U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2004
[ ] 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) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
46,726,644 SHARES OF COMMON STOCK, $0.001 PAR VALUE,
AS OF DECEMBER 16, 2004
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 (Unaudited)
Three Months Ended September 30, 2004 and 2003; and
Nine Months Ended September 30, 2004 and 2003.................3
- Condensed Consolidated Balance Sheet (Unaudited)
As of September 30, 2004......................................4
- Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2004 and 2003.................5
- Condensed Consolidated Statements of Stockholders' Equity
(Unaudited) Period from August 13, 2002 (inception) to
September 30, 2004............................................6
- Notes to and Forming Part of the Condensed Financial
Statements (Unaudited)................................... 7
Item 2.- Management's Discussion and Analysis or Plan of Operations...10
Item 3.- Controls and Procedures......................................17
PART II. OTHER INFORMATION
Item 1.- Legal Proceedings ...........................................18
Item 2.- Unregistered Sales of Equity Securities and Use of
Proceeds.....................................................18
Item 3.- Defaults Upon Senior Securities..............................18
Item 4.- Submission of Matters to a Vote of Security Holders..........18
Item 5.- Other Information ...........................................18
Item 6.- Exhibits.....................................................19
SIGNATURES ...................................................................20
CERTIFICATIONS................................................................21
2
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
==========================================================================================================================
FOR THREE MONTHS ENDED SEP 30, FOR NINE MONTHS ENDED SEP 30,
----------------------------------- ----------------------------------
2004 2003 2004 2003
NOTE US$ US$ US$ US$
OPERATING REVENUE
Service income and sale of goods 119,240 13,282 239,124 17,341
Cost of services rendered
and goods sold 75,820 10,180 168,463 13,572
---------------- ---------------- ----------------- ----------------
GROSS PROFIT 43,420 3,102 70,661 3,769
---------------- ---------------- ----------------- ----------------
OPERATING EXPENSES
Depreciation expense 9,331 2,741 25,044 6,707
General and administrative expenses 671,605 645,422 4,097,730 2,420,558
---------------- ---------------- ----------------- ----------------
Total operating expenses 680,936 648,163 4,122,774 2,427,265
---------------- ---------------- ----------------- ----------------
LOSS FROM OPERATIONS (637,516) (645,061) (4,052,113) (2,423,496)
NON-OPERATING INCOME (EXPENSES)
Interest income 62 - 186 -
Interest expense (1,468) 2,858 (4,285) (427)
Other income 167,090 207 167,090 207
Other expense (137,081) - (139,474) -
---------------- ---------------- ----------------- ----------------
LOSS BEFORE INCOME TAXES (608,913) (641,996) (4,028,596) (2,423,716)
Income taxes - - - -
---------------- ---------------- ----------------- ----------------
NET LOSS (608,913) (641,996) (4,028,596) (2,423,716)
================ ================ ================= ================
NET LOSS PER SHARE OF COMMON STOCK: 5
Basic (0.0162) (0.0222) (0.1236) (0.1118)
================ ================ ================= ================
Diluted N/A N/A N/A N/A
================ ================ ================= ================
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 37,603,291 28,918,739 32,589,110 21,679,034
================ ================ ================= ================
The financial statements should be read in conjunction with the accompanying
notes
3
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET(UNAUDITED)
SEPTEMBER 30, 2004
================================================================================
ASSETS US$
CURRENT ASSETS
Cash and cash equivalents 36,545
Prepayments and other receivables 74,553
---------------
Total current assets 111,098
Property, plant and equipment, net 879,023
---------------
TOTAL ASSETS 990,121
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Trade and other payables 798,848
Loans 227,004
Convertible debt 30,000
Notes payable 93,600
---------------
TOTAL LIABILITIES 1,149,452
---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, par value US$0.01 each
1,000,000 shares of stock authorized,
None issued and outstanding
Common stock, par value US$0.001 each
50,000,000 shares of stock authorized,
38,948,442 shares of stock issued and outstanding 38,948
Additional paid-in capital 8,381,383
Accumulated deficit (8,579,662)
---------------
TOTAL STOCKHOLDERS' DEFICIT (159,331)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 990,121
===============
The financial statements should be read in conjunction with the accompanying
notes
4
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
=========================================================================================================================
