U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended: June 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _______________ to ________________
Commission file number: 333-49388
CHINA WIRELESS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1966948
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1746 COLE BOULEVARD, SUITE 225, GOLDEN, COLORADO 80401-3208
(Address of principal executive offices)
(303) 277-9968
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
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 ( )
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
Yes ( ) No (X)
Number of shares outstanding of the registrant's class of common stock as of
June 30, 2006 was 130,916,821.
Transitional Small Business Disclosure Format (check one): Yes ( ) No (X)
CHINA WIRELESS COMMUNICATIONS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements
- Condensed Consolidated Statements of Operations
Three Months Ended June 30, 2006 and 2005; and
Six months Ended June 30, 2006 and 2005 (Unaudited).........3
- Condensed Consolidated Balance Sheet
As of June 30, 2006 (Unaudited)............................4
- Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2006 and 2005 (Unaudited).........5
- Notes to and Forming Part of the Condensed
Financial Statements........................................6
Item 2. - Management's Discussion and Analysis or Plan of
Operations .................................................9
Item 3. - Controls and Procedures....................................12
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings .........................................13
Item 2. - Unregistered Sales of Equity Securities and Use of
Proceeds...................................................13
Item 3. - Defaults Upon Senior Securities ...........................13
Item 4. - Submission of Matters to a Vote of Security Holders .......13
Item 5. - Other Information .........................................13
Item 6. - Exhibits...................................................13
SIGNATURES ...................................................................16
CERTIFICATIONS................................................................17
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months and Three Months Ended June 30, 2006 (Unaudited)
US$ US$ US$ US$
FOR SIX MONTHS ENDED JUNE 30, FOR THREE MONTHS ENDED JUNE 30,
2006 2005 2006 2005
Operating revenue:
Sales $ 147,320 $ 128,649 $ 91,557 $ 128,649
Cost of sales 139,574 123,600 86,505 123,600
------------- ------------- ------------- ------------
GROSS PROFIT 7,746 5,049 5,052 5,049
------------- ------------- ------------- ------------
Operating expenses:
Common stock issued for compensation 1,782,305 917,968 560,682 -
Bad debt expense 39,389 - -
General and administrative expenses 232,021 23,650 146,923 5,249
------------- ------------- ------------- ------------
TOTAL OPERATING EXPENSES 2,053,715 941,618 707,605 5,249
------------- ------------- ------------- ------------
Loss from operations (2,045,969) (936,569) (702,553) (200)
------------- ------------- ------------- ------------
Non-operating income (expenses):
Other income 27,395 4,069 26,271 3,869
Interest expense (10,359) - (5,882,000) -
------------- ------------- ------------- ------------
TOTAL NON-OPERATING INCOME (EXPENSES) 17,036 4,069 20,389 3,869
------------- ------------- ------------- ------------
NET LOSS $ (2,028,933) $ (932,500) $ (682,164) $ 3,669
============= ============= ============= ============
Net loss per share $ (0.0170) $ (0.0157) $ (0.0053) $ 0.0001
============= ============= ============= ============
Basic and fully diluted net loss per common share $ (0.0170) $ (0.0157) $ (0.0053) $ 0.0001
============= ============= ============= ============
Weighted average common shares outstanding,
basic and fully diluted 119,540,776 59,308,717 129,606,127 63,148,042
============= ============= ============= ============
The financial statements should be read in conjunction with the accompanying
notes
Page 3 of 16
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 2006 (Unaudited)
US$
ASSETS
Current assets:
Cash and cash equivalents $ 63,389
Prepaid expenses 4,112
Accounts receivables 11,711
Advances to suppliers 8,179
Other receivables 2,183
Inventory 71,918
--------------
Total current assets 161,492
--------------
Fixed assets:
Vehicle 20,125
Office equipment 358
Accumulated depreciation (11,858)
--------------
Fixed assets, net 8,625
--------------
TOTAL ASSETS $ 170,117
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 282,538
Advances from customers 82,488
Interest payable 26,020
Notes payable 285,358
--------------
TOTAL CURRENT LIABILITIES 676,404
--------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, par value $0.01 per share, 1,000,000
shares of preferred stock authorized, none issued and outstanding
-
Common stock, par value $0.001 per share,
250,000,000 shares of common stock authorized,
