We have never paid any cash dividends on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not expect to pay any dividends in the foreseeable future.
Recently Issued Accounting Pronouncements
There are no new accounting pronouncements for which adoption is expected to have a material effect on the Company's financial statements.
Item 7. Financial Statements.
The financial statements require by this Item are set forth at pages indicated in Item 13 following page 20 of this Report.
Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
On February 25, 2003 the Company notified Horwath Gelfond Hochstadt Pangburn, P.C. ("HGHP"), the principal accountant engaged to audit the Company's financial statements, that the Company would not retain HGHP to audit the Company's financial statements for the current fiscal year.
HGHP's report on the Company's financial statements for the year ended December 31, 2000 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.
HGHP's report on the Company's financial statements for the year ended December 31, 2001 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that HGHP referred to the Company's net loss, stockholders' deficit and working capital deficit at December 31, 2001 and stated that "These conditions raise substantial doubt about the company's ability to continue as a going concern."
The Company's decision to change accountants was consented to by the Company's Board of Directors.
During the Company's two most recent fiscal years and the subsequent interim period preceding dismissal there was no disagreement with HGHP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of HGHP, would have caused HGHP to make a reference to the subject matter of the disagreement in connection with its report.
On March 7, 2003, the Company engaged the accounting firm of Moores Rowland Mazars as the principal accountant to audit the Company's financial statements for the current fiscal year.
Item 8A. Controls and Procedures.
Not applicable.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
Management
The following sets forth information regarding our executive officers,
directors and other key employees:
Name Nationality Age Title
---- ----------- --- -----
Mr. Wai, Man Keung Hong Kong 44 Chief Executive Officer,
Chairman of the Board
and President
Mr. Wai, Man Ying Ken Canadian 39 Vice President, Director
Mr. Yiu, Barry Chinese 40 Vice President, Director
Ms. Chu,Vivian Wai Wa Australian 34 Chief Financial Officer,
Secretary and Director
Mr. Lee, Conway Kong Wai Australian 49 Non-executive Director
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The following is a brief account of the business experience for the last two years for the above mentioned individuals.
Mr. Wai, Man Keung is the founder of our Company and has been the Chairman, CEO & President of our Company since its incorporation. He is responsible for our overall strategic planning and development. Mr. Wai has over 15 years of entrepreneur experience in business development and administration. Prior to founding Welcon Info-Tech in 1997, Mr. Wai was engaged in the property development and construction industry for over 15 years. Under his leadership and management, the Group has grown and expanded quickly in Hong Kong and China. To seize the great opportunities in the booming IT market in China and Hong Kong, Mr. Wai established Welcon Info-Tech Limited in Hong Kong in 1997. Mr. Wai is the brother of Ken Wai and Vivian Chu.
Mr. Wai, Man Ying Ken is the co-founder and Vice President of our Company since its incorporation. Prior to his current position, Mr. Wai was a board director and marketing of a Hong Kong-based company specializing in property development and construction since 1995. Under his directorship, the company has enjoyed consistent and rapid sales growth over the years. Mr. Wai is specialized in marketing and sales management. In 1997, he co-founded Welcon Info-Tech Limited with his elder brother, Mr. Wai Man Keung Alan. He studied General Science at the University of Waterloo, Canada. Mr. Wai is the brother of Keung Wai and Vivian Chu.
Mr. Barry Yiu, our Vice President has over 15 years of experience in business development, strategic planning, financing management and government relations with strong geographic focus in China. Prior to joining the Company, Mr. Yiu has been engaged in several reputable companies in Hong Kong and China involving sizable developments and investments. Mr. Yiu obtained his Bachelor degree from the University of Toronto, Canada in 1983 and his Master of Business Administration degree (major in Finance) from McMaster University in Hamilton, Canada in 1985.
Ms. Chu, Vivian Wai Wa has been our Chief Secretary and a Director since she joined us in 1997. She became Chief Financial Officer in August 2002. She has accumulated her skills from managing diversified areas and is responsible for the Company's administrative affairs. She obtained her degrees (Bachelor of Economics and Bachelor of Arts in Asian Studies) from The Australian National University in 1992. Ms. Chu is the sister of Keung Wai and Ken Wai.
Other Employees
Mr. Lee, Conway Kong Wai has been a Non-executive Director since 1999. Mr. Lee is a practicing accountant with one of the big five accounting firms. He has over 20 years experience in audit, accounting & financial management. He is a member of the Institute of Chartered Accountants in Australia, the Chartered Association of Certified Accountants, and the Hong Kong Society of Accountants. Mr. Lee obtained his Bachelor degree in the UK and his postgraduate diploma in Australia.
Mr. Ng, Yuet Tong Jeffrey, is our Director of Technology, responsible for our development of technology. He has 10 years experience in the IT industry. Prior to joining our Company in 1997, Mr. Ng was the system engineer with a HK local software company directly responsible for development technology and project management. Before that, Mr. Ng was a Senior System Support with Bond Network Limited. He graduated from Chai Wan Technical Institute, Hong Kong, where he studied Computer Sciences.
Ms. Feng, Ming Xian, is our Finance Manager. She is responsible for routine accounting matters of the group. Prior to joining our Company in 1998, she was an accountant of a multinational company in Guangzhou for more than 3 years.
The Company does not have an audit committee and, accordingly, does not have an audit committee financial expert.
The Company does not have procedures by which security holders may recommend nominees to the Company's board of directors.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's executive officers, Directors and persons who own more than 10% of a registered class of the Company's equity securities ("Reporting Persons") to file reports of ownership and changes in ownership on Forms 3, 4, and 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. (the "NASD"). These Reporting Persons are rquired by SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file with the SEC and NASD. Based solely on the Company's review of the copies of the forms it has received, the Company believes that all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during fiscal year 2003.
