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: March 31, 2007
[ ] 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)
NOT APPLICABLE
(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
April 30, 2007 was 174,392,793.
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 March 31, 2007 and 2006 (Unaudited)........3
- Condensed Consolidated Balance Sheet
As of March 31, 2007 (Unaudited)..............................4
- Condensed Consolidated Statements of Cash Flows
Three months Ended March 31, 2007 and 2006 (Unaudited)........5
- Notes to the Condensed Consolidated Financial
Statements (Unaudited)........................................6
Item 2. - Management's Discussion and Analysis or Plan of
Operation ...................................................12
Item 3. - Controls and Procedures......................................14
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings ...........................................15
Item 2. - Unregistered Sales of Equity Securities and Use of
Proceeds.....................................................15
Item 3. - Defaults Upon Senior Securities .............................15
Item 4. - Submission of Matters to a Vote of Security Holders .........15
Item 5. - Other Information ...........................................15
Item 6. - Exhibits.....................................................15
SIGNATURES ...................................................................19
Page 2
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For Three months ended March 31,
2007 2006
-------------------------------------
Operating revenue:
Sales $ 153,743 $ 55,763
------------------------------------
Cost of sales 141,189 53,069
------------------------------------
GROSS PROFIT 12,554 2,694
Operating expenses:
Consulting expense 296,362 1,221,623
Consulting expense - return of bonus (108,000) -
Bad debt expense 7,400 39,389
Loss on payment of expenses in common stock 79,020
General and administrative expenses 32,967 85,098
------------------------------------
TOTAL OPERATING EXPENSES 307,749 1,346,110
------------------------------------
Loss from operations (295,195) (1,343,416)
Non-operating income (expenses):
Other income 605 1,124
Interest expense (49,929) (4,477)
------------------------------------
TOTAL NON-OPERATING INCOME (EXPENSES) (49,324) (3,353)
NET LOSS (344,519) (1,346,769)
------------------------------------
Other Comprehensive income:
Foreign currency exchange gain 3,688 -
COMPREHENSIVE LOSS $ (340,831) $ (1,346,769)
====================================
Net loss per share from continuing operations $ (0.002) $ (0.011)
Basic and fully diluted net loss per common share $ (0.002) $ (0.011)
====================================
Weighted average common shares outstanding,
basic and fully diluted 167,397,772 121,077,855
====================================
The financial statements should be read in conjunction
with the accompanying notes
Page 3
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, 2007
------------------
ASSETS
Current assets
Cash and cash equivalents $ 38,671
Accounts receivables - net of allowance for doubtful accounts of $7,400 16,360
Prepaid expenses 25,462
Advances to suppliers 244
Other receivables 20,963
------------------
TOTAL CURRENT ASSETS 101,700
Computer Software 368
Vehicle 19,900
Office equipment 351
Accumulated depreciation (13,618)
------------------
Fixed assets, net 7,001
TOTAL ASSETS $ 108,701
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 193,048
Interest payable 1,184
Loans payable 9,465
Loans payable - related parties 53,198
------------------
TOTAL CURRENT LIABILITIES 256,895
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,
171,014,567 shares of stock issued and outstanding 171,015
Additional paid-in capital 13,839,593
Accumulated deficit (14,165,004)
Accumulated other comprehensive income 6,202
------------------
TOTAL STOCKHOLDERS' DEFICIT (148,194)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 108,701
==================
The financial statements should be read in conjunction
with the accompanying notes
Page 4
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For Three months ended March 31
2007 2006
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (344,519) $ (1,346,769)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation 1,059 865
Common stock issued for compensation 272,493 1,221,623
Return of common stock issued for compensation (108,000) -
Loss on payment of expenses in common stock 79,020 -
Interest paid in common stock 48,272 -
Bad debts 7,400 39,389
(Increase) decrease in operating assets:
Prepayments and other receivables 27,456 (17,994)
Inventory - (71,400)
Increase (decrease) in operating liabilities:
Accounts payables and accrued expenses 40,040 13,827
Advances from customers - 11,789
Interest payable (48,272) 4,478
-------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (25,051) (144,192)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (368) (233)
-------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (368) (233)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 85,935
Proceeds from issuance of loans payable - related parties 32,188 71,890
-------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 32,188 157,825
-------------------------------------
Effect of exchange rate on cash 3,688 -
-------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 10,457 13,400
CASH AND CASH EQUIVALENTS:
Beginning of period 28,214 14,779
-------------------------------------
End of period $ 38,671 $ 28,179
=====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid - -
-------------------------------------
Income taxes paid - -
=====================================
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Common stock issued for compensation $ 164,493 $ 1,221,623
=====================================
Conversion of notes and interest payable into common stock $ 382,609 $ 13,295
=====================================
Forgiveness of debt - -
=====================================
The financial statements should be read in conjunction
with the accompanying notes
Page 5
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND STOCK-BASED COMPENSATION
BASIS OF PRESENTATION
The accompanying financial data as of March 31, 2007 and for the three
months ended March 31, 2007 and 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
year ended December 31, 2006.