130,916,821 shares of stock issued and outstanding 130,917
Additional paid-in capital 11,590,277
Accumulated deficit (12,227,481)
--------------
TOTAL STOCKHOLDERS' DEFICIT (506,287)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 170,117
==============
The financial statements should be read in conjunction with the accompanying
notes
Page 4 of 16
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2006 (Unaudited)
For six months ended June 30
2006 2005
US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,028,933) $ (932,500)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation 1,370 -
Common stock issued for compensation 1,782,305 917,968
Bad debts 39,389 -
(Increase) decrease in operating assets:
Prepayments and other receivables (18,119)
(180,834)
Inventory -
(71,918)
Increase (decrease) in operating liabilities:
Accounts payables and accrued expenses 62,363
154,390
Advances from customers 25,558
36,337
Interest payable 10,359 7,217
------------- -------------
NET CASH (USED IN) OPERATING ACTIVITIES (197,626) 2,578
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (232) (15,707)
------------- -------------
NET CASH (USED IN) INVESTING ACTIVITIES (232) (15,707)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 131,283 -
Proceeds from issuance of notes payable 115,185 65,000
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 246,468 65,000
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 48,610 51,871
CASH AND CASH EQUIVALENTS:
Beginning of period 14,779 4,789
------------- -------------
End of period $ 63,389 $ 56,660
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ -
============= =============
Income taxes paid $ - $ -
============= =============
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Common stock issued for compensation $ 1,782,305 $ 917,968
============= =============
Conversion of notes payable into common stock $ - $ -
============= =============
The financial statements should be read in conjunction with the accompanying
notes
Page 5 of 16
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30, 2006 (Unaudited)
1. BASIS OF PRESENTATION AND STOCK-BASED COMPENSATION
BASIS OF PRESENTATION
The accompanying financial data as of June 30, 2006 and for the three
months ended June 30, 2006 have been prepared by China Wireless
Communications, Inc. (the "Company"), without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. However, the
Company believes that the disclosures are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the notes
thereto of the Company, included in the Company's form 10-KSB for the
fiscal year ended December 31, 2005.
In the opinion of the management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows of the Company have been
made. The results of operations for the three months ended June 30,
2006 are not necessarily indicative of the operating results for the
full year.
STOCK-BASED COMPENSATION
The Company records compensation expense for stock-based employee
compensation plans using the intrinsic value method in which
compensation expense, if any, is measured as the excess of the market
price of the stock over the exercise price of the award on the
measurement date.
As the exercise prices of the Company's stock options are either the
same as or approximate to the market prices of the underlying stock on
the grant dates, no compensation expense has been recognized for the
stock options.
Had compensation expenses for the same stock options been determined
based on their fair values at the dates of grant and been amortized
over the period from the date of grant to the date that the award is
vested, consistent with the provisions of SFAS No. 123, the Company's
net loss and loss per share would have been reported as follows:
STOCK-BASED COMPENSATION
Six Months Ended June 30,
-----------------------------------------------------
2006 2005
US$ US$
Net loss
As reported (2,028,933) (932,500)
Total stock-based compensation expenses - -
-----------------------------------------------------
Pro forma (2,028,933) (932,500)
=====================================================
Basic net loss per share
As reported (0.0170) (0.0157)
=====================================================
Pro forma (0.0170) (0.0157)
=====================================================
Page 6 of 16
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30, 2006 (Unaudited)
2. ORGANIZATION
On May 24, 2005, the Company acquired 51% of the stock of Tianjin
Create Co., a systems integration and information technology company
located in Tianjin, China. Tianjin Create Co. was established in 2002
by Frank Li, a former professor of engineering at NanKai University,
the oldest university in China. On May 18, 2006, the Company entered
into an amended agreement whereby it agreed to further pay $105,307 in
cash to the founders of Tianjin Create Co., by August 31, 2006 in
connection with the acquisition of Tianjin Create Co.