Code of Ethics
We have adopted a Code of Ethics (our "Code of Ethics") that applies to our chief executive officer, chief financial officer, Directors and employees. Our Code of Ethics is attached as an Exhibit to this Annual Report. Any amendments or waivers to our Code of Ethics will be promptly disclosed as required by applicable laws, rules and regulations of the SEC.
Item 10. Executive Compensation.
The following table sets forth for the fiscal year indicated the compensation paid by our Company to the Chief Executive Officer. No other executive officer received a total annual salary and bonus exceeding $100,000.
Name and Principal Position Year Salary
--------------------------- ---- ------
Man Keung Wai 2003 $0
2002 0
2001 0
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Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information as of April 1, 2004, regarding the beneficial ownership of Common Stock of (1) each person or group known by us to beneficially own 5% or more of the outstanding shares of Common Stock, (2) each director and officer and (3) all executive officers and directors as a group. Unless otherwise noted, the persons named below have sole voting and investment power with respect to the shares shown as beneficially owned by them.
Percent of Outstanding
Name of Beneficial Owner (1) Amount of Beneficial Ownership Shares of Class Owned
---------------------------- ------------------------------ ---------------------
Gonet Associates Ltd. 22,054,090 50.4
Man Keung Wai (2) 22,054,090 50.4
Man Ying Ken Wai 0 0
Barry Yiu (3) 3,800,000 8.7
Vivian Wai Wa Chu 0 0
Charter One Investments Limited (3) 3,800,000 8.7
All officers and directors as a group 25,854,090 59.0
(through ownership of Gonet) (4
persons)
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1. The address for each of the officers and directors of the Company is c/o our corporate headquarters in New York.
2. Man Keung Wai, through his control of Gonet Associates Ltd., beneficially owns the shares of Common Stock held by Gonet.
3. The address for Charter One is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Mr. Yiu is a director of Charter One.
The following table sets forth information as of December 31, 2003 with respect to compensation plans (including individual compensation arrangements) under which shares of the Company's Common Stock are authorized for issuance:
Equity Compensation Plan Information
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
------------- ------------------------ -------------------- ------------------------
Equity compensation plans
approved by security
holders 0 N/A 0
Equity compensation plans
not approved by security
holders 0 N/A 5,000,000
Total 0 N/A 5,000,000
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On July 25, 2001, the Board of Directors adopted the 2001 Restricted Stock Plan (the "Plan"). The purpose of the Plan is to promote the long-term growth of the Company by making awards of Common Stock to key employees and directors of the Company or its subsidiaries.
The Plan is administered by the Board of Directors (the "Board"). The Board is authorized, subject to the provisions of the Plan, to (i) select the participants; (ii) determine the number of shares of Common Stock to be awarded to each of the participants and the terms and conditions on which such awards will be made; (iii) establish from time to time regulations for the administration of the Plan; (iv) interpret the Plan; and (v) make all determinations deemed necessary or advisable for the administration of the Plan.
5,000,000 shares of Common Stock are reserved for award under the Plan. At the time of an award of restricted stock, the Board will establish for each participant one or more restricted periods during which shares of Common Stock awarded under the Plan may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, except as described below; provided, however, that the Board may, in its discretion, accelerate such restricted periods with respect to outstanding awards of restricted stock. Except for such restrictions, the participant as owner of restricted stock shall have all the rights of a stockholder including but not limited to the right to receive all dividends paid on such shares and the right to vote such shares.
Upon the death, retirement or permanent disability of a participant, upon the involuntary termination by the Company or any subsidiary for reasons other than cause, or upon the sale of assets of the Company or the merger or consolidation of the Company with another corporation and the terms of such sale, merger or consolidation do not entitle the participant to shares of the purchasing, surviving or resulting corporation, all of such shares shall be free of such restrictions. If the participant ceases to be an employee of the Company or its subsidiaries for any other reason, then all unvested shares of restricted stock therefore awarded to him, will upon such termination of employment be forfeited and returned to the Company and available for award to another participant.
An award of restricted stock shall not be effective unless the participant enters into an agreement with the Company in a form specified by the Board agreeing to the terms, conditions and restrictions of the award and such other matters as the Board shall in its sole discretion determine.
At the expiration of a restricted period, the Company will deliver to the participant (or his legal representatives, beneficiaries or heir) the certificates of Common Stock held by the Company for which such restricted period has terminated.
The aggregate number of shares of Common Stock which may be awarded under the Plan will be appropriately adjusted for any increase or decrease in the total number of shares of the Company's Common Stock resulting from a division or combination of shares or other capital adjustment; or resulting from the payment of a stock dividend, or other increase or decrease in such shares by the Company.
The Board of Directors may amend the Plan from time to time in such respects as the Board of Directors may deem advisable, provided that no change may be made in any award theretofore granted which would impair the rights of a participant, without consent of the participant. The Board may amend agreements between participants and the Company from time to time as the Board may deem advisable, provided that no change may be made in any award theretofore granted which would impair the rights of a participant without the written consent of the Participant.
The Board of Directors may at any time terminate the Plan. Any such termination will not affect awards already in effect and such awards shall remain in full force and effect as if the Plan had not been terminated.
No awards may be made under the Plan subsequent to December 31, 2011.
Item 12. Certain Relationships and Related Transactions.
Charter One, a company controlled by Barry Yiu, advanced HK$1,000,000 (US$128,797) to the Company for working capital. On December 15, 2003, Charter One and the Company entered into a Memorandum of Understanding whereby Charter One agreed to convert such loan into 3,800,000 shares of Common Stock.
Item 13. Exhibit and Reports on Form 8-K.
