FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2008
Commission File Number: 000-26169
Chinawe.com Inc.
(Exact name of registrant as specified in its charter)
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California
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95-462728
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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Room 1304, Dongbao Tower
767 Dongfeng Road East
Guangzhou, China 510600
(Address of principal executive offices) (Zip Code)
(8620) 3821-0119
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes
þ
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practical date:
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Class of Common Stock
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Outstanding at August 13, 2008
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Common Stock, $.001 par value
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43,800,000
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CHINAWE.COM INC.
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CHINAWE.COM INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three months ended June 30,
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Six months ended June 30,
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NOTE
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2008
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2007
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2008
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2007
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US$
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US$
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US$
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US$
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OPERATING REVENUES
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On-line services income
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60
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872
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Asset management and related services
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219,303
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156,202
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407,732
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400,747
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219,303
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156,262
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407,732
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401,619
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Depreciation
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(10,420
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)
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(14,978
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)
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(25,655
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)
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(29,944
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Administrative and general expenses
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(260,352
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)
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(228,615
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)
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(491,832
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)
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(529,262
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)
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LOSS FROM OPERATIONS
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(51,469
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(87,331
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(109,755
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(157,587
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NON-OPERATING (EXPENSE) INCOME
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Interest
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(8,781
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)
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(8,714
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(17,564
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)
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(17,903
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Surcharge on taxes
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8
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(24,709
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)
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(11,293
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)
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(48,317
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(11,293
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Other income
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9,039
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392
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9,628
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616
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LOSS BEFORE INCOME TAXES
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(75,920
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(106,946
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(166,008
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(186,167
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Income tax expense
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7
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(7,426
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(7,426
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NET LOSS
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(83,346
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(106,946
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(173,434
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(186,167
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OTHER COMPREHENSIVE (LOSS) INCOME
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Foreign currency translation
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(6,620
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3,705
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(17,726
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15,510
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NET LOSS AND TOTAL
COMPREHENSIVE LOSS
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(89,966
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(103,241
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(191,160
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(170,657
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Basic and diluted net loss
per share of common stock
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(0.002
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(0.002
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(0.004
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(0.004
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Weighted average number of shares
of common stock outstanding
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43,800,000
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43,800,000
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43,800,000
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43,800,000
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The financial statements should be read in conjunction with the accompanying notes.
3
CHINAWE.COM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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As of
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As of
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Note
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June 30, 2008
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December 31, 2007
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(Unaudited)
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US$
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US$
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ASSETS
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Current assets:
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Cash and cash equivalents
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288,057
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301,695
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Accounts receivable, net of allowance of
doubtful account of US$2,215 (2007: US$2,215)
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2,365
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Prepayments, deposits and other debtors
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51,877
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55,786
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Total current assets
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339,934
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359,846
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Property, plant and equipment, net
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4
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45,461
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63,114
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TOTAL ASSETS
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385,395
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422,960
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LIABILITIES AND STOCKHOLDERS DEFICIT
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Current liabilities:
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Accrued expenses and other current liabilities
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404,149
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464,156
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Current portion of long-term debt
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5
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20,100
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20,100
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Due to related parties
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6
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759,518
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624,071
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Income tax payable
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7
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463,588
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432,987
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Surcharge on taxes
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8
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200,577
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142,973
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Total current liabilities
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1,847,932
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1,684,287
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Long term liabilities:
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Non-current portion of long-term debt
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5
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17,271
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27,321
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Contingencies and commitments
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8
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Stockholders deficit:
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Preferred stock, par value US$0.001 per share;
authorized 20,000,000 shares; none issued
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Common stock, par value US$0.001 per share;
authorized 100,000,000 shares; issued and
outstanding 43,800,000 shares
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43,800
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43,800
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Capital in excess of par
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85,948
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85,948
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Accumulated losses
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(1,604,384
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)
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(1,430,950
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Accumulated other comprehensive (loss) income
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(5,172
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12,554
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Total stockholders deficit
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(1,479,808
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(1,288,648
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TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
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385,395
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422,960
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The financial statements should be read in conjunction with the accompanying notes.