FOR NINE MONTHS ENDED SEP 30,
------------------------------------------
2004 2003
US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (4,028,596) (2,423,716)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 25,044 6,707
Write off of property, plant and equipment 7,281 -
Common stocks issued for services 3,255,603 1,413,076
Waiver of loans from a stockholder of the Company (167,090) -
Changes in working capital:
Prepayments and other receivables 127,078 (149,443)
Trade and other payables 473,065 754,936
--------------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (307,615) (398,440)
--------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (511,109) (237,032)
i-Track and Strategic Communications Partners, Inc merger - (50,000)
Decrease in pledged deposits 22,197 -
--------------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (488,912) (287,032)
--------------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net proceeds from issuance of common stock 781,702 338,150
Proceeds from additions of loans 26,173 -
Proceeds from issuance of notes payable 20,000 235,000
Repayment of notes payable (6,000) (69,900)
Proceeds from issuance of convertible debts 25,000 41,000
Repayment of convertible debts (11,000) -
--------------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 835,875 544,250
--------------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,348 (141,222)
CASH AND CASH EQUIVALENTS, AS OF BEGINNING OF THE PERIOD (2,803) 197,576
--------------------- ------------------
CASH AND CASH EQUIVALENTS, AS OF END OF THE PERIOD 36,545 56,354
===================== ==================
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Bank balances 36,545 56,354
===================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid 4,285 3,285
===================== ==================
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Common stocks issued for services by SCP* - 865,432
Common stocks issued for services
and settlement of debts by the Company 3,255,603 547,644
--------------------- ------------------
3,255,603 1,413,076
===================== ==================
* SCP is defined in the Condensed Consolidated Statements of Stockholders'
Equity
The financial statements should be read in conjunction with the accompanying
notes
5
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
=======================================================================================================================
COMMON STOCK ADDITIONAL ACCUMULATED
----------------------------
NUMBER AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
US$ US$ US$ US$
As of August 13, 2002 - inception
(NOTE) 21,500,000 21,500 2,353,850 - 2,375,350
Net loss for the period - - - (1,014,999) (1,014,999)
-------------- ------------ ------------------ ----------------- ---------------
As of December 31, 2002 21,500,000 21,500 2,353,850 (1,014,999) 1,360,351
Common stock issued for services
at prices ranging from $0.25
to $0.72 per share 3,293,751 3,294 1,456,878 - 1,460,172
Common stock issued for cash at
prices ranging from $0.50 to
$0.80 per share, net of
issuance costs of $491,949 1,420,202 1,420 421,084 - 422,504
Net loss for the year - - - (3,536,067) (3,536,067)
-------------- ------------ ------------------ ----------------- ---------------
AS OF DECEMBER 26,213,953 26,214 4,231,812 (4,551,066) (293,040)
31, 2003
Common stock issued for services
at prices ranging from $0.35 to
$0.65 per share 688,634 688 365,812 - 366,500
Common stock issued for cash at
prices ranging from $0.55 to $0.74
per share, net of issuance costs
of $559,983 1,588,870 1,589 435,979 - 437,568
Net loss for the period - - - (545,901) (545,901)
-------------- ------------ ------------------ ----------------- ---------------
AS OF MARCH 31, 2004 28,491,457 28,491 5,033,603 (5,096,967) (34,873)
Common stock issued for services
at prices ranging from $0.19
to $0.6 per share 5,347,907 5,348 2,440,935 - 2,446,283
Common stock issued for cash at
prices ranging from $0.5 to
$0.64 per share, net of
issuance costs of $274,286 898,000 898 223,236 - 224,134
Net loss for the period - - - (2,873,782) (2,873,782)
-------------- ------------ ------------------ ----------------- ---------------
AS OF JUNE 30, 2004 34,737,364 34,737 7,697,774 (7,970,749) (238,238)
Common stock issued for services
and settlement of debts at
prices ranging from $0.1 to
$0.29 per share 3,688,854 3,689 564,131 - 567,820
Common stock issued for cash at
prices ranging from $0.225 to
$0.25 per share 522,224 522 119,478 - 120,000
Net loss for the period - - - (608,913) (608,913)
-------------- ------------ ------------------ ----------------- ---------------
AS OF SEP 30, 2004 38,948,442 38,948 8,381,383 (8,579,662) (159,331)
============== ============ ================== ================= ===============
Note: The common stock issued and outstanding at inception represents shares
in issue immediately after the reverse acquisition of Strategic
Communications Partners, Inc. ("SCP") on March 22, 2003, assuming that
the capital structure had already been in existence since August 13,
2002.