Documents filed as part of this Report:
1. Financial Statements of Chinawe.com Inc.:
Report of Independent Auditors
Balance Sheet - Years Ended December 31, 2003 and 2002
Statement of Operations - Years Ended December 31, 2003 and 2002
Statement of Shareholder's Deficit and Comprehensive Loss
- Years Ended December 31, 2003 and 2002
Statement of Cash Flow - Years Ended December 31, 2003 and 2002
Notes to Financial Statements
2. Exhibits and Index:
Exhibit
No. Description
2. Merger Agreement & Plan of Reorganization dated as of
October 17, 2000*
3.(i) Articles of Incorporation**
3.(ii) By-Laws**
10.1 Chinawe.com Inc. 2001 Restricted Stock Plan***
14 Code of Ethics
21 Subsidiaries
23.1 Consent of Moores Rowland Mazars
31.1 Rule 13a-14(a)/15d-14(a) Certification
31.2 Rule 13a-14(a)/15d-14(a) Certification
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
-----------------
|
* Filed as an exhibit to our Company's Information Statement, as filed with the Securities and Exchange Commission on February 12, 2001 and hereby incorporated by reference herein.
** Filed as an exhibit to our Company's Form 10-SB, as filed with the Securities and Exchange Commission on May 19, 2000 and hereby incorporated by reference herein.
*** Filed as an exhibit to our Company's Form S-8, as filed with the Securities and Exchange Commission on October 17, 2001 and hereby incorporated by reference herein.
No reports on Form 8-K were filed during the quarter ended December 31, 2003.
Item 14. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure the reliability of financial statements and other disclosures included in this report. Within the 90 days prior to the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic Securities and Exchange Commission filings.
(b) Changes in Internal Controls
There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date the Company carried out its evaluation.
Item 15. Principal Accountant Fees and Services.
Audit Fees.
The aggregate fees billed for the fiscal years ended December 31, 2002 and 2003 for professional services rendered by Moores Rowland Mazars for the audit of the annual financial statements and the review of the financial statements included in our quarterly reports on Form 10-QSB were $18,000 and $22,500, respectively.
Audit Related Fees.
The aggregate fees billed for the fiscal years ended December 31, 2002 and 2003 for assurance and related services rendered by Moores Rowland Mazars related to the performance of the audit or review of our financial statements were $0 and $0, respectively.
Tax Fees.
The aggregate fees billed for the fiscal years ended December 31, 2002 and 2003 for services rendered by Moores Rowland Mazars in connection with the preparation of our tax returns were $0 and $0, respectively.
CHINAWE.COM INC.
CONTENT
Independent Auditors' Report F1 Consolidated Statements of Operations F2 Consolidated Balance Sheets F3 Consolidated Statements of Changes in Stockholders' Deficit F4 Consolidated Statements of Cash Flows F5 Notes to and Forming Part of the Financial Statements F6 - F13 |
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
CHINAWE.COM INC.
We have audited the accompanying consolidated balance sheets of Chinawe.com Inc. (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in stockholders' deficit 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 audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2(b) to the financial statements, the Company has suffered recurring losses from operations and continues to experience negative cash flow from operations that raise substantial doubt in its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2(b). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MOORES ROWLAND MAZARS
Chartered Accountants
Certified Public Accountants
Hong Kong
April 7, 2004
CHINAWE.COM INC.
YEAR ENDED DECEMBER 31,
-------------------------------------------
NOTE 2003 2003 2002
US$ RMB RMB
OPERATING REVENUES
Subscription and service income 50,921 421,970 582,827
Administrative and general expenses (252,793) (2,094,821) (2,200,242)
---------- ------------ -----------
Loss from operations (201,872) (1,672,851) (1,617,415)
Loan interest (21,598) (178,976) (9,364)
Other income 7 56 78
------------ ------------ -----------
Net loss (223,463) (1,851,771) (1,626,701)
============ ============ ===========
Basic and diluted net loss per share of common
stock 2(i) (0.006) (0.05) (0.04)
============ ============ ===========
Weighted average common shares outstanding 40,000,000 40,000,000 40,000,000
============ ============ ===========
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CHINAWE.COM INC.
AS OF DECEMBER 31,
----------------------------------------------
2003 2003 2002
ASSETS NOTE US$ RMB RMB
CURRENT ASSETS
Cash and cash equivalents 16,800 139,218 18,953
Accounts receivable, net of allowance for
doubtful accounts of RMB18,332 in 2003 and
2002 2,024 16,766 18,299
Other current assets 7,658 63,458 62,292
------------ ------------- ------------
TOTAL CURRENT ASSETS 26,482 219,442 99,544
------------ ------------- ------------
Property, plant and equipment, net 3 6,785 56,226 195,052
------------ ------------- ------------
TOTAL ASSETS 33,267 275,668 294,596
============ ============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Customer deposits received 21,157 175,319 232,707
Accrued expenses and other current liabilities 128,039 1,061,018 1,093,583
Current portion of long-term debt 4 6,090 50,470 47,865
Due to related parties 6 1,056,802 8,757,396 6,770,824
------------ ------------- ------------
TOTAL CURRENT LIABILITIES 1,212,088 10,044,203 8,144,979
------------ ------------- ------------
NON-CURRENT LIABILITIES
Long-term debt 4 6,422 53,216 103,687
------------ ------------- ------------
STOCKHOLDERS' DEFICIT
Preferred stock, par value US$0.001 per share;
authorized 20,000,000 shares; none issued
Common stock, par value US$0.001 per share;
authorized 100,000,000 shares; issued and
outstanding 40,000,000 shares 38,616 320,000 320,000
Capital in excess of par (38,519) (319,198) (319,198)
Accumulated losses (1,185,462) (9,823,567) (7,971,796)
Accumulated other comprehensive income 122 1,014 16,924
------------ ------------- ------------
Total stockholders' deficit (1,185,243) (9,821,751) (7,954,070)
------------ ------------- ------------
Total liabilities and stockholders' deficit 33,267 275,668 294,596
============ ============= ============
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CHINAWE.COM INC.