Tianjin Create Co. was acquired by China Wireless in part because of
its strategic location in Tianjin City, the third largest city in
China. Also, as an established, young, forward-looking company with a
customer base in the education, oil & gas, banking, brokerage,
commercial and government sectors, Tianjin Create Co. provides a solid
base for China Wireless to rebuild its presence in China.
3. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. In
applying the accounting principles, management must often make
individual estimates and assumptions regarding expected outcomes or
uncertainties. As a result, the actual results or outcomes might
generally be different from the estimated or assumed results or
outcomes. These differences are included in the consolidated financial
statements as soon as they are known. Management's estimates, judgments
and assumptions are continually evaluated based on available
information and experience. Because of the use of estimates inherent in
the financial reporting process, actual results could differ materially
from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial information
of the Company and all of its subsidiaries, namely Tianjin Create Co.
All material inter-company balances and transactions have been
eliminated on consolidation.
FOREIGN CURRENCIES
Transactions involving foreign currencies are translated at the rates
of exchange ruling at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date
are retranslated at the rates of exchange ruling at that date.
On consolidation, the balance sheets of overseas subsidiaries
denominated in foreign currencies are translated at the rates of
exchange ruling at the balance sheet date while the statements of
operations are translated at average rates for the period. All exchange
differences arising on consolidation are included in other
comprehensive income.
REVENUE RECOGNITION
Revenue is recognized when it is probable that the economic benefits
will flow to the Company and when the revenue and cost, if applicable,
can be measured reliably and on the following bases.
Service revenue is recognized in the period when services are rendered.
Sale of goods is recognized on transfer of risks and rewards of
ownership, which generally coincides with the time when goods are
delivered to customers and title has passed.
Page 7 of 16
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30, 2006 (Unaudited)
4. PREPARATION OF FINANCIAL STATEMENTS
The Company is in the process of rebuilding its business to execute on
its new business plan, which is focused on acquiring unique and
innovative technologies to market in China. The Company has incurred
losses of $12,227,481 since inception, which raises substantial doubt
about the Company's ability to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the
successful implementation of its business plan and ultimately achieving
profitable operations. However, there can be no assurance that the
business plan will be successfully implemented. The inability of the
Company to implement the business plan successfully could adversely
impact the Company's business and prospects. Details of the plans of
operations of the Company are set out in Item 2 of this Form 10-QSB
under the heading "Plan of Operation".
5. LOSS PER COMMON STOCK
The weighted average number of shares of common stock outstanding used
in the calculation of basic loss per share for the three months ended
June 30, 2006 is 129,606,127 shares.
As of June 30, 2006, 9,022,684 shares in total could be issued pursuant
to the outstanding convertible debt, stock warrants and stock options
of the Company. No diluted loss per share is presented because their
effects would be anti-dilutive.
6. RELATED PARTY
During the first five months of 2006, Henry Zaks, a director, loaned us
$23,217 and on May 3, 2006, we issued a promissory note in such amount
to Mr. Zaks payable in full on October 2, 2006.
During the 2nd Quarter of 2006, Henry Zaks, a director, loaned us
$2,000 and on June 16, 2006, we issued a promissory note in such amount
to Mr. Zaks payable in full on December 1, 2006.
Also, during the 2nd Quarter of 2006, Henry Zaks, a director, loaned us
$7,680 and on June 26, 2006, we issued a promissory note in such amount
to Mr. Zaks payable in full on December 1, 2006.
During the first five months of 2006, Pedro E. Racelis, our
CEO/President/Director loaned us $15,500 and on May 3, 2006, we issued
a promissory note in such amount to Mr. Racelis payable in full on July
2, 2006.
During the 2nd Quarter of 2006, Pedro E. Racelis, our
CEO/President/Director loaned us $3,612 and on May 30, 2006, we issued
a promissory note in such amount to Mr. Racelis payable in full on
December 1, 2006.
During the first five months of 2006, Michael Bowden, a director and
our COO, loaned us $73,059 and on May 3, 2006, we issued a promissory
note in such amount to Mr. Bowden payable in full on July 2, 2006.