The financial statements should be read in conjunction with the accompanying
notes
6
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months Ended September 30, 2004
================================================================================
1. BASIS OF PRESENTATION AND STOCK-BASED COMPENSATION
BASIS OF PRESENTATION
The accompanying financial data as of September 30, 2004 and for the
three months and nine months ended September 30, 2004 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, 2003.
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 nine months ended September 30,
2004 are not necessarily indicative of the operating results for the
full year.
Prior to April 1, 2004, the Company's planned principal operations were
underway but had not yet generated any significant revenue.
Accordingly, the Company's financial statements for all periods prior
to April 1, 2004 were presented as a development stage enterprise, as
prescribed by Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises." In the
second quarter of fiscal year 2004, the Company started to generate a
fair amount of revenue during the quarter. As a result, the Company
exited the development stage in the quarter ended June 30, 2004.
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:
7
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months Ended September 30, 2004
================================================================================
1. BASIS OF PRESENTATION AND STOCK-BASED COMPENSATION (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
FOR THREE MONTHS ENDED SEP 30, FOR NINE MONTHS ENDED SEP30,
----------------------------------- ------------------------------------
2004 2003 2004 2003
US$ US$ US$ US$
Net loss
As reported (608,913) (641,996) (4,028,596) (2,423,716)
Total stock-based
compensation expenses (4,296) - (12,888) -
---------------- ------------- ----------------- -------------
Pro forma (613,209) (641,996) (4,041,484) (2,423,716)
================ ============= ================= =============
Basic net loss per share
As reported (0.0162) (0.0222) (0.1236) (0.1118)
================ ============= ================= =============
Pro forma (0.0163) (0.0222) (0.1240) (0.1118)
================ ============= ================= =============
2. ORGANIZATION
At the end of 2003, the Company made loans of US$4,832 to certain staff
of Beijing In-Touch Information System Company Limited ("In-Touch") for
the purpose of acquiring a company, Beijing Pan-Asia Innovative Science
and Technology Co. Ltd. ("Pan-Asia"). The reason for this arrangement
was due to certain restrictions on the Company, as a foreign investor,
to invest in telecommunication business in the PRC. Pan-Asia is a
company established in the PRC and is principally engaged in trading of
telecommunication-related products. Pan-Asia is effectively financed by
the Company and is therefore considered as a variable interest entity
("VIE") of the Company. In addition, the Company expects to absorb the
losses incurred by Pan-Asia, if any. Accordingly, the Company is
considered as the primary beneficiary under Financial Accounting
Standard Board Interpretation No. 46 ("FIN 46"). The Company began to
consolidate Pan-Asia during the three-month period ended June 30, 2004
because the financial effects were immaterial in prior periods.
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.
Page 8 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months Ended September 30, 2004
================================================================================
3. CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial information
of the Company and all of its subsidiaries, namely Strategic
Communications Partners, Inc., Strategic Communications Partners
Limited and In-Touch, all of which are wholly-owned subsidiaries. The
consolidated financial statements also include the financial
information of a VIE of the Company, Pan-Asia, for which the Company is
deemed to be the primary beneficiary. All material inter-company
balances and transactions have been eliminated on consolidation.
The application of the consolidation provisions of FIN 46R resulted in
an increase in assets, liabilities and net loss for the nine-month
period ended September 30, 2004 by US$19,293, US$30,796 and US$83,315
respectively.
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.
Translation differences are included in the statements of operations.
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.
4. PREPARATION OF FINANCIAL STATEMENTS
The Company has incurred losses of US$608,913 and US$4,028,596 for the
three months and nine months ended September 30, 2004. The Company also
had negative working capital of US$1,038,353 as of September 30, 2004.
These conditions raise 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".
Page 9 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months Ended September 30, 2004
================================================================================
5. LOSS PER COMMON STOCK
Weighted average number of shares of common stock outstanding used in
the calculation of basic loss per share for the three months ended
September 30, 2004 and nine months ended September 30, 2004 are
37,603,291 shares and 32,589,110 shares respectively.