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 March 31,
2007 are not necessarily indicative of the operating results for the
full year.
GOING CONCERN
The Company has suffered recurring losses from operations, has negative
working capital, has a negative cash flow from operations, and has a
stockholders' deficit as of March 31, 2007. In addition, the Company
has yet to generate an internal cash flow from its business operations
and has generated operating losses since its inception. These factors
raise substantial doubt as to the ability of the Company to continue as
a going concern. Management's plans with regard to these matters
encompass the following actions: 1) obtain funding from new investors
to alleviate the Company's working capital deficiency, and 2) implement
a plan to increase cash flows. The Company's continued existence is
dependent upon its ability to resolve its liquidity problems and
increase profitability in its current business operations. However, the
outcome of management's plans cannot be ascertained with any degree of
certainty. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of these
risks and uncertainties.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised), "Share-Based Payment" (SFAS No.
123R), which requires the use of the fair value method of accounting
for all stock-based compensation, including stock options. The
statement was adopted using the modified prospective method of
application. Under this method, in addition to reflecting compensation
expense for new share-based awards, expense is also recognized to
reflect the remaining vesting period of awards that had been included
in pro-forma disclosures in prior periods. The Company did not have any
stock based compensation, including options that would have required
expensing under SFAS No. 123R for the year ended December 31, 2006.
2. ORGANIZATION
On May 24, 2005, the Company entered into a letter agreement to acquire
51% of the stock of Tianjin Create IT Company Ltd., a People's Republic
of China company ("Create Co."), for total consideration of $53,840, to
be comprised of (i) cash in the amount of $40,379.61 and (ii) $13,460
in the Company's common stock (448,665 shares valued at $0.03 per
share). On September 6, 2005, the Company paid $21,460 towards the
acquisition price ($13,460 in the Company's common stock and cash in
the amount of $8,000).
On May 18, 2006, the Company entered into an amended letter agreement
with the 49% owner of Create Co., whereby the parties agreed to
increase the acquisition cost of Create Co. to $126,767. Because the
Company had previously made a payment of $21,460, the remaining
purchase amount owing was $105,307, as of the May
Page 6
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
18, 2006 amendment. The Company agreed to pay the remaining purchase
amount owing of $105,307 in cash no later than August 31, 2006.
On October 25, 2006, the Company and the 49% owner of Create Co.
further amended the purchase agreement whereby the Company agreed to a
final payment of $105,307, payable in (i) cash in the amount of $10,531
and (ii) 6,318,404 shares of the Company's common stock valued at
$94,776, to take place on December 31, 2006. On November 16, 2006, the
Company paid $3,612 to the 49% owner of Create Co., reducing the cash
amount due to $6,919. On January 22, 2007, the Company delivered
6,318,404 shares of the Company's common stock to the 49% owner of
Create Co. The parties have agreed to further extend the date of the
final payment and expect the final payment to be made by the end of
June 2007.
Create Co. provides information technology systems integration and
internet protocol services to customers. It also provides IP routing
equipment and network cabling and its customers are principally in the
People's Republic of China. The Company acquired Create Co. in part
because of its strategic location in Tianjin City, the third largest
city in China. Also, as a forward-looking company with a customer base
in the education, oil and gas, banking, brokerage, commercial and
government sectors, Create Co. provides an opportunity to establish a
presence in China.
Additionally, during the third quarter of 2006, the Company formed a
wholly owned subsidiary, CW Communications, Inc., a Colorado
corporation ("CW Communications"), which operates in north Texas.