During the 2nd Quarter of 2006, Michael Bowden, a director and our COO,
loaned us $1,612 and on June 16, 2006, we issued a promissory note in
such amount to Mr. Bowden payable in full on December 1, 2006.
Also, during the 2nd Quarter of 2006, Michael Bowden, a director and
our COO, loaned us $10,000 and on June 26, 2006, we issued a promissory
note in such amount to Mr. Bowden payable in full on December 31, 2006.
Page 8 of 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
Included in this report are various forward-looking statements, which can be
identified by the use of forward looking terminology such as "may", "will,"
"expect," "anticipate," "estimate," "continue," "believe," or similar words. We
have made forward-looking statements with respect to the following, among
others: our goals and strategies; our expectations related to growth of our
broadband internet, content and wireless access and transport in China and the
performance under our agreements; our ability to obtain and operate licenses and
permits to operate in China; our ability to earn sufficient revenues in China;
the importance and expected growth of satellite communications, broadband
internet, content and wireless access and transport in China and the demand for
these services in China; our ability to continue as a going concern; and our
future performance and our results of operations. These statements are forward
looking and reflect our current expectations. We are subject to a number of
risks and uncertainties, including but not limited to, changes in the economic
and political environments in China, economic and political uncertainties
affecting the capital markets, changes in technology, changes in satellite
communications, broadband internet, content and wireless access and transport in
the marketplace in China, competitive factors and other risks described in our
annual report on Form 10-KSB filed with the United States Securities and
Exchange Commission on May 19, 2006. In light of the many risks and
uncertainties surrounding the Company, China, and the satellite communications,
broadband internet, content and wireless access and the transport marketplace in
China, you should keep in mind that we cannot guarantee that the forward-looking
statements described in this report will transpire and you should not place
undue reliance on forward-looking statements.
OVERVIEW
We were originally incorporated in Nevada on March 8, 1999 under the name AVL
SYS International Inc ("AVL SYS"). On March 9, 2000, AVL SYS changed its name to
I-Track, Inc ("ITI"). Effective September 30, 2001, ITI entered into an
exclusive worldwide distribution agreement with AVL Information Systems Ltd.
("AVL"), an affiliated Canadian public company. Under the agreement, ITI was
licensed to market and distribute all of the products manufactured by AVL. The
exclusive distribution agreement with AVL was cancelled in September 2002 at
which point ITI began to seek another business opportunity. On March 21, 2003,
ITI entered into an "Assignment and Assumption Agreement" with AVL, whereby ITI
distributed to AVL all its assets and AVL assumed all liabilities of ITI.
Accordingly, as of March 21, 2003, ITI entirely ceased its prior business
operations.
On March 22, 2003, ITI acquired all of the issued and outstanding shares of
Strategic Communications Partners, Inc., a Wyoming corporation ("SCP"), pursuant
to the terms of a Share Exchange Agreement. A total of 19,000,000 restricted
shares of ITI's common stock were issued to the shareholders of SCP, resulting
in the SCP shareholders as a group owning approximately 88.4% of the outstanding
shares of common stock. At this time, SCP became a wholly owned subsidiary. On
March 24, 2003, in connection with our acquisition of SCP, ITI's name was
changed to China Wireless Communications, Inc.
SCP was incorporated in the State of Wyoming on August 13, 2002. Through a
subsidiary in China, Strategic Communications Partners Limited ("SCPL"), it
provided financial, technical, and marketing services in Beijing, People's
Republic of China ("PRC"). SCPL was incorporated in Hong Kong on December 9,
2002. SCPL's business activities to date consist solely of supporting the
Beijing operations. On March 4, 2003, SCPL set up a wholly owned enterprise,
Beijing In-Touch Information System Co. Ltd. ("In-Touch") in the PRC. Effective
July 31, 2004, SCP was merged into us. SCPL then became a direct subsidiary of
us as a result of the merger.