As of September 30, 2004, 2,783,605 shares in total could be issued
pursuant to the convertible debts, stock warrants and stock options of
the Company. No diluted loss per share is presented because their
effects would be anti-dilutive.
Page 10 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
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 which has been filed with the United States
Securities and Exchange Commission. 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
On March 22, 2003, I-Track Inc., a company quoted on the primary exchange of the
US OTC ("Over the Counter Bulletin Board") acquired Strategic Communications
Partners, Inc., a Wyoming corporation ("SCP"), through a Share Exchange
Agreement, resulting in the shareholders and management of SCP having actual and
effective control of I-Track Inc. On March 24, 2003, I-Track Inc. changed its
name to China Wireless Communications, Inc ("CWC") to better reflect the
business activities of the Company.
We are a facilities-based provider of broadband data, video and voice
communications services to customers that are not served by existing landline
based fiber networks. We typically deliver our services over fixed wireless
networks that we design, construct, own and operate. Over this infrastructure,
we offer ultra high-speed internet access, and other broadband data services.
Other value added services being offered by us include systems integration and
other telecom services.
STRATEGIC COMMUNICATIONS PARTNERS, INC.
SCP was incorporated in the State of Wyoming on August 13, 2002 and was a wholly
owned subsidiary of CWC until July 31, 2004. Effective July 31, 2004, SCP was
merged into CWC. Strategic Communications Partners Limited ("SCPL") was a
subsidiary of SCP and became a direct subsidiary of CWC as a result of the
merger. SCPL was incorporated in Hong Kong on December 9, 2002. CWC's and SCPL's
operations to date consist solely of supporting the operations in Beijing,
People's Republic of China ("PRC").
Page 11 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
BEIJING IN-TOUCH INFORMATION SYSTEM COMPANY LIMITED
On March 4, 2003, SCPL set up a wholly owned foreign enterprise, Beijing
In-Touch Information System Co. Ltd ("In-Touch") in the PRC. In-Touch has
commenced operations in Beijing, through cooperation agreements with local
telecommunications operators.
In-Touch deployed a high speed broadband fiber network as the backbone to
construct its fixed wireless broadband network system in Beijing, starting in
December, 2003. That company is now selling its services over that network. This
network will make available 2.5 Gbps of capacity on a fiber network that
surrounds the 66 kilometer-long fourth ring road in Beijing. The new additional
capacity will support over 100,000 business-class broadband business customers
on its Beijing network.
The first phase of the fixed wireless broadband network system in Beijing was
completed in April 2004, at which time In-Touch began full-service operations.
In-Touch will be providing high speed wireless services, Virtual Private
Network's and other wireless access, transport and enhanced data services.
We continue to build innovative partnership and acquisition strategies to
maximize the coverage of our network in Beijing. We plan to replicate our
Beijing model in other strategic cities in China during late 2004 and 2005.
BEIJING PAN-ASIA INNOVATIVE SCIENCE AND TECHNOLOGY COMPANY LIMITED
At the end of 2003, the Company made loans of US$4,832 to certain staff of
In-Touch for the purpose of acquiring a company, Beijing Pan-Asia Innovative
Science and Technology Co. Ltd. ("Pan-Asia"). The reason for this arrangement
was due to certain restrictions on the Company, as a foreign investor, to invest
in telecommunication business in the PRC. Pan-Asia is a company established in
the PRC and is principally engaged in trading of telecommunication products.
Pan-Asia is effectively financed by the Company and is therefore considered as a
variable interest entity ("VIE") of the Company.
As of September 30, 2004, we had three employees, all of whom are full-time in
the United States. As of September 30, 2004, SCPL had no full-time employees in
Hong Kong and In-Touch had 62 full-time employees all of whom are located in
Beijing. None of our employees is covered by a collective bargaining agreement.
ALLIANCES AND PARTNERSHIPS
We are in the midst of developing a technologically advanced wireless network to
serve areas of business concentration in Beijing, China. In order to effectively
deploy the broadband wireless network, we need to partner with companies whose
business and products are complimentary to those of the Company. However, there
is no guarantee that we can find suitable partner and we will be able to come to
mutually agreeable terms if suitable partner could be found.
On August 14, 2003, we signed a cooperative agreement with P-Com, Inc. ("P-Com")
to develop a broadband wireless network within China. P-Com will provide
equipment and support for their line of wireless products to assist us in
building a wireless broadband network in China. We will use our marketing
resources and sales platform to recommend and popularize the products of P-Com.