COMMON STOCK
------------------------
ACCUMULATED
ADDITIONAL OTHER
PAID-IN ACCUMULATED COMPREHENSIVE
NUMBER AMOUNT CAPITAL LOSSES LOSS TOTAL
OF SHARES RMB RMB RMB RMB RMB
---------- ------- ------------ ----------- -------------- ------------
Balance as of January 1, 2002 40,000,000 320,000 (319,198) (6,345,095) (39,935) (6,384,228)
Comprehensive loss:
Net loss for the year - - - (1,626,701) - (1,626,701)
Currency translation
adjustment - - - - 56,859 56,859
---------- ------- -------- ---------- ------- ----------
Total comprehensive loss (1,569,842)
----------
Balance as of December 31, 2002 40,000,000 320,000 (319,198) (7,971,796) 16,924 (7,954,070)
Comprehensive loss:
Net loss for the year - - - (1,851,771) - (1,851,771)
Currency translation
adjustment - - - - (15,910) (15,910)
---------- ------- -------- ---------- ------- ----------
Total comprehensive loss (1,867,681)
----------
BALANCE AS OF DECEMBER 31, 2003 40,000,000 320,000 (319,198) (9,823,567) 1,014 (9,821,751)
========== ======= ======== ========== ===== ==========
US$ US$ US$ US$ US$
38,616 (38,519) (1,185,462) 122 (1,185,243)
====== ======= ========== === ==========
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CHINAWE.COM INC.
YEAR ENDED DECEMBER 31,
-------------------------------------
2003 2003 2002
US$ RMB RMB
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (223,463) (1,851,771) (1,626,701)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 17,866 148,048 153,333
Changes in operating assets and liabilities:
Accounts receivable, net 193 1,601 3,986
Other current assets (140) (1,159) 13,838
Customer deposits received (6,931) (57,433) (134,558)
Accounts payable -- -- (75,823)
Accrued expenses and other current liabilities (4,085) (33,848) (246,933)
---------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (216,560) (1,794,562) (1,912,858)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,101) (9,125) (1,929)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,101) (9,125) (1,929)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (5,776) (47,866) (45,395)
Increase in amounts due to related parties 438,649 3,634,949 3,797,202
Repayment to related parties (200,705) (1,663,180) (1,853,545)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 232,168 1,923,903 1,898,262
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,507 120,216 (16,525)
Cash and cash equivalents, beginning of year 2,287 18,953 38,859
Effect of exchange rate 6 49 (3,381)
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR 16,800 139,218 18,953
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 832 6,894 9,364
========== ========== ==========
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CHINAWE.COM INC.
1. DESCRIPTION OF BUSINESS
Chinawe.com Inc. ("Chinawe") was incorporated under the laws of the State of California. After recapitalization in 2001, Chinawe and its subsidiaries (collectively referred to as the "Company") are engaged in the business of enabling e-commerce transactions for small and medium-size producers of goods on Mainland China for sale to overseas wholesale customers, and managing assets located in the People's Republic of China ("PRC") by attempting to expedite transactions between Chinese operators of these assets and overseas purchasers and joint ventures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of accounting
The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. The financial statements are presented in Renminbi ("RMB") which is the Company's functional currency as the Company's operations are primarily located in the PRC.
(b) Going concern considerations
The Company's financial statements for the year ended December 31, 2003 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. For the year ended December 31, 2003, the Company reported a net loss of RMB1,851,771 (US$223,463) and as of December 31, 2003 has a stockholders' deficit and a working capital deficit of RMB9,821,751 (US$1,185,243) and RMB9,824,761 (US$1,185,606), respectively. The Company has also experienced difficulty and uncertainty in meeting its liquidity needs. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to address these concerns include:
(i) The Company is currently negotiating with a financial service company to act as a service provider for such financial service company and provide services relating to the management of a pool of non-performing loans ("NPL") in the PRC. Management believes that engaging in this business will bring a new source of revenue to the Company in the foreseeable future which is expected to allow the Company to erase doubts as to its operating as a going concern. Upon entering into a servicing agreement as mentioned above, the Company expects to issue an aggregate of five to ten million shares of common stock of the Company to various finders as compensation for their efforts and contributions in connection with the deal.
The Company is also currently evaluating its involvement in a series of NPL transactions and the Company will focus on the NPL business as its core business. Management believes that the new role as a service provider will provide the Company with a higher profit potential and high growth potential in an industry that currently has relatively few competitors.
CHINAWE.COM INC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ii) During the year, Charter One Investments Limited ("Charter One"), a company controlled by a director, advanced HK$1,000,000 (RMB1,067,300) to the Company (the "Loan") for working capital of the Company (Note 6). On December 15, 2003, Charter One and the Company entered into a Memorandum of Understanding whereby Charter One agreed to convert the Loan into 3,800,000 shares of common stock of the Company (Note 10).
(c) Principles of consolidation
The financial statements include the accounts of Chinawe and its subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation.
(d) Cash and cash equivalents
The Company considers all cash and highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
(e) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis to write off the cost of each asset using annual percentage rates as follows:
Leasehold improvements 50% Computer equipment 30% Motor vehicles 30% |
(f) Accounting for the impairment of long-lived assets
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(g) Revenue recognition
Subscription and service income receivable from members is recognized over the period of subscription and to the extent of services rendered in accordance with the terms of agreements.
CHINAWE.COM INC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
(i) Loss per common share
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share", requires dual presentation of basic and diluted earning per share ("EPS") with a reconciliation of the numerator and denominator of the EPS computations. Basic earning per share amounts are based on the weighted average shares of common stock outstanding. Diluted earning per share assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. The Company had no potential common stock instruments which would result in diluted earnings per share in 2003 or 2002. The basic and diluted weighted average common shares outstanding are 40,000,000 for both the years ended December 31, 2003 and 2002.
(j) Foreign currency translation
The Company considers Renminbi as its functional currency as a substantial portion of the Company's business activities are based in Renminbi.