4
CHINAWE.COM INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six months ended June 30,
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2008
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2007
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US$
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US$
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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(173,434
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)
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(186,167
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)
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Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
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Depreciation
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25,655
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29,944
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Gain on disposal of property, plant and equipment
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(9,016
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)
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Changes in operating assets and liabilities:
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Accounts receivable, net
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2,365
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53,664
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Prepayments, deposits and other debtors
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6,378
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376,389
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Customer deposits received
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(25,889
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(219,366
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Accrued expenses and other current liabilities
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(55,775
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)
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(55,552
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Surcharge on taxes
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48,318
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11,293
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Income tax payable
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6,079
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(7,373
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
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(175,319
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)
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2,832
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CASH FLOWS FROM INVESTING ACTIVITIES
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Proceeds from disposal of property, plant and equipment
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9,141
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Purchase of property, plant and equipment
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(5,914
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)
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(681
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)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
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3,227
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(681
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)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Repayment of long-term debt
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(10,050
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)
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(12,499
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)
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Advance from stockholders
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148,502
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8,070
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Increase in loan from a director
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2,442
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2,422
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
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140,894
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(2,007
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)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
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(31,198
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)
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144
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Cash and cash equivalents, beginning of period
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301,695
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|
|
116,102
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|
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Effect of exchange rate changes
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|
17,560
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14,429
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CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
|
288,057
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130,675
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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|
|
Cash paid for interest
|
|
|
17,564
|
|
|
|
17,903
|
|
|
|
|
|
|
|
|
The financial statements should be read in conjunction with the accompanying notes.
5
CHINAWE.COM INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying financial statements present the financial position of the Company as of June 30,
2008 and December 31, 2007, and its results of operations for the three months and six months ended
June 30, 2008 and 2007 and cash flows for the six months ended June 30, 2008 and 2007. All
inter-company accounts and transactions have been eliminated on consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three-month and six-month periods ended June 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2008.
The balance sheet at December 31, 2007 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial statements should be read
in conjunction with the consolidated financial statements included in the Companys Annual Report
on Form 10-KSB for the year ended December 31, 2007.
There are no new accounting pronouncements for which adoption is expected to have a material effect
on the Companys financial statements.
Adoption and recently issued accounting pronouncements
In 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 applies under other existing accounting
pronouncements that require or permit fair value measurement, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS 157 does not require any new fair value measurements. However, the application of
this Statement has changed the current practice for fair value measurements. SFAS 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The adoption of SFAS 157 did not have a material impact on the
Companys financial statements.
2. Organization
Chinawe.com Inc. (Chinawe) was incorporated under the laws of the State of California.
Chinawes principal business activity is providing professional asset management services relating
to non-performing loans (NPLs) in the Peoples Republic of China (PRC), as well as other
consulting services.
The consolidated financial statements include the accounts of Chinawe and the following
subsidiaries:
6
Officeway Technology Limited; incorporated in the British Virgin Islands in December 1999, formed
for the purpose of acquiring (in March 2000) its wholly-owned subsidiary, Chinawe Asset Management
Limited
(CAM (HK)).
CAM (HK); a company incorporated in Hong Kong in June 1997, which is an investment holding company.
Chinawe Asset Management (PRC) Limited was established in the PRC in April 2005 to service the NPLs
under services agreements with Huizhou One Limited, a subsidiary of Citigroup Financial Products
Inc., which accounted for 100% of the revenue from assets management and related services for the
three months and six months ended June 30, 2008 and 2007.
3. Going concern consideration
The Companys financial statements for the period ended June 30, 2008 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. As of June 30, 2008, the Company had negative working
capital and stockholders deficit of US$1,507,998 and US$1,479,808, respectively, which raise
substantial doubt about its ability to continue as a going concern. In assessing the Companys
ability to operate as a going concern, the directors have considered the Companys implementation
of certain cost cutting measures such as reduction of staff costs, employees incentive fee and
sub-servicers consultant fee. The Company has
relied on the private financing by cash inflow from the principal stockholders of the Company, who
have agreed not to demand repayment of amounts due to them as long as the Company has negative
working capital and have indicated their intention to finance the Company for a reasonable period
of time for the Company to continue as a going concern, assuming that in such period of time the
Company would be able to restructure its business and restart on a revenue-generating operation
and/or raise additional capital finds to support its continuation. However, it is uncertain for how
long or to what extent such a period of time would be reasonable, and there can be no assurance
that the financing from such parties will be continued. The accompanying financial statements do
not include or reflect any adjustments that might result from the outcome of these uncertainties.