Page 12 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
On August 15, 2003, we signed a contract with MCI International Ltd. Co.
("MCI"). This contract enables us to extend our Broadband Wireless Access
Network outside of Beijing, China. We will be adding MCI International ATM
(Asynchronous Transport Mode) services to reach North America, South Pacific,
Asian and European markets to our existing suite of broadband products and
services.
In addition, alliances and partnerships with Tier One Telecom Carriers are
critical to our growth strategy. We believe the current broadband access
providers in China are searching for a direct economical transport connection to
their backbones thus connecting a greater number of end users to their
underutilized networks. We provide the "last mile" transport connection services
to meet this growing demand in a cost effective manner. Over the last few months
we have entered into an agreement with China Netcom Group Beijing Company to
partner in building out a broadband transport network to serve their growing
number of customers. We expect this and other such partnerships to enable entry
and development in China's highly regulated telecom sector as a successful
foreign investment enterprise. There are, however, no guarantees that these
partnerships will be successful, nor that they will enable entry into the
Chinese telecom sector.
CHINESE TAX HOLIDAY
In-Touch is registered in the Beijing Zhong Guan Cun High Tech Park and also
recognized as a High Tech company. In-Touch will receive a tax holiday from 2003
to 2005 followed by a 50% reduction for the next three years.
Pan-Asia is registered in the Beijing Zhong Guan Cun High Tech Park and also
recognized as a High Tech company. Pan-Asia is now applying the preferential tax
treatment of tax holiday and reduction of tax rate.
MANAGEMENT STATUS
We are continuing the process of identifying a permanent Chief Executive Officer
& President and Chief Financial Officer with experience in the
telecommunications industry, as we believe that having quality management is
critical in this phase of our development. This effort will require additional
funding to attract the kind of leadership required to manage and develop an
international telecommunications company. We are discussing this requirement
with potential investors. For the time being, Pedro E. Racelis III will remain
as the interim President and CEO until a suitable candidate has been identified.
A candidate has been identified for the Chief Financial Officer position, but
the company is still negotiating terms with this candidate.
Page 13 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
CHINA WIRELESS COMMUNICATIONS, INC
RESULTS OF OPERATIONS. During the third quarter of 2004, CWC continued its work
of expanding its network in Beijing and reviewing the opportunities in the local
market. CWC has also put a great deal of effort into establishing and testing a
variety of equipment to provide its services from different vendors in Beijing,
China. Service revenues in the third quarter of 2004 soared to $119,240. This
explosive growth is a direct result from China Wireless effectively bringing
more customers and services onto the Beijing broadband network.
Operational expenses totaled $680,936 and $4,122,774 for the three months and
nine months ended September 30, 2004, respectively. Of these amounts, $567,820
and $3,380,603, respectively, are costs recorded for common stock issued for
compensation for the same periods. Our focus is three-fold: (a) raising capital,
(b) providing and establishing long-term relationships with equipment providers,
and (c) finalizing operational procedures for the Beijing office. Details of the
stock issued for compensation have been included in Form S-8 dated April 23,
2004.
In comparison, operational expenses for the three months and nine months ended
September 30, 2003 were $648,163 and $2,427,265, respectively. Of this amount,
$390,176 and $1,413,076 were recorded for common stock issued for compensation
for these same periods. The increases in operational expenses for the three
months and nine months ended September 30, 2004 are due primarily to design and
implementation of the fiber network nodes and the engineering support necessary
to design, operate and maintain the network. Details of the stock issued for
compensation have been included in Form S-8 dated April 23, 2004.
During the quarter ended September 30, 2004, the Company showed other income and
other expenses of $167,090 and $137,081, respectively. Other income resulted
from the cancellation of certain debt owed by the Company in the amount of
$167,090. Other expenses resulted from the writing-off certain employee
advances, deposits and miscellaneous receivables that were deemed to be
uncollectible at September 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES. For the nine month period ended September 30,
2004, CWC used cash of $307,615 for operating activities, a decrease of 23%
compared to the nine months ended September 30, 2003. The decrease is due mainly
to decreases in legal fees and accounting agency expenses. Investing activities
also used up cash of $488,912 and $287,032 during nine-month periods ended
September 30, 2004 and 2003. The Company had $36,545 of cash and cash
equivalents at September 30, 2004.