Through CW Communications, the Company intends to leverage technical
and sales opportunities presented by the information technology side of
the Company's business in the areas of video surveillance design,
engineering and installation.
3. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
and CW Communications. All material inter-company balances and
transactions have been eliminated.
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.
Page 7
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 $14,165,004 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 SHARE OF 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
March 31, 2007 is 167,397,772 shares. The Company does not include its
stock warrants in the calculation since they would be antidilutive to
earnings per share.
6. STOCK WARRANTS
In June 2004, the Company issued 261,112 warrants to non-employees in
connection with a private placement sale of the Company's common stock.
Each warrant entitles its holder to purchase one share of the Company's
common stock at $0.45 to $0.50 per share. Michael Bowden, the former
COO and a director of the Company holds 50,000 of these warrants, that
where were issued to him prior to his employment as an officer with the
Company. None of these warrants has been exercised. These warrants are
exercisable until and prior to June 25, 2007.
Henry Zaks, a director of the Company holds 236,842 warrants issued
July 8, 2004 exercisable at $0.40 per share. These warrants are
exercisable until and prior to July 8, 2007.
Page 8
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table sets forth the Company's stock warrant and option
activity during the three months ended March 31, 2007:
Shares Weighted Shares Weighted
underlying average underlying average
warrants exercise price options exercise price
------------------ ----------------------------------------------------------
Outstanding at December 31, 2006 497,954 $ 0.44 $
================== ==========================================================
Granted 2,000,000 0.06
Exercised - -
Expired or cancelled - -
------------------ ----------------------------------------------------------
Outstanding at March 31, 2007 2,497,954 $ 0.13 $
Exercisable at March 31, 2007 2,497,954 $ 0.13 $
================== ==========================================================
Range of Number of Weighted average Weighted
exercise options remaining average
prices outstanding contractual life exercise price
--------------- ------------------ ------------------ --------------
$ 0.06 - 0.50 2,497,954 1 1/2 years $ 0.13
7. RELATED PARTY
Other than as disclosed below, none of the Company's present directors,
officers or principal shareholders, nor any family member of the
foregoing, nor, to the best of the Company's information and belief,
any of the Company's former directors, officers or principal
shareholders, nor any family member of such former directors, officers
or principal shareholders, has or had any material interest, direct or
indirect, in any transaction, or in any proposed transaction which has
materially affected or will materially affect the Company.
a. PEDRO E. RACELIS, III (PRESIDENT AND CEO). During May 2006, Pedro
E. Racelis, III, the Company's President and CEO, made loan advances to
the Company of $15,500 and $3,612. These loans were unsecured, accrued
interest at 8% per annum, and were due on July 2, 2006 and December 1,
2006, respectively. At the request of Mr. Racelis, the note in the
amount of $15,500, plus accrued interest, was converted into 310,000
shares of the Company's restricted common stock in October 5, 2006 at
the market price on the date of conversion. The $3,612 advance remains
unpaid as of March 31, 2007.
The Company and Mr. Racelis entered into a one-year, renewable, $30,000
revolving line of credit agreement on January 1, 2007, which expires on
December 31, 2007. Interest on the outstanding balance of the line of
credit is 10% per annum. Under the terms of the line of credit, during
the quarter ended December 31, 2006, Mr. Racelis made loan advances to
the Company totaling $21,038 and during the first quarter of 2007, Mr.
Racelis made loan advances of $13,838, a total of $34,876.
b. HENRY ZAKS (DIRECTOR). During the year ended December 31, 2005,
Henry Zaks, a director, converted
Page 9
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
notes payable of $30,000 into shares of common stock at a conversion
price of $0.05 per share, and he converted notes payable of $20,000
into 857,085 shares of common stock at a conversion price of $0.029 per
share. The conversion rate for both these conversions was at the market
price on the dates of their conversion.
During the year ended December 31, 2006, Mr. Zaks made loan advances of
$76,742 to the Company. All loan advances payable from Mr. Zaks accrued
interest at 8% per annum, prior to conversion, and were due at various
dates, except for the last loan advance, which was not formalized into
a note payable. All loans were unsecured. On November 7, 2006 all loan
advances, plus accrued interest, were approved for conversion into
1,810,837 shares of the Company's common stock, except for the last
loan advance made on November 11, 2006, which was forgiven, along with
accrued interest, on December 31, 2006. All conversions were at the
market rate on the date of conversion. The forgiveness of the note
payable has been accounted for as a capital contribution, as Mr. Zaks
is an officer of the Company.