4. Property, plant and equipment, net
Property, plant and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
June 30, 2008
|
|
|
As of
|
|
|
|
(Unaudited)
|
|
|
December
31, 2007
|
|
|
|
US$
|
|
|
US$
|
|
Office equipment
|
|
|
10,383
|
|
|
|
10,379
|
|
Computer equipment
|
|
|
11,646
|
|
|
|
11,646
|
|
Leasehold improvement
|
|
|
62,901
|
|
|
|
57,446
|
|
Motor
vehicles
|
|
|
107,559
|
|
|
|
130,087
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
192,489
|
|
|
|
209,558
|
|
Accumulated depreciation
|
|
|
(149,240
|
)
|
|
|
(150,597
|
)
|
Currency translation adjustment
|
|
|
2,212
|
|
|
|
4,153
|
|
|
|
|
|
|
|
|
Net
|
|
|
45,461
|
|
|
|
63,114
|
|
|
|
|
|
|
|
|
7
5. Long term debt
Long term debt consists of obligations under capital leases for purchases of vehicles with
US$37,371 and
US$47,421 outstanding as of June 30, 2008 and December 31, 2007, respectively. The debt is
collateralized by two motor vehicles with an aggregate net book value of US$20,876 and US$27,761 as
of June 30, 2008 and December 31, 2007, respectively, bearing interest at 3-5% per annum and is
repayable in monthly installments of US$2,002 with the final installments due in 2010. Maturity of
the debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
June 30, 2008
|
|
December 31,
|
|
|
(Unaudited)
|
|
2007
|
|
|
US$
|
|
US$
|
Within 1 year
|
|
|
24,023
|
|
|
|
24,023
|
|
Over 1 year but not exceeding 2 years
|
|
|
19,086
|
|
|
|
24,023
|
|
Over 2 years but not exceeding 3 years
|
|
|
1,535
|
|
|
|
8,610
|
|
|
|
|
|
|
|
44,644
|
|
|
|
56,656
|
|
Less: Amount representing interest
|
|
|
(7,273
|
)
|
|
|
(9,235
|
)
|
|
|
|
Present value of net minimum lease payments
|
|
|
37,371
|
|
|
|
47,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
20,100
|
|
|
|
20,100
|
|
Non-current portion
|
|
|
17,271
|
|
|
|
27,321
|
|
|
|
|
|
|
|
37,371
|
|
|
|
47,421
|
|
|
|
|
6. Related party transactions
The balances with related parties are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
As of
|
|
|
NOTE
|
|
(Unaudited)
|
|
December 31, 2007
|
|
|
|
|
|
|
US$
|
|
US$
|
At cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from a director, including interest
|
|
|
(a
|
)
|
|
|
145,443
|
|
|
|
143,001
|
|
Advances from stockholders
|
|
|
(b
|
)
|
|
|
614,075
|
|
|
|
481,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
759,518
|
|
|
|
624,071
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The loan from a director is unsecured and bears interest at 23% per annum. Interest expense
charged for the three months and six months ended June 30, 2008 and 2007 was US$7,801 and
US$15,603 and US$7,731 and US$15,462, respectively.
|
|
(b)
|
|
The amounts due are unsecured, non-interest bearing and repayable on demand.
|
7. Income taxes
It is managements intention to reinvest all the income attributable to the Company earned by its
operations outside the US. Accordingly, no US corporate income taxes are provided for in these
financial statements.
8
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 Companys 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 16.5% and 17.5% for the three months and six months ended June 30, 2008 and 2007,
respectively. Companies that carry on business and derive income in the PRC are subject to income
tax at 25% and 33% for the three months and six months ended June 30, 2008 and 2007, respectively.
The income tax expense for the current periods represents the PRC enterprise income tax charged on
the profits earned by the Companys PRC subsidiary.
No income taxes have been provided for the subsidiary in Hong Kong as it has incurred losses for
taxation purpose during the three months and six months period ended June 30, 2008 and 2007.