As reflected in the statement of cash flows, the Company is still dependent upon
issuance of its common stock for funding of its operations. For the nine months
ended September 30, 2004, net proceeds from the issuance of common stock
provided cash of $781,702.
At September 30, 2004, the Company had a working capital deficit of $1,038,353
as compared to a deficit of $693,279 at December 31, 2003.
Page 14 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
PLAN OF OPERATION
The management and Board of Directors have evaluated the Company's revenue
performance versus the operating expenses incurred for the previous three months
and concluded that significant changes must be made to correct the financial
health of the Company. The Company's operating expenses far exceeded its ability
to cover these expenses with the existing revenues and margins. The Company has
initiated a rationalization programme to reduce operating expenses significantly
and to focus the sales efforts to generate revenues and margins from the fiber
optic network in Beijing, China. We are reducing our expenses to provide a
higher return on investment as well as greater revenue generation.
The following actions are being implemented:
1. Reduction of the office facilities from three offices to one office.
2. Implementing a reduction in Beijing staff by 50% or more, but retaining
the key operations and sales staff.
3. Focusing sales efforts on customers served by the Company's fiber network
to generate higher revenues/margins per capital dollars invested.
4. Allow unprofitable contracts to expire at the end of their term and
redeploy equipment to profitable customer locations. In addition, we are
re-evaluating all proposed customer contracts to ensure profitability
before implementation.
5. Implementing new pricing models to focus on higher margin revenue
generation within the core business of the company.
6. Re-engineering of the fiber optic network to focus on multiple customer
locations and increase cash-flow through efficient utilization of
existing network facilities.
Objectives:
1. Increase revenue for the Company.
2. Attract new institutional investment.
3. Increase shareholder value through increased investor relation
activities.
4. Reduce operating costs
5. Stronger controls on operations and operating costs
6. Improve the accountability of the Beijing staff
We have been focusing our efforts on finishing the design and construction of
our fiber and fixed wireless broadband network system in Beijing. This system
has successfully opened and commenced operations in the second quarter of 2004.
We are focusing our primary marketing efforts on providing high-speed transport
leased line circuits in both international and domestic markets, server hosting
and other broadband services. We are also in the process of building
partnership(s) with major telecom carriers within China. These partnerships will
provide the telecom carriers' access to a greater number of customers wishing to
connect to their backbone networks. We are in the process of reviewing
cooperative agreements similar to the agreement signed with China Netcom Beijing
Company on September 1, 2003. However, there is no guarantee that we will enter
into agreements with other telecom carriers and that the terms and conditions of
such agreements would be favorable to the telecom carrier or China Wireless
Communications and their customers.
Page 15 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
During 2004 we began development of a fiber fixed wireless infrastructure which
will allow us to expand our transport coverage area in Beijing. The fiber fixed
wireless infrastructure consists of a twin fiber ring with fiber multiplexers at
eight locations (nodes) on the ring operating at a maximum capacity at 2.5Gbps
(Gigabits per second). This initial capacity of 2.5Gbps (Gigabits per second)
can be increased at a later date to 10Gbps (Gigabits per second) as required,
providing greater capacity and increasing coverage for a higher number of
customers and more complex applications.
The eight locations (nodes) on the fiber ring provide the drop off points for
2.5 Gbps (Gigabits per second) or lower speed connections 622 Mbps (Megabits per
second) to the China Wireless Communications base locations (base nodes) via
fiber. The equipment at both locations provides a wide variety of interfaces
including high-order/low-order (high speed 2Mbps (Megabits per second) up or low
speed 2Mbps (Megabits per second) down) service access capabilities. These
capabilities enable China Wireless Communications to provide varied transport
speeds and services to our customers at a reasonable cost.