In-Touch provided broadband data, video and voice communications services to
customers that were not served by existing landline based fiber networks. During
the quarter ended December 31, 2004, we closed In-Touch due to high operational
expenses incurred and flat sales/revenue generation of the transport business in
2004. All office leases were terminated and transport equipment returned to
respective vendors. Additionally, all staff and employees were terminated
effective October 1, 2004.
Page 9 of 16
In August 2003, we signed a contract with MCI International Ltd. Co. ("MCI"),
with the intent to provide MCI's asynchronous transport mode ("ATM") services to
markets in North America, the South Pacific, Asia and Europe (the "MCI
Agreement"). We never utilized the ATM and the circuit was disconnected in
September 2005.
In December 2004, we signed a strategic consulting agreement with Jiaxin
Consulting Group, Inc., a British Columbia corporation ("Jiaxin") to obtain
assistance in financial asset management, financial internal controls,
operational oversight, and business development in China. On March 8, 2005, we
entered into a strategic agreement with Jiaxin for the purpose of forming a
holding company for our Chinese operations and incorporated CJ Information
Technology Company in Nevada on March 10, 2005. We own 51% of CJ Information
Technology Company, while Jiaxin owns 49%. Our original plan was to acquire an
interest in Tianjin Create Co., a systems integration and information technology
company located in Tianjin, China ("Tianjin Create Co.") through CJ Information
Technology Company. However, we have since reassessed our business model and
have determined to change the focus of our business. As part of this change, we
terminated our agreements with Jiaxin in June 2005 in order to focus on our
investment in Tianjin Create Co., as more fully described below. As such, CJ
Information Technology Company has been dormant since its inception in March
2005.
On May 24, 2005, we entered into a letter agreement to acquire 51% of the stock
of Tianjin Create Co. for total consideration of $53,840, comprised of cash in
the amount of $40,379 and 448,665 shares of our common stock valued at $0.03 per
share, (a total of $13,460 in our common stock). We have since paid $13,460 in
common stock and cash of $8,000 to the founders of Tianjin Create Co. On May 18,
2006, we entered into an amended agreement whereby we agreed to further pay
$105,307 in cash to the founders of Tianjin Create Co. by August 31, 2006.
We are now working to change our business from the management of a wireless
broadband network to the development of technology integration and IP services
in China. Part of this effort involves seeking complementary technologies to
build a broad base of products and services to be marketed in China as well as
in North America. This broad focus incorporates vertical integration of
telephony, IP security, manufacturing, medical and industrial. Investments in
these industries will be based on a company's positive financial cash flow,
strong management, unique or superior technology/innovation, and its value to
the overall corporation's portfolio of companies.
GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of us as a going concern. We incurred a
net loss for the six months ended June 30, 2006 of $2,028,933 and a net loss of
$1,565,521 for the year ended December 31, 2005. At June 30, 2006, we had an
accumulated deficit of $12,227,481 and a working capital deficit of $514,912.
These conditions raise substantial doubt as to our ability to continue as a
going concern. These consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. These
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions; however, we believe
that our estimates, including those for the above-described items, are
reasonable.
Page 10 of 16
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the rates of exchange on
the dates of transactions. Monetary assets and liabilities denominated in
foreign currencies at year-end are translated at the approximate rates ruling at
the balance sheet date. Non-monetary assets and liabilities are translated at
the rates of exchange prevailing at the time the asset or liability was
acquired.
RESULTS OF OPERATIONS
In the quarter ended September 30, 2004, we began to evaluate the continued high
cost versus revenue generation. Our management team came to the conclusion that
efforts must be made to reduce operational costs and focus the sales efforts to
services that brought immediate value to the network. However, we did not have
the funding resources to continue to invest into the Beijing In-Touch operations
unless the revenues increased significantly. We re-evaluated the assets and
capability of In-Touch to continue as a profitable and value-added business.
Therefore, late in the 3rd quarter of 2004, it was deemed imperative that we
seek an alternative plan to recover the business and regain shareholder
confidence in the company.
Operating expenses for six months ended June 30, 2006 were $2,053,715, as
compared to $941,618 for six months ended June 30, 2005. Net losses for six
months ended June 30, 2006 and 2005 were $2,028,933 and $932,500, respectively.