Transactions in currencies other than functional currencies during the year are translated into the respective functional currencies at the applicable rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in currencies other than functional currencies are translated into respective functional currencies at the applicable rates of exchange in effect at the balance sheet date. Exchange gains and losses are dealt with in the consolidated statement of operations.
The translation of the financial statements of subsidiaries whose functional currencies are other than Renminbi, into Renminbi is performed for balance sheet accounts using closing exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during each reporting period. The gains or losses resulting from translation are included in stockholders' deficit separately as accumulated other comprehensive loss.
Translation of amounts from Renminbi into United States dollars ("US$") is for the convenience of readers and has been made at the exchange rate of US$1.00 = RMB8.2867 as of December 31, 2003. No representation is made that the Renminbi amounts could have been, or could be, converted into United States dollars at that rate or at any other rate.
CHINAWE.COM INC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates includes provisions for doubtful accounts, sales returns and allowances, long-lived assets and deferred incomes taxes. Actual results could differ from those estimates.
(l) Fair value of financial instruments
The estimated fair values for financial instruments under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair values of the Company's financial instruments, which includes cash, accounts receivable and accounts payable, approximates their carrying value in the financial statements.
(m) Comprehensive income (loss)
SFAS No. 130, "Reporting Comprehensive Income", establishes requirements for disclosure of comprehensive income which includes certain items previously not included in the statements of operations, including minimum pension liability adjustments and foreign currency translation adjustments, among others. The Company's components of comprehensive income (loss) include net loss for the year and foreign currency translation adjustments.
(n) New accounting pronouncements
There are no new accounting pronouncements for which adoption is expected to have a material effect on the Company's financial statements.
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment is summarized as follows:
2003 2003 2002
US$ RMB RMB
Computer equipment 19,448 161,162 152,037
Leasehold improvement 4,936 40,905 40,905
Motor vehicles 41,773 346,158 346,158
-------- --------- ----------
66,157 548,225 539,100
Accumulated depreciation (59,384) (492,096) (343,701)
Currency translation adjustment 12 97 (347)
-------- --------- ----------
Net 6,785 56,226 195,052
======== ========= ==========
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CHINAWE.COM INC.
4. LONG TERM DEBT
Long term debt consists of a bank loan with RMB103,686 outstanding as of December 31, 2003. The loan is unsecured, bearing interest at 5.31% per annum and is repayable in monthly installments of RMB4,563, with final installment due in December 2005. Maturities under the loan are as follows:
YEAR ENDING DECEMBER 31 2003 2003
US$ RMB
2004 6,090 50,470
2005 6,422 53,216
------ -------
12,512 103,686
====== =======
5. INCOME TAXES
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It is management's intention to reinvest all the income attributable to the Company earned by its operations outside the United States. Accordingly, no U.S. corporate income taxes are provided in these financial statements.
The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
Under the current laws of the British Virgin Islands (the "BVI"), dividends and capital gains arising from the Company's investments in the BVI are not subject to income taxes and no withholding tax is imposed on payments of dividends to the Company.
Companies that carry on business and derive income in Hong Kong are subject to Hong Kong profits tax at 17.5%. Companies that carry on business and derive income into the PRC are subject to national income tax at 30% and local income tax at 3%.
No income taxes have been provided for the Company's subsidiaries in Hong Kong and the PRC as they incurred tax losses during 2003 and 2002.
The reconciliation between the effective tax rate and the statutory U.S. federal income tax rate is as follows:
2003 2002
% OF PRE- % of Pre-
TAX INCOME Tax income
---------- ----------
Computed "expected" tax benefit 34 34
Operating losses for which a benefit
has not been recognized (34) (34)
---- ----
-- --
==== ====
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CHINAWE.COM INC.
5. INCOME TAXES (CONTINUED)
The Company deferred tax assets are as follows:
2003 2003 2002
US$ RMB RMB
-------- -------- --------
Hong Kong operating loss carry forward 67,278 557,515 340,553
PRC operating loss carry forward 34,110 282,663 253,679
Deferred tax assets valuation allowance (101,388) (840,178) (594,232)
-------- -------- --------
Net deferred tax assets -- -- --
======== ======== ========
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As of December 31, 2003, the Company has Hong Kong and PRC operating losses carry forward of approximately RMB3,185,801 and RMB856,553, respectively. Hong Kong losses are available for carry forward indefinitely and PRC losses are available for carry forward for five years. Management has provided a full allowance for deferred tax assets as it is more likely than not that the assets will not be realized.
6. RELATED PARTY BALANCES AND TRANSACTIONS
The balances with related parties are as follows:
2003 2003 2002
NOTE US$ RMB RMB
---- --------- --------- ----------
Loan from a director, including interest (a) 135,462 1,122,530 --
Loan from a company controlled by a director (b) 128,797 1,067,300 --
Advances from Stockholders (c) 789,082 6,538,881 6,742,139
Advances from PRC party (c) 3,461 28,685 28,685
--------- --------- ---------
1,056,802 8,757,396 6,770,824
========= ========= =========
|
Note:
(a) The amount due is unsecured, interest-bearing and repayable within one year. The total interest payable for the loan is RMB279,633 (HK$262,000). As of December 31, 2003, the Company has accrued for interest of RMB172,082 (HK$161,231) in aggregate.
(b) The amount due is unsecured and interest-free. The Company has subsequently issued 3,800,000 shares of common stock of the Company for the settlement of the loan (see note 10).
(c) The advances are unsecured, interest-free and repayable on demand.
During the years ended December 31, 2003 and 2002, the Company received advances from related parties of RMB3,634,949 and RMB3,797,202, respectively. The Company also repaid advances of RMB1,663,180 and RMB1,899,456 during the years ended December 31, 2003 and 2002, respectively.
The Company occupies office space in a building leased by an affiliate of the Company. Rental expense for each of the years ended December 31, 2003 and 2002 was approximately RMB120,000.