China Wireless Communications MAN (Metropolitan Area Network) utilizes MSTP
(Multi-Service Transport Platform) technology deployed throughout the network
which is a new metro network technology based on the traditional SDH (SONET
Digital Hierarchy) optical technology. SDH (SONET Digital Hierarchy) optical
technology provides TDM (Time Division Multiplexing), ATM (Asynchronous Transfer
Mode), Ethernet, IP access and transport within the network backbone. MSTP
(Multi-Service Transport Platform) includes integrated NMS (Network Management
System) and new features such as LCAS (Link Capacity Adjust Scheme), GFP
(Generic Frame Protocol), VC (Virtual Concatenation), RPR (Resilient Packet
Ring), etc., allowing the network to adapt to existing and future service
evolvements. MSTP's (Multi-Service Transport Platform) ability to add
data-centric protocols to the network without disturbing the ongoing,
high-margin voice or TDM (Time Division Multiplexing) circuits provides the best
mode to provision carrier-class metropolitan area networks. China Wireless
Communications can by utilizing the MSTP's (Multi-Service Transport Platform)
transport a great variety of customer's data and guarantee "up time" enabling
customer's to conduct business without fear of outages or lost data. In addition
MSTP's (Multi-Service Transport Platform) is an economical transport technology
capable of connecting a wide variety of protocols and transport schemes.
The four China Wireless Communications base locations (nodes) include basic
transport equipment and a optical fiber ring operating at 2.5 Gbps (Gigabits per
second) connecting each of the base locations (nodes) utilizing fiber
multiplexers. Each of the nodes are placed in the following buildings, Qinghua
Tongfang, Changning, Shuanglong, Huatang and are equipped with a fiber
multiplexer, LAN (Local Area Network) switch or router, and base station radios
and an ATM (Asynchronous Transfer Mode) switch at the Qinghua Tongfong location.
There are multiple base station radios installed at the all base locations
(nodes) which provide radio transport "sectors" connecting outlying customer
buildings to the base location (node) buildings for access to the transport
fiber optical ring. Customers within the base location (node) building will
connect to the China Wireless Communications network through a LAN (Local Area
Network) switch or router and the fiber multiplexer.
Using this model, we plan to replicate our fiber fixed wireless broadband
network in a dozen selected major metropolitan areas in China. In each city, we
will deploy multi-advanced technologies, including MSTP (Multi-Service Transport
Platform), ATM (Asynchronous Transfer Mode), Ethernet, and IP providing
high-speed transport leased line both international and domestic and including
other value added services. We plan to expand network systems beyond Beijing
starting in mid 2005. Our ability to do this will be limited by our ability to
raise capital, there is no guarantee that we will be successful in raising funds
or that the terms would be favorable to China Wireless Communications and our
shareholders.
Page 16 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
We have positioned ourselves as a high quality service provider, offering
reliable high speed transport complemented by quality customer support. The
continuation of our business is dependent upon the successful implementation of
our business plan, raising capital, and ultimately achieving profitable
operations. However, there can be no assurance that the business plan will be
successfully implemented and this could adversely impact our business and
prospects.
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 Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934
as of September 30, 2004. 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.
Page 17 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the third quarter of 2004, the Company raised $120,000, from selling
522,224 shares of common stock through a private placement. In connection with
this transaction, there were no underwriting discounts or commissions paid or
incurred.
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.
Page 18 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
a) 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)
10.1 Promissory Note, dated June 27, 2003 in the amount of $50,000,
payable to Henry Zaks (4)
10.2 Promissory Note, dated July 31, 2003 in the amount of $30,000,
payable to Henry Zaks (4)
10.3 Investment Contract between Goldvision Technologies Ltd and SCP
dated December 18, 2002 (5)
10.4 Extension Agreement to Investment Contract between Goldvision
Technologies Ltd. And the Company dated August 5, 2003 (4)
10.5 Employment Agreement dated March 25, 2003 with Phillip Allen (5)
10.6 Employment Agreement dated March 25, 2003 with Brad A. Woods (5)
10.7 Separation & Voting Trust Agreement with Philip Allen (4).
10.8 Agreement between the Company and Bellador Advisory Services,
Ltd. dated October 22, 2003 (4)
10.9 Agreement between the Company and China Netcom Group Beijing
Company dated September 1, 2003 (4)
21 Subsidiaries of the registrant (4)
31.1 Certification of Chief Executive/Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive/Financial Officer 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 annual report
on Form 10-KSB for the year ended December 31, 2003.
(5) Incorporated by reference to the exhibits to the registrant's annual report
on Form 10-KSB for the year ended December 31, 2002.
Page 19 of 23
CHINA WIRELESS COMMUNICATIONS, INC.
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: December 28, 2004 By: /s/ PEDRO E. RACELIS III
-------------------------------------
Pedro E. Racelis III,
Interim President and Chief Financial
Officer
Page 20 of 23