The Company and Mr. Zaks entered into a one-year, renewable, $30,000
revolving line of credit agreement on January 1, 2007, which expires on
December 31, 2007. Interest on the outstanding balance of the line of
credit is 10% per annum.
The following is a list of loans payable made from Mr. Zaks to the
Company.
Amount
Converted
With
Date Date Accrued Date Date
Amount Issued Due Interest Shares Converted Forgiven
------------- --------------- --------------- -------------- -------------- --------------- ---------------
$ 10,000 3/22/2006 10/31/2006 $ 10,546 458,520 11/7/2006
4,137 4/13/2006 10/31/2006 4,324 187,998 11/7/2006
1,400 4/27/2006 10/31/2006 1,462 63,557 11/7/2006
7,680 5/1/2006 12/1/2006 7,939 198,486 11/7/2006
23,217 5/3/2006 10/2/2006 24,127 482,542 11/7/2006
3,600 5/15/2006 10/31/2006 3,722 161,810 11/7/2006
2,000 6/14/2006 12/1/2006 2,047 51,177 11/7/2006
4,708 9/28/2006 3/1/2007 4,755 206,747 11/7/2006
20,000 11/13/2006 n/a 12/31/2006
------------- --------------- --------------- -------------- -------------- --------------- ---------------
$ 76,742 $ 58,922 1,810,837
c. MICHAEL BOWDEN (DIRECTOR). During the years ended December 31,
2006 and 2005, Michael Bowden, a director and former Chief Operating
Officer of the Company, made loan advances to the Company at various
dates of $149,071 and $12,698, respectively. These loans were
unsecured, accrued interest at 8% per annum, and were due on various
repayment dates, except for the last advance of $3,200 on December 27,
2006. On November 13, 2006, the Company approved the conversion of
$24,310 in loan advances, plus $940 of accrued interest, into 564,903
shares of the Company's common stock at approximately $0.04 per share.
The conversion rate for this conversion was at the market price on the
date of conversion. All other loan advances from the year ended
December 31, 2006, including the last advance on December 27, 2006,
which was not formalized into a note payable, were forgiven by Mr.
Bowden. The forgiveness of the note payable has been accounted for as a
capital contribution, as Mr. Bowden is an officer of the Company.
Page 10
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table reconciles the loans payable for Mr. Bowden that
were received, converted into common stock and forgiven during the
years ended December 31, 2006 and 2005:
Amount
Converted
With
Date Date Accrued Date Date
Amount Issued Due Interest Shares Converted Forgiven
------------- --------------- --------------- -------------- -------------- --------------- ---------------
$ 12,698 8/1/2005 7/2/2006 $ 13,270 265,401 11/13/2006
73,059 5/3/2006 10/2/2006 7/5/2006
1,612 6/15/2006 12/1/2006 1,666 41,656 11/13/2006
10,000 6/26/2006 12/31/2006 10,314 257,846 11/13/2006
6,300 7/27/2006 1/31/2007 11/17/2006
5,000 9/26/2006 3/1/2007 11/17/2006
30,000 11/8/2006 12/1/2006 11/8/2006
6,000 11/8/2006 12/1/2006 11/17/2006
3,900 11/14/2006 12/1/2006 11/30/2006
4,800 12/11/2006 12/31/2007 12/15/2006
5,200 12/27/2006 1/31/2007 12/29/2006
3,200 12/27/2006 2/15/2007 12/31/2006
------------- --------------- --------------- -------------- -------------- --------------- ---------------
$ 161,769 $ 25,250 564,903
As of December 31, 2006, there were no outstanding notes payable to Mr.
Bowden. On January 19, 2007, Mr. Bowden resigned as an officer of the
Company.
In the first quarter of 2007, Mr. Bowden made loan advances to the
Company totaling $18,350. These loans were received in five advances,
are unsecured and accrue interest at 10% per annum. These advances are
payable upon demand until such time as the Company has drawn up a
formal loan payable document.
Additionally, on March 21, 2007, Michael A. Bowden returned 6,000,000
shares of the Company's common stock to the Company. The shares, valued
at $108,000, had been awarded to Mr. Bowden, a director, as a bonus in
2006 while he was COO of the Company.