As required in FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109 (FIN 48), the Company has analyzed its filing
positions in all of the federal, state and foreign jurisdictions where it is required to file
income tax returns. As of June 30, 2008, the Company has identified the following jurisdictions as
major tax jurisdictions, as defined, in which it is required to file income tax returns: United
States; Hong Kong and PRC, and has concluded that there are no significant uncertain tax positions
requiring recognition in its consolidated financial statements. Based on a review of tax positions
for all open years, no reserves for uncertain income tax positions have been recorded pursuant to
FIN 48 during the three months and six months ended June 30, 2008 and 2007, and the Company does
not anticipate that it is reasonably possible that any material increase or decrease in its
unrecognized tax benefits will occur within twelve months.
As of June 30, 2008 and December 31, 2007, the Company had no unrecognized tax benefits or
unaccrual of potential payment or surcharge. Further details concerning contingencies in respect of
potential penalties is set out in note 8 to these financial statements.
8. Contingencies
One of the subsidiaries in the PRC is subject to the PRC enterprise income tax and business tax.
However, the Company only submitted tax returns and made payments for a portion of the total tax
liabilities, which is not in compliance with the tax laws and regulations in the PRC. For this
reason, the Company has made full provision for all tax liabilities in accordance with the relevant
tax laws and regulations, together with a surcharge that may be levied on the Company at a daily
rate of 0.05% of the underpaid taxes.
Despite the fact that the Company has fully accrued the taxes and related surcharges in the
financial statements, the Company may be subject to penalties ranging from 50% to 500% of the
underpaid tax amounts. The exact amount of the penalty cannot be estimated with any reasonable
degree of certainty.
The Company has currently failed to file tax reports with the Franchise Tax Board in the State of
California The Company is in the process of preparing the required reports and expects to be back
in good standing shortly. The Company does not believe that the amount of taxes and penalties owed
will be material. The Company is also delinquent in filing its U.S. federal tax returns. The
Company is in the process of preparing the relevant returns and does not believe that the amount of
taxes owed will be material.
9. Stock Plan
On July 25, 2001 the Board of Directors approved the Chinawe.com Inc. 2001 Restricted Stock Plan
(the
9
Plan), under which 5,000,000 shares of the Companys 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. As of June 30, 2008 and December 31, 2007, no awards have been made
under the Plan.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Consolidated Condensed Financial
Statements and notes thereto appearing elsewhere in this Form 10-Q. 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 elsewhere in this Form 10-Q.
Overview Results of Operations
The following table sets forth selected income data as a percentage of total operating revenue for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
Operating revenues
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
%
|
Total operating expenses
|
|
|
(123
|
)
|
|
|
(156
|
)
|
|
|
(126
|
)
|
|
|
(139
|
)%
|
Loss from operations
|
|
|
(23
|
)
|
|
|
(56
|
)
|
|
|
(27
|
)
|
|
|
(39
|
)%
|
Loss before income taxes
|
|
|
(35
|
)
|
|
|
(68
|
)
|
|
|
(41
|
)
|
|
|
(46
|
)%
|
Provision for income taxes
|
|
|
(3
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
%
|
Net loss
|
|
|
(38
|
)
|
|
|
(68
|
)
|
|
|
(43
|
)
|
|
|
(46
|
)%
|
|
|
|
THREE MONTHS ENDED JUNE 30, 2008 (UNAUDITED) COMPARED TO THREE MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
OPERATING REVENUES. Operating revenues for the three months ended June 30, 2008 totaled US$219,303
compared to US$156,262 for the corresponding period last year. This represented an increase of 40%.
Despite the fact that revenue from the recovery of NPLs has started to diminish since the Company
has not generated new business in this field, the Company has successfully recovered a majority of
the non-performing loans (NPLs) under two of the Companys portfolios in Huizhou and Shanwei in
the Peoples Republic of China (PRC) .
OPERATING EXPENSES. The Companys operating expenses totaled US$270,772, or 123% of operating
revenues, for the three months ended June 30, 2008, compared to US$243,593, or 156% of operating
revenues,
10
for the three months ended June 30, 2007. This represented an increase of US$27,179 or
11% mainly due to the increase in motor vehicle expenses for the three months ended June 30, 2008.