Operating expenses for six months ended June 30, 2006 included $1,782,305
relating to issuance of stock for compensation versus $917,968 for six months
ended June 30, 2005, an increase of $864,337 in the issuance of stock for
compensation.
During six months ended June 30, 2006, the Company generated sales revenues of
$147,320 compared with $128,649 for the six months ended June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2006, we used $197,626 in cash for Operating
activities. The most significant adjustment to reconcile the net loss to net
cash used in operations was common stock issued as compensation amounting to
$1,782,305. Financing activities provided cash of $246,468 through issuances of
our common stock and increases in notes payable through borrowings. Our
directors loaned the Company a total of $51,915 during the quarter ended June
30, 2006.
At June 30, 2006, we had current assets of $161,492 and current liabilities of
$676,404, resulting in a working capital deficit of $514,912, as compared to a
deficit of $399,895 at March 31, 2006.
PLAN OF OPERATION
We are focusing our efforts on becoming a premier information technology
company. We believe that the information technology business is beginning to
develop quickly in China and that we can be a major player in its development.
Additionally, we have identified several unique and innovative North American
technologies that can be marketed to business customers in China through our
subsidiary, Tianjin Create Co. As the Company begins to execute its business
plan, we will utilize the leadership of Tianjin Create Co. to oversee and manage
the operations in China. Staffing levels in China will be increased only as
required or as such action is required due to business growth.
The acquisition of Tianjin Create Co. has reestablished our business presence in
China as we build upon its existing business and experience. We manage all of
our operations in China via Tianjin Create Co. Tianjin Create Co. is a key
component to building the company's broad base information technology, products
and services in China, including computer installation and maintenance,
broadband transport service, server installation maintenance and support,
internet services, broadband transport redundancy, fixed wireless transport and
information hosting.
Tianjin Create Co. operates in Tianjin City, the third largest city in China.
Comparable in many respects to Chicago, Illinois in the United States, Tianjin
City has a population of approximately 10,000,000 people and is a major import
and export center for China. Major industries and markets located in Tianjin
City include educational, industrial, international
Page 11 of 16
port city, medical, manufacturing and government. Tianjin City is Beijing's
gateway to the sea and has over 25 ten thousand ton ship berths. The harbor is
considered the number one demarcation point for products entering and leaving
China. Tianjin's harbor is geographically the second largest in China.
In addition to being the industrial and financial capital of northern China,
Tianjin City is home to 31 of China's most noteworthy universities, including
Tianjin University, China's first neoteric university. Tianjin City is also the
headquarters for Motorola Corporation of China. Tianjin has been selected to
host the 2008 Olympic Games Football (Soccer) contests.
Through Tianjin Create Co., we provide information technology and IP services to
customers in China. Our newly formed partnership has enabled us Company to
provide engineering and IP service support for existing and future IP customers
in China. The customer base includes Nankia University, Tian Sea Transportation
Company and Tianjin Gas Company. Additionally 20 of Tianjin City's 31
universities utilize products or services provided by Tianjin Create Co. We are
also able to offer a broad base of information technologies ranging from IP
security, wireless broadband, and Wi-Fi to "last mile" transport connections.
The design and construction of fixed wireless broadband network systems will be
part of the overall information technology strategies being executed. Each of
the companies with which we are considering partnering has sufficient telephony
and broadband access capabilities to meet their business objectives. However, we
plan to broaden our scope to become a systems solutions company that will
provide a broad base of information technologies through our partnership
companies. These technologies include, but are not limited to, engineering
design, implementation of Wi-Fi, fixed broadband wireless, systems integration,
IP security, information firewalls, data storage, voice/video/data
telecommunications services and managed communications services. To further
broaden our scope, we are exploring leading edge technologies in the equipment
manufacturing, education, brokerage/bank security, network/computer security,
interactive video, oil & gas, power (electrical) disaster recovery & monitoring
and medical industries to acquire.