Page 11
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. The Company has made forward-looking statements with respect to the
following, among others: its goals and strategies; its expectations related to
growth of the Company's broadband internet, content and wireless access and
transport in China and the performance under the Company's agreements; its
ability to obtain and operate licenses and permits to operate in China; the
Company's 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; its ability to continue as a going concern; and the Company's future
performance and its results of operations. These statements are forward looking
and reflect the Company's current expectations. The Company is 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 the Company's annual report on Form 10-KSB filed with the United
States Securities and Exchange Commission on April 13, 2007. 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 the Company 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
BUSINESS DEVELOPMENT. The Company was 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").
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 the
Company's acquisition of SCP, ITI's name was changed to China Wireless
Communications, Inc.
BUSINESS OF ISSUER. The Company is an information technology company,
seeking to evaluate opportunities to acquire companies in the information
technology industry and providing both wireless and wired high-speed data and
telecommunication systems to its customers. In addition, the Company and its
subsidiaries provide wireless connectivity for data and video surveillance
networks.
On May 24, 2005, the Company entered into a letter agreement to acquire
51% of the stock of Tianjin Create IT Company Ltd., a People's Republic of China
company ("Create Co."), for total consideration of $53,840, to be comprised of
(i) cash in the amount of $40,379.61 and (ii) $13,460 in the Company's common
stock (448,665 shares valued at $0.03 per share). On September 6, 2005, the
Company paid $21,460 towards the acquisition price ($13,460 in the Company's
common stock and cash in the amount of $8,000).
On May 18, 2006, the Company entered into an amended letter agreement
with the 49% owner of Create Co., whereby the parties agreed to increase the
acquisition cost of Create Co. to $126,767. Because the Company had previously
made a payment of $21,460, the remaining purchase amount owing was $105,307, as
of the May 18, 2006 amendment. The Company agreed to pay the remaining purchase
amount owing of $105,307 in cash no later than August 31, 2006.
On October 25, 2006, the Company and the 49% owner of Create Co.
further amended the purchase agreement whereby the Company agreed to a final
payment of $105,307, payable in (i) cash in the amount of $10,531 and (ii)
Page 12
6,318,404 shares of the Company's common stock valued at $94,776, to take place
on December 31, 2006. On November 16, 2006, the Company paid $3,612 to the 49%
owner of Create Co., reducing the cash amount due to $6,919. On January 22,
2007, the Company delivered 6,318,404 shares of the Company's common stock to
the 49% owner of Create Co. The parties have agreed to further extend the date
of the final payment and expect the final payment to be made by the end of June
2007.
Create Co. provides information technology systems integration and
internet protocol services to customers. It also provides IP routing equipment
and network cabling and its customers are principally in the People's Republic
of China. The Company acquired Create Co. in part because of its strategic
location in Tianjin City, the third largest city in China. Also, as a
forward-looking company with a customer base in the education, oil and gas,
banking, brokerage, commercial and government sectors, Create Co. provides an
opportunity to establish a presence in China.
Additionally, during the third quarter of 2006, the Company formed a
wholly owned subsidiary, CW Communications, Inc., a Colorado corporation ("CW
Communications"), which operates in north Texas. Through CW Communications, the
Company intends to leverage technical and sales opportunities presented by the
information technology side of its business in the areas of video surveillance
design, engineering and installation.
The Company will market its products and services, as well as those of
Create Co, and CW Communications, together where possible in order to provide
the customer with options in information technology, systems engineering, low
voltage power, backup systems for data network equipment, data and video cabling
and video surveillance equipment.
During the fourth quarter of 2006, the Company began to investigate
other business opportunities within the United States and China. Included in
these opportunities are the importation of consumer products and the development
of electronic products to fill a need in the law enforcement and security
market.
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 the Company as a
going concern. The Company incurred a net loss for the three months ended March
31, 2007 of $344,519. At March 31, 2007, the Company had an accumulated deficit
of $14,165,004 and a working capital deficit of $155,195. These conditions raise
substantial doubt as to the Company's 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. The discussion and analysis
of the Company's financial condition and results of operations are based upon
its 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 the Company 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, the Company evaluates its estimates. The
Company bases its estimates on historical experience and on various other
assumptions that management believes 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, management believes that its estimates,
including those for the above-described items, are reasonable.