TOTAL NON-OPERATING EXPENSES. Non-operating expenses for the three months ended June 30, 2008
totaled US$24,451 compared to US$19,615 for the three months ended June 30, 2007. This represented
an
increase of 25% due to the provision of surcharges relating to PRC business tax for the three
months ended June 30, 2008.
PROVISION FOR INCOME TAXES. Income tax expenses for the three months ended June 30, 2008 were
US$7,426 compared to US$0 for the three months ended June 30, 2007. This represents an increase of
100% due to the PRCs operation turning from a loss to a profit.
NET LOSS AND TOTAL COMPREHENSIVE LOSS. The Company recorded a net loss and total comprehensive loss
of US$89,966 for the three months ended June 30, 2008, compared to a net loss and total
comprehensive loss of US$103,241 for the three months ended June 30, 2007. This represented a
decrease in loss of US$13,275, mainly due to increased revenue from recovery of NPLs during the
period.
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) COMPARED TO SIX MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
OPERATING REVENUES. Operating revenues for the six months ended June 30, 2008 totaled US$407,732
compared to US$401,619 for the corresponding period last year. This represented an increase of 2%.
Despite the fact that revenue from the recovery of NPLs has started to diminish since the Company
has not generated new business in this field, the Company has successfully recovered a majority of
the NPLs under two of the Companys portfolios in Huizhou and Shanwei in the PRC.
OPERATING EXPENSES. The Companys operating expenses totaled US$517,487, or 126% of operating
revenues, for the six months ended June 30, 2008, compared to US$559,206, or 139% of operating
revenues, for the six months ended June 30, 2007. This represented a decrease of US$41,665 or 8%,
mainly due to the elimination of consultant fees for law firms, so professional fees were
decreased.
TOTAL NON-OPERATING EXPENSES. Non-operating expenses for the six months ended June 30, 2008 totaled
US$56,253 compared to US$28,580 for the six months ended June 30, 2007. This represented an
increase of 97% due to the provision of surcharges relating to PRC business tax for the six months
ended June 30, 2008.
PROVISION FOR INCOME TAXES. Income tax expenses for the six months ended June 30, 2008 were
US$7,426 compared to US$0 for the six months ended June 30, 2007. This represents an increase of
100% due to the PRC operations turning from a loss to a profit.
NET LOSS AND TOTAL COMPREHENSIVE LOSS. The Company has recorded a net loss and total comprehensive
loss of US$191,160 for the six months ended June 30, 2008, compared to a net loss and total
comprehensive loss of US$170,657 for the six months ended June 30, 2007. This represented an
increase in loss of US$20,503, due to business constriction as well as the increased provision for
surcharges during the period.
LIQUIDITY AND CAPITAL RESOURCES
11
The Company has financed its operations primarily through cash generated from financing activities.
Cash and cash equivalent balances as of June 30, 2008 and December 31, 2007 were US$288,057 and
US$301,695, respectively.
Net cash (used in) provided by operating activities was US$(175,319) and US$2,832 for the six-month
periods ended June 30, 2008 and 2007, respectively.
Net cash provided by (used in) investing activities was US$3,227 and US$(681) for the six-month
periods ended June 30, 2008 and 2007, respectively, which is a result of proceeds from disposal of
property, plant and equipment.
Net cash provided by (used in) financing activities was US$140,894 and US$(2,007) in the six-month
periods ended June 30, 2008 and 2007, respectively. The positive cash flow is a result of the
increased advances from related parties.
During the six-month period ended June 30, 2008, the Company did not enter into any transactions
using derivative financial instruments or derivative commodity instruments nor held any marketable
equity securities of publicly traded companies. Accordingly, the Company believes its exposure to
market interest rate risk and price risk is not material.
During the six-month period ended June 30, 2008, the Company had no material purchases of
investments.
In addition to a loan to the Company made by Vivian Chu, a director and the Companys Chief
Financial Officer, Ms. Chu and other members of management have, from time to time, made unsecured,
interest-free advances to the Company to provide working capital. The advances are repayable upon
demand, however, the parties making the advances have indicated their intention not to demand
repayment as long as the Company has negative working capital. See Note 3 to the Financial
Statements above and Related Party Transactions below.
CRITICAL ACCOUNTING POLICIES
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.