CHINAWE.COM INC.
7. RETIREMENT PLAN AND POST-EMPLOYMENT BENEFITS
Following the introduction of the Mandatory Provident Fund legislation in Hong Kong, the subsidiary in Hong Kong has participated in the defined contribution mandatory provident fund since December 1, 2000. Both the Company and its employees make monthly contributions to the fund at 5% of the employees' earnings as defined under Mandatory Provident Fund legislation. The contribution of the Company and the employees are subject to a cap of HK$1,000 per month and thereafter contributions are voluntary.
As stipulated by the rules and regulations in the PRC, the Company's PRC subsidiary is required to contribute to a state-sponsored social insurance plan for all of its employees at 11% of the basic salary of its employees. The state-sponsored retirement plan is responsible for the entire pension obligations for the actual pension payments or post-retirement benefits beyond the annual contributions.
During the year, the aggregate amount of the Company's employer contributions amounted to RMB41,625 and RMB67,453 for the years ended December 31, 2003 and 2002, respectively.
8. STOCK PLAN
On July 25, 2001 the Board of Directors approved the Chinawe.com Inc. 2001 Restricted Stock Plan (the "Plan"), under which 5,000,000 shares of the Company's common stock have been reserved for award under the Plan. Pursuant to the Plan, stock awards may be granted to eligible officers, directors, employees and consultants of the Company. Through 2003, no awards have been made under the Plan.
9. RISK CONSIDERATIONS
As a majority of the Company's operations are conducted in the PRC, the Company is subject to special considerations and significant risks not typically associated with investments in equity securities of North American and Western European companies. The Company's operations may be adversely affected by significant political, economic and social uncertainties in the PRC.
Although the PRC government has been pursuing economic reform policies for the past several years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC's political, economic and social life. There is also no guarantee that the PRC government's pursuit of economic reforms will be consistent or effective.
The Company expects that substantially all of its revenues will be denominated in RMB. A portion of such revenues will need to be converted into other currencies to meet foreign currency obligations such as payment of any dividends declared. Both the conversion of RMB into foreign currencies and the remittance of foreign currencies abroad require PRC government approval. No assurance can be given that the operating subsidiaries within the Company will continue to be able to convert sufficient amounts of foreign currencies in the PRC's foreign exchange markets in the future for payment of dividends.
CHINAWE.COM INC.
10. SUBSEQUENT EVENT
Subsequent to December 31, 2003, 3,800,000 shares of common stock of the Company were issued to Charter One for the settlement of the Loan.
11. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year presentation.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINAWE.COM INC.
By: /s/ Man Keung Wai
---------------------------------
Man Keung Wai
Chairman of the Board
Date: April 14, 2004
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE /s/ Man Keung Wai Chairman of the Board, Chief Executive Officer April 14, 2004 ----------------- and Director (Principal Executive Officer and Man Keung Wa Principal Financial Officer) /s/ Man Ying Ken Wai Vice President of Marketing and Director April 14, 2004 -------------------- Man Ying Ken Wai /s/ Vivian Wai Wa Chu Chief Financial Officer, Secretary and Director April 14, 2004 --------------------- Vivian Wai Wa Chu /s/ Barry Yiu Vice President and Director April 14, 2004 ------------- Barry Yiu |
EXHIBIT 14
CODE OF CONDUCT AND ETHICS
INTRODUCTION
PURPOSE. It is a basic precept of Chinawe.com Inc. (the "Company") that its employees, officers and directors shall observe the very highest standards of ethics in the conduct of the Company's business, so that even the mere appearance of impropriety is avoided, and shall conduct themselves with the highest regard for the dignity of others. This standard benefits the Company, its stockholders, its employees and the communities in which the Company operates.
The Company has established and maintains various practices, policies and procedures, which collectively comprise a corporate compliance program, intended to promote the honest, ethical and lawful behavior of its employees and directors and to prevent and detect unethical conduct. Specifically, the corporate compliance program and this Code of Conduct and Ethics (the "Code") require that employees, officers and directors of the Company act in a manner that will ensure:
o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
o full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Company;
o compliance with applicable governmental laws, rules and regulations; and
o prompt internal reporting of violations of this Code to an appropriate person or persons.
This Code summarizes the Company's long-standing practices, policies and procedures in a single format.
INDIVIDUAL AND MANAGEMENT RESPONSIBILITY. This Code applies to every officer, employee and director of the Company. As an officer, employee or director of the Company, you are personally required to act within the letter and spirit of the law and to uphold the Code. Managers are responsible for ensuring that the Code is understood and enforced within their departments.
THE CORPORATE COMPLIANCE COMMITTEE AND OMBUDSMEN. The Company has appointed a Corporate Compliance Committee (the "Compliance Committee") made up of the Chief Executive Officer and Chief Financial Officer. The Chief Financial Officer acts as Secretary of the Compliance Committee. The membership of the Compliance Committee may change from time to time by action of the Board of Directors. The Compliance Committee will meet periodically to review the Company's compliance efforts and will report to the Board of Directors on at least an annual basis. Members of the Compliance Committee will serve as ombudsmen to receive and address concerns and questions from employees.
INTERPRETATION. Inevitably, the Code addresses questions that escape easy definition. This Code does not summarize or address all ethical questions or specific situations that might arise. Rather, it is designed to provide employees, officers and directors with general guidance on their ethical obligations in the performance of their duties to the Company. There will be times when you may be unsure about how the Code applies. In such cases, or simply to voice concerns or to ask questions, you should feel free and are encouraged to contact the Chief Financial Officer of the Company, Vivian Chu. If you are uncomfortable contacting Ms. Chu, you may contact the Chairman of the Board of Directors of the Company, Man Keung Wai. For your convenience, telephone numbers for each of these individuals are listed on the last page of this brochure. The Company's outside legal counsel will interpret substantive areas of the law as they apply to this Code and compliance matters.