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. Sales for the three months ended March 31, 2007
were $153,743, compared to $55,763 for the three months ended March 31, 2006.
Operating expenses for the three months ended March 31, 2007 were $307,749,
compared to $1,346,110 for the three months ended March 31, 2006. Operating
expenses for the three
Page 13
months ended March 31, 2007 showed a reduction due to the implementation of
enhanced cost controls and reduced consulting fees of $296,362 compared to
$1,221,623 for the three months ended March 31, 2006. Net losses for the three
months ended March 31, 2007 and 2006 were $344,519 and $1,346,769, respectively.
Additionally, 6,000,000 shares of the Company's common stock were
returned to the Company on March 21, 2007. The shares, valued at $108,000, had
been awarded to Michael A. Bowden, a director, as a bonus in 2006 while he was
COO of the Company.
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 2007, the Company had
current assets of $101,700 as compared to $126,099 at December 31, 2006, and
current liabilities of $256,895 at March 31, 2007, as compared to $488,257 at
December 31, 2006, resulting in working capital deficits of $155,195 and
$362,158 at March 31, 2007 and December 31, 2006, respectively.
During the quarter ended March 31, 2007, the Company used $25,419 of
cash for operating and investing activities and $32,188 was provided by
financing activities. Financing activities consisted of proceeds from borrowings
from the Company's officers and directors. By comparison, for the quarter ended
March 31, 2006, the Company used $144,425 of cash for its operating and
investing activities, while financing activities consisting of proceeds from the
issuance of the Company's common stock and borrowings, providing cash of
$157,825.
The Company has been largely reliant upon loans from related parties in
order to meet its cash requirements and as of January 1, 2007, the Company
entered into individual Revolving Lines of Credit ("Revolver") agreements with
two of its directors, Henry Zaks and Pedro E. Racelis III. Each Revolver
provides a $30,000 line of credit to the Company at 10% interest.
PLAN OF OPERATION. The Company's business plan is to evaluate
opportunities to acquire companies in the information technology industry and to
provide both wireless and wired high-speed data and telecommunication systems to
its customers. In addition, the Company provides wireless connectivity for data
and video surveillance networks.
The Company is focusing its efforts on becoming a viable information
technology company. Management believes that the information technology business
is developing quickly in China and that there are North American technologies
that can be marketed to business customers in China. Create Co. is the
foundation to building the Company's broad base information technology, products
and services in China. As the Company executes its business plan, it will
utilize the leadership of Create Co. to oversee and manage operations in China.
Create Co. operates in Tianjin, the third largest city in China. Tianjin has a
population of approximately ten million people and is a major import and export
center for China. Major industries and markets located in Tianjin include
educational, industrial, international shipping port, medical, manufacturing and
government. Tianjin is also Beijing's gateway to the sea and has over 25
10,000-ton ship berths. Tianjin's harbor is geographically the second largest in
China. Further, Tianjin is home to 31 of China's universities, including Tianjin
University, China's first modern university. The Tianjin area also includes the
Tanggu Economic Development Area, located where the Haihe River meets the Bohai
Sea.
The Company intends to expand its Create Co. operations by adding to
the sales force in order to better take advantage of system integration
opportunities available. The focus of the Company's systems integration efforts
has been in the educational, transportation, natural gas and manufacturing
markets and the Company's goal is to expand into related industries. In
addition, the pool of highly skilled engineering, marketing, sales, and
operations personnel in China is key to the Company's success in growing its
business.
The Company's wholly owned subsidiary, CW Communications, will focus on
the design and installation of video surveillance systems. Its current area of
operation is in the north Texas area around Dallas - Fort Worth. Management
believes that there are business opportunities in the design and installation of
video surveillance that are complementary to the Company's information
technology business. Management also believes that CW Communications' services
can also be employed in the Chinese market by Create Co.
As of March 31, 2007, the Company's working capital deficit was
$155,195 and its accumulated deficit was $14,165,004. Cash provided from the
Company's operations and Revolving Lines of Credit are insufficient to cover the
costs associated with its plan of operation and working capital requirements and
the Company will need to obtain
Page 14
additional funding to cover its cash requirements. Management of the Company
believes that such additional funding will be in the form of equity financing
from the sale of the Company's common stock or further debt financing. However,
the Company cannot provide investors with any assurance that it will be able to
raise sufficient funding to cover its cash requirements and the Company does not
presently have any arrangements in place for any future equity or debt
financing.