The Board and management team believe the best path to regain shareholder value,
establish profitability, and improve the Company's stock performance is to focus
on acquiring complementary technology and/or cash flow-positive companies
interested in a long term relationship. Thus, we are evaluating potential
acquisition targets in North America in order to market innovative products and
services through our assets in China. A subsidiary relationship similar to that
of our Tianjin Create Co. structure would be employed for a North American
entity. The subsidiary company in turn may form a foreign joint venture, as
required by the laws of the local jurisdiction.
The advantage of pursuing this course of action is to reduce investment and
startup costs while focusing on achieving positive cash flow in a timely manner.
The companies being evaluated as possible acquisitions have captured a segment
of the growing market in their technology specialty and require the subject
matter proficiency, access to future funding, and new technology that the
Company can provide. Additionally, the companies being evaluated as possible
acquisitions would be cash flow positive, having complementary technology, broad
customer bases, and strong management focused on forming a partnership with a
public company for the long term.
As part of our ongoing business planning, we are continuing discussions with an
outside management-consulting group to assist with business development, fund
raising strategies, acquisition of information technology products, public
relations, and support for the Board and management. The management-consulting
group would also provide direction and focus for existing and new market
penetration.
We intend to expand our Tianjin Create Co. operation in order to better take
advantage of system integration opportunities available. The focus of our
systems integration efforts has been in the educational, transportation, natural
gas and manufacturing markets. In addition, the pool of highly skilled
engineering, marketing, sales, and operations personnel in China will be key to
our success in growing our business. We also intend to expand our US operations
by investing in sales/marketing staff to market products in North America.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer / Chief Financial Officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures as
defined in
Page 12 of 16
Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934 as of June
30, 2006. Based on his evaluation, our Chief Executive Officer / Chief Financial
Officer concluded that the design and operation of our disclosure controls and
procedures were effective as of the date of the evaluation.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced in the preceding paragraph.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
2.1 Share Exchange Agreement dated as of March 17, 2003 by and
between i-Track, Inc. and Strategic Communications Partners, Inc.
(1)
--------------------------------------------------------------------------------
3.1 Articles of Incorporation (2)
--------------------------------------------------------------------------------
3.2 Bylaws (2)
--------------------------------------------------------------------------------
3.3 Certificate of Amendment to Articles of Incorporation (3)
--------------------------------------------------------------------------------
3.4 Certificate of Amendment to Articles of Incorporation (4)
--------------------------------------------------------------------------------
10.1 Promissory Notes in the aggregate amount of $140,000, payable to
Buck Krieger (10)
--------------------------------------------------------------------------------
10.2 Promissory Note, dated June 27, 2003 in the amount of $50,000,
and dated July 31, 2003 in the amount of $30,000, payable to
Henry Zaks (5)
--------------------------------------------------------------------------------
10.3 Promissory Note, dated July 31, 2003 in the amount of $20,000,
payable to Robert Zappa (10)
--------------------------------------------------------------------------------
10.4 2003 Stock Plan, as amended (6)
--------------------------------------------------------------------------------
Page 13 of 16
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
10.5 Investment Contract between Goldvision Technologies Ltd and SCP
dated December 18, 2003 (6)
--------------------------------------------------------------------------------
10.6 Extension Agreement to Investment Contract between Goldvision
Technologies Ltd. and the Company dated August 5, 2003 (5)
--------------------------------------------------------------------------------
10.7 Employment Agreement dated March 25, 2003 with Phillip Allen (6)
--------------------------------------------------------------------------------
10.8 Employment Agreement dated March 25, 2003 with Brad A. Woods (6)
--------------------------------------------------------------------------------
10.9 Separation & Voting Trust Agreement with Philip Allen (5)
--------------------------------------------------------------------------------
10.10 Agreement between the Company and Bellador Advisory Services,
Ltd. dated October 22, 2003 (5)
--------------------------------------------------------------------------------
10.11 Agreement between the Company and China Netcom Group Beijing
Company dated September 1, 2003 (5)