Revenue recognition and valuation.
The Company generally recognizes asset management and related services income when persuasive
evidence of an arrangement exists, services are rendered in accordance with the terms of
agreements, the fee is fixed or determinable, and collectability is probable.
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 result in an additional general and administrative expense in the
period such determination was made.
Related party transactions
12
We do not have any of the following:
l
|
|
Trading activities that include non-exchange traded contracts accounted for at fair value.
|
|
l
|
|
Relationships and transactions with persons or entities that derive benefits from any non-independent relationships
other than related party transactions discussed herein.
|
Vivian Chu, a director and the Companys Chief Financial Officer, made an unsecured loan to the
Company in 2003 in an original principal amount of US$154,000. The loan bears interest at 23% per
annum. The maturity date of the loan had been extended through June 30, 2008 and is now
the obligation of
Chinawe Asset Management Limited, a wholly-owned subsidiary of the Company. At June 30, 2008, the
balance of principal and interest on this loan was $145,443.
From time to time members of management or affiliates thereof have made unsecured, interest-free
advances to the Company to provide working capital. As of June 30, 2008, the total outstanding
advances were US$614,075.
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 Companys financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to the Company.
The preparation of financial statements in conformity with accounting principles generally accepted
in the US, or GAAP, requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Actual results could differ from those estimates. In recording transactions and balances
resulting from business operations, the Company uses estimates based on the best information
available for such items as depreciable lives. The Company revises the recorded estimates when
better information is available, facts change or actual amounts can be determined. These revisions
can affect operating results.
The critical accounting policies and use of estimates are discussed in and should be read in
conjunction with the annual consolidated financial statements and notes included in the latest
10-KSB, as filed with the Securities and Exchange Commission, which includes audited consolidated
financial statements for the two fiscal years ended December 31, 2007.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are not exposed to a material level of market risk due to changes in interest rates, since we do
not have outstanding debt instruments and are under fixed interest rate arrangements.
However, as our asset management business is carried out more and more comprehensively, we may be
exposed to a material level of market risk due to undeveloped financial and credit systems in
China. Laws, regulations and policies are insufficient to protect asset owners. As an asset
management service provider, we can only ensure due professional care.
The Chinese central government imposes control over its foreign currency reserves through control
over imports and through direct regulation of the conversion of its national currency into foreign
currencies. As a result, the RMB is not freely convertible into foreign currencies.
13
The PRC subsidiary conducts substantially all of its business in the PRC, and its financial
performance and condition is measured in terms of RMB. The revenues and profits of the subsidiary
are predominantly denominated in RMB, and will have to be converted to pay dividends to the Company
in US Dollars or Hong Kong Dollars. Despite the recent appreciation of RMB, should the RMB devalue
against these currencies, such devaluation would have a material adverse effect on the Companys
profits and the foreign currency equivalent of such profits repatriated by the PRC subsidiary to
the Company. The Company currently is not able to hedge its exchange rate exposure in the PRC
because neither the banks in the PRC or any other financial institution authorized to engage in
foreign exchange transactions offer forward exchange contracts.
ITEM 4. CONTROLS AND PROCEDURES.
The Chief Executive Officer and Chief Financial Officer (the principal executive officer and
principal financial officer, respectively) of the Company have concluded, based on their evaluation
as of June 30, 2008, that the design and operation of the Companys disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended
(Exchange Act)) are, to the best of their knowledge, effective to ensure that information
required to be disclosed in the reports filed or submitted by the Company under the Exchange Act is
accumulated, recorded, processed, summarized and reported to the management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
whether or not disclosure is required.
During the period ended June 30, 2008, there were no changes in the internal controls of the
Company over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have
materially affected, or are reasonably likely to materially affect, the internal controls of the
Company over financial reporting.
14
PART II OTHER INFORMATION
ITEM 6. EXHIBITS.
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer
|
|
|
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer
|
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: August 14, 2008
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CHINAWE.COM INC.
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(Registrant)
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By:
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/s/ Man Keung Wai
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Man Keung Wai
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Chief Executive Officer
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(Principal Executive Officer)
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By:
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/s/ Vivian Chu
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Vivian Chu
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Chief Financial Officer
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(Principal Financial Officer)
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16
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