COMPLIANCE AND REPORTING. The Company encourages the active involvement of its employees in the detection and prevention of misconduct. If you have reason to believe that an employee, officer or director of the Company, including your manager, or that any member of senior management or employee of any Company subsidiary, has violated, may violate or is acting in a manner which appears to violate the letter or spirit of the law or the standards outlined in this Code, you are encouraged to report such activity to Vivian Chu. You may do so without fear of retribution. Reports of misconduct will be kept confidential to the extent possible, and only those who need to be informed to address the concerns raised will be advised of the report. However, confidentiality will not protect anyone who is discovered to have participated in or contributed to a violation, and, in certain events, federal, state or local laws may require disclosure of a reporting person's identity.
DISCIPLINARY ACTION. Employees and directors should understand that this Code is drafted broadly. The Company intends to enforce the provisions of this Code vigorously. A violation of the Code, a failure to report a violation or retaliation against another employee who, in good faith, reports a violation, could lead to sanctions, including dismissal for cause, as well as, in some cases, civil and criminal liability. Although any officer, employee or director who discloses his or her own misconduct may be subject to disciplinary action, the Company may consider such voluntary self-disclosure as a mitigating factor.
Notwithstanding the foregoing, this Code should not be used for the submission of frivolous or unfounded complaints. Submission of frivolous or unfounded complaints will be dealt with appropriately.
*****
SUMMARY DESCRIPTIONS OF COMPLIANCE AREAS
Summary descriptions of compliance areas that most often may affect your daily activities and those of the Company are set forth below. Compliance with all applicable laws, regulations, orders and standards is expected of you, and the exclusion of certain compliance areas from the following summary descriptions should not be viewed as an indication that such excluded compliance areas are not important.
COMPLIANCE WITH APPLICABLE LAWS, REGULATIONS AND COMPANY POLICIES. All employees, officers and directors must comply with all laws, rules and regulations applicable to the Company and its subsidiaries, including, among other things, all applicable equal employment opportunity laws and regulations, antitrust laws and export control laws. Additionally, all employees, officers and directors must comply with the Company's policies regarding, among other things, harassment (including sexual harassment), equal employment opportunity and the Family and Medical Leave Act. Information regarding the Company's policies and procedures with respect to these and other matters can be found in the Company's employment materials. All employees, officers and directors should be familiar with all applicable laws, regulations and Company policies and procedures.
FINANCIAL REPORTING/BOOKS AND RECORDS. It is essential that the Company's financial statements and all books and records on which they are based be, in management's best judgment, complete and accurate so that they reflect the true state of our business and disclose the true nature of all disbursements and other transactions at all times. This is critical, regardless of whether such records would disclose disappointing results or a failure to meet anticipated profit levels. Any attempt to mask actual results by inaccurately reflecting costs, inventory values or sales, or agreeing to private side letters with terms and conditions not contained in a customer contract etc., cannot and will not be tolerated. Additionally, all filings by the Company with the Securities and Exchange Commission and other regulatory bodies must be accurate and timely. If any employee, officer or director of the Company has concerns or complaints regarding questionable accounting or auditing matters of the Company, including a failure to comply with internal controls of the Company or to cooperate with the Company's internal or independent auditors, then he or she should submit those concerns or complaints to the Audit Committee of the Board of Directors.
REAL AND APPARENT CONFLICTS OF INTERESTS. You must avoid situations that would create a conflict, or the appearance of a conflict, between your personal interests and the Company's businesses. A conflict situation can arise when an employee, officer or director takes action or has interests that may make it difficult to perform his or her duties objectively and effectively. Consequently, you are expected to avoid or, where appropriate, disclose situations that, because of some interest of yours or of members of your family, could consciously or unconsciously have an adverse impact on your ability to represent the Company's best interests. Some examples of a conflict of interest include:
o owning a material financial interest in a competitor of the Company or an entity that does business or seeks to do business with the Company;
o being employed by, performing services for, serving as an officer of, or serving on the board of directors of any such entity;
o making an investment that could compromise one's ability to perform his or her duties to the Company; or
o having an immediate family member who engages in any of the activities identified above.
CORPORATE OPPORTUNITIES. Employees, officers and directors are prohibited from:
o taking for themselves personally opportunities that properly belong to the Company or that are discovered through the use of corporate property, information or position;
o using corporate property, information or position for personal gain; or
o competing with the Company.
GIFTS, LOANS AND ENTERTAINMENT. You are expected to avoid any involvement or situation that could interfere, or even appear to interfere, with the impartial discharge of your duties. For example:
o neither you nor any member of your immediate family should receive a loan from any customer, competitor or supplier of the Company or any director, officer or employee thereof.
o neither you nor any member of your immediate family should accept gifts of more than nominal value from any customer, competitor or supplier of the Company or any director, officer or employee thereof.
o neither you nor any member of your immediate family should accept entertainment from any customer, competitor or supplier of the Company or any director, officer or employee thereof that exceeds in scope and cost the common courtesies generally and normally acceptable as appropriate to ethical business practices under the circumstances.
IMPROPER PAYMENTS OR COMMERCIAL BRIBERY. State, federal and foreign laws prohibit the payment of bribes, kickbacks or other illegal payments by or on behalf of the Company. Accordingly, neither you nor any member of your immediate family should make any payment to or give or offer to give any gift or other item of value, directly or indirectly, to any customer, competitor or supplier of the Company or any director, officer or employee thereof, except that gifts or entertainment may be given to representatives of customers or potential customers if they meet all of the following criteria:
o the gift or entertainment is legal;
o the gift or entertainment does not comprise cash or cash equivalents;
o the gift or entertainment is of a nominal value such that it cannot be construed as a bribe, payoff or other attempt to procure business by any reasonable person applying normal, generally accepted standards of business ethics; and
o public disclosure of such gift or entertainment would not in any sense be an embarrassment to the Company.