--------------------------------------------------------------------------------
10.12 Agreement between the Company and MCI International Ltd. Co.
dated August 14, 2003 (10)
--------------------------------------------------------------------------------
10.13 Amendment to Employment Agreement dated April 23, 2004 with Brad
A. Woods (7)
--------------------------------------------------------------------------------
10.14 Employment Agreement dated April 23, 2004 with Pedro E. Racelis
III (7)
--------------------------------------------------------------------------------
10.15 Consulting Agreement with Jiaxin Consulting Group, Inc. dated
December 8, 2004 (10)
--------------------------------------------------------------------------------
10.16 Letter agreement with Tianjin Create Company Ltd. dated May 24,
2005 (11)
--------------------------------------------------------------------------------
10.17 Employment Agreement dated July 20, 2005 with Michael A. Bowden
(12)
--------------------------------------------------------------------------------
10.18 Promissory Note, dated August 1, 2005 in the amount of $12,698.16
payable to Michael Bowden (12)
--------------------------------------------------------------------------------
10.19 Employment Agreement dated March 1, 2006 with Michael A. Bowden
(12)
--------------------------------------------------------------------------------
10.20 Employment Agreement dated March 1, 2006 with Pedro E. Racelis
III (12)
--------------------------------------------------------------------------------
10.21 Amendment to Letter agreement with Tianjin Create Company Ltd.
dated May 18, 2006 (12)
--------------------------------------------------------------------------------
10.22 Promissory Note, dated May 3, 2006 in the amount of $15,500
payable to Pedro E. Racelis III (12)
--------------------------------------------------------------------------------
10.23 Promissory Note, dated May 3, 2006 in the amount of $23,217
payable to Henry Zaks (12)
--------------------------------------------------------------------------------
10.24 Promissory Note, dated May 3, 2006 in the amount of $73,059
payable to Michael Bowden (12)
--------------------------------------------------------------------------------
10.25 Promissory Note, dated May 30, 2006 in the amount of $3,612
payable to Pedro E. Racelis III
--------------------------------------------------------------------------------
10.26 Promissory Note, dated June 16, 2006 in the amount of $2,000
payable to Henry Zaks
--------------------------------------------------------------------------------
10.27 Promissory Note, dated June 16, 2006 in the amount of $1,612
payable to Michael A. Bowden
--------------------------------------------------------------------------------
Page 14 of 16
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
10.28 Promissory Note, dated June 26, 2006 in the amount of $10,000
payable to Michael A. Bowden
--------------------------------------------------------------------------------
10.29 Promissory Note, dated June 27, 2006 in the amount of $7,680
payable to Henry Zaks
--------------------------------------------------------------------------------
16.1 Letter from the Rehmann Group, dated April 22, 2003 (8)
--------------------------------------------------------------------------------
16.2 Letter from Moores Rowland, dated February 28, 2005 (9)
--------------------------------------------------------------------------------
21.1 Subsidiaries of the registrant (12)
--------------------------------------------------------------------------------
31.1 Rule 15d-14(a) Certification
--------------------------------------------------------------------------------
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
-----------------------
(1) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated March 17, 2003.
(2) Incorporated by reference from the exhibits to the Registration Statement
on Form SB-1 filed on November 6, 2000, File No. 333-49388.
(3) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated March 22, 2003.
(4) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated November 23, 2004.
(5) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2003.
(6) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2002.
(7) Incorporated by reference to the exhibits to the registrant's registration
statement on Form S-8 (File No. 333-104457, filed April 27, 2004.
(8) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated April 15, 2003.
(9) Incorporated by reference to the exhibits to the registrant's amended
current report on Form 8-K dated January 11, 2005.
(10) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2004.
(11) Incorporated by reference to the exhibits to the registrant's amended
current report on Form 8-K dated May 24, 2005 and filed June 6, 2005.
(12) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2005 and filed May
22, 2006.
Page 15 of 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA WIRELESS COMMUNICATIONS, INC.
(Registrant)
Date: August 4, 2006 By: /s/ PEDRO E. RACELIS III
---------------------------------------
Pedro E. Racelis III,
President and Chief Financial Officer
Page 16 of 16