CONFIDENTIAL INFORMATION. Except as otherwise approved by the Company in advance, you must not publish or otherwise disclose, nor use for personal gain, either during or subsequent to your employment, any confidential information about the Company, its personnel or the entities with which it does business. Confidential information includes all non-public information that might be of use to competitors of the Company or harmful to the Company or its customers if disclosed. Such information includes, among other things, customer information, information relating to proposed, ongoing or completed transactions of the Company, trade secrets, confidential financial information of the Company and business plans. Whenever feasible, employees, officers and directors should consult with Vivian Chu if they believe they have a legal obligation to disclose confidential information.
INSIDER TRADING. In the performance of your duties, you may acquire inside or non-public information about the Company or its subsidiaries, or about other companies with which there may be pending or proposed transactions. Provisions of the federal and state securities laws and regulations prohibit persons having material inside information from purchasing, selling or otherwise trading in the securities of, or in any manner disclosing such information concerning, the Company or other companies until after the information has been published to the general public. These laws prohibit selling securities while in possession of unfavorable inside information to avoid losses, as well as purchasing securities while possessing favorable inside information to obtain profits. A violation of this prohibition can subject you to criminal fines and imprisonment and to civil penalties.
It is imperative that you not discuss important business developments involving the Company, any subsidiary or any other relevant entity, in even the most casual manner, with family, friends or outsiders -- or even other employees who do not need to have such information -- prior to full public disclosure. Giving a "tip" to someone else based on your inside information is illegal. Both you and the person you "tip" may be subject to significant criminal and civil penalties if securities are traded based on a disclosure of inside information. It is recommended that you consult with Vivian Chu if you have any doubt as to the applicability of the foregoing standards to any transaction involving the securities of the Company or of any corporation or entity having a business relationship with the Company. Please also see the separate "Insider Trading Policy" adopted by the Board of Directors for additional restrictions.
POLITICAL ACTIVITY. The Company encourages you to participate in political activities, provided that these activities are on your own time, do not interfere with your work and are not done in a context that identifies you with the Company. The Company will not reimburse you for any political contributions that you may make. You should not offer
any gift or payment, directly or indirectly, to any governmental official or political party with the objective of procuring or maintaining business or influencing governmental action favorable to the Company.
FAIR DEALING. Each employee, officer and director should endeavor to deal fairly with the Company's customers, suppliers, competitors, officers and employees. Employees, officers and directors should not take unfair advantage of any other party through fraud, manipulation, concealment, abuse of privileged information, misrepresentation or omission of material facts or any other unfair practices.
PROTECTION AND PROPER USE OF COMPANY ASSETS. All employees, officers and directors should protect and safeguard from harm the Company's assets. Theft, misappropriation or destruction of the Company's assets are in direct violation of the Company's obligations to the Company's stockholders. Employees, officers and directors of the Company should only use the Company's assets for legitimate business purposes.
CONCLUSION
Compliance with the law and the conduct of the Company's business in an ethical manner is in all of our interests. When in doubt as to the propriety of some action, please contact Vivian Chu or, if you are uncomfortable contacting her, Man Keung Wai. Ms. Chu and Mr. Wai can be contacted at the following numbers:
Vivian Chu, Chief Financial Officer c/o (212) 753-7500
Man Keung Wai, Chairman of the Board of Directors c/o (212) 753-7500
EMPLOYEE CERTIFICATION
[Please read, sign, print your name and date, and return this page to Vivian Chu, Chief Financial Officer of the Company.]
I, the undersigned employee of Chinawe.com Inc. certify that I have received and read the Code of Conduct and Ethics to which this form of certification was attached. I further certify that I understand the substantive obligations imposed upon me by the Code or, to the extent that I do not understand these obligations, I acknowledge that procedures are outlined in the Code to help me develop an appropriate understanding of these obligations.
I understand that an effective compliance program requires active employee involvement and that I am encouraged and required to report activities which, in good faith, I believe are or may be violations. Finally, I understand that any violation, failure to report a violation or retaliation against another employee for his or her action in reporting a violation or potential violation will subject me to disciplinary action, which may include, among other things, dismissal for cause.
EXHIBIT 21
SUBSIDIARIES
Name of Company Place of Incorporation/Operation --------------- -------------------------------- Officeway Technology Limited British Virgin Islands Welcon Info-Tech Limited Hong Kong Guangzhou Welcon Information Limited The Peoples Republic of China |
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-71730) of Chinawe.com Inc. of our report dated April 7, 2004 which appears on page F-1 of this annual report on Form 10-KSB for the year ended December 31, 2003.
Moores Rowland Mazars
Chartered Accountants
Certified Public Accountants
Hong Kong
April 14, 2004
EXHIBIT 31.1
CERTIFICATIONS
I, Man Keung Wai, certify that:
1. I have reviewed this annual report on Form 10-KSB of Chinawe.com Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [*** Omitted pursuant to extended compliance period] for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [*** Omitted pursuant to extended compliance period];
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: April 14, 2004 /s/ Man Keung Wai Man Keung Wai Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Vivian Chu, certify that:
1. I have reviewed this annual report on Form 10-KSB of Chinawe.com Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [*** Omitted pursuant to extended compliance period] for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [*** Omitted pursuant to extended compliance period];
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: April 14, 2004 /s/ Vivian Chu Vivian Chu Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Chinawe.com Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Man Keung Wai, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Man Keung Wai Chief Executive Officer April 14, 2004 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Chinawe.com Inc. and will be retained by Chinawe.com Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Chinawe.com Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Vivian Chu, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material respects, the financial condition and result of operations of the Company.
/s/ Vivian Chu Chief Financial Officer April 14, 2004 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Chinawe.com Inc. and will be retained by Chinawe.com Inc. and furnished to the Securities and Exchange Commission or its staff upon request.