OFF-BALANCE SHEET ARRANGEMENTS. The Company had no off-balance sheet
arrangements as of March 31, 2007.
ITEM 3. CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company's Chief
Executive Officer / Chief Financial Officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).
Based on this evaluation, the Company's Chief Executive Officer / Chief
Financial Officer has concluded that the Company's disclosure controls and
procedures are effective.
CHANGES IN INTERNAL CONTROLS
There has been no change in the Company's internal control over
financial reporting identified in connection with its evaluation as of the end
of the fiscal quarter ended March 31, 2007, that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
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
--------------------------------------------------------------------------------
3.1 Articles of Incorporation (1)
--------------------------------------------------------------------------------
Page 15
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
3.2 Bylaws (1)
--------------------------------------------------------------------------------
3.3 Certificate of Amendment to Articles of Incorporation (2)
--------------------------------------------------------------------------------
3.4 Certificate of Amendment to Articles of Incorporation (3)
--------------------------------------------------------------------------------
10.1 2003 Stock Plan, as amended (4)
--------------------------------------------------------------------------------
10.2 Letter agreement with Tianjin Create IT Company Ltd. dated May
24, 2005 (5)
--------------------------------------------------------------------------------
10.3 Employment Agreement dated July 20, 2005 with Michael A. Bowden
(6)
--------------------------------------------------------------------------------
10.4 Promissory Note, dated August 1, 2005 in the amount of $12,698
payable to Michael Bowden (6)
--------------------------------------------------------------------------------
10.5 Employment Agreement dated March 1, 2006 with Michael A. Bowden
(6)
--------------------------------------------------------------------------------
10.6 Employment Agreement dated March 1, 2006 with Pedro E. Racelis
III (6)
--------------------------------------------------------------------------------
10.7 Amendment to Letter agreement with Tianjin Create IT Company
Ltd. dated May 18, 2006 (6)
--------------------------------------------------------------------------------
10.8 Promissory Note, dated May 3, 2006 in the amount of $15,500
payable to Pedro E. Racelis III (6)
--------------------------------------------------------------------------------
10.9 Promissory Note, dated May 3, 2006 in the amount of $23,217
payable to Henry Zaks (6)
--------------------------------------------------------------------------------
10.10 Promissory Note, dated May 3, 2006 in the amount of
$73,059 payable to Michael Bowden (6)
--------------------------------------------------------------------------------
10.11 Promissory Note, dated May 30, 2006 in the amount of $3,612
payable to Pedro E. Racelis III (7)
--------------------------------------------------------------------------------
10.12 Promissory Note, dated June 16, 2006 in the amount of $2,000
payable to Henry Zaks (7)
--------------------------------------------------------------------------------
10.13 Promissory Note, dated June 16, 2006 in the amount of $1,612
payable to Michael A. Bowden (7)
--------------------------------------------------------------------------------
10.14 Promissory Note, dated June 26, 2006 in the amount of $10,000
payable to Michael A. Bowden (7)
--------------------------------------------------------------------------------
10.15 Promissory Note, dated June 27, 2006 in the amount of
$7,680 payable to Henry Zaks (7)
--------------------------------------------------------------------------------
10.16 Forgiveness of Promissory Note, dated July 5, 2006 in the amount
of $73,059 payable to Michael A. Bowden (8)
--------------------------------------------------------------------------------
10.17 Promissory Note, dated July 27, 2006 in the amount of $6,300
payable to Michael A. Bowden (8)
--------------------------------------------------------------------------------
10.18 Promissory Note, dated September 26, 2006 in the amount of
$5,000 payable to Michael A. Bowden (8)
--------------------------------------------------------------------------------
10.19 Promissory Note, dated September 28, 2006 in the amount of
$4,708 payable to Henry Zaks (8)
--------------------------------------------------------------------------------
10.20 Conversion Election Letter dated October 5, 2006 from Pedro E.
Racelis III (8)
--------------------------------------------------------------------------------
10.21 Conversion Election Letter dated October 30, 2006 from Henry
Zaks (8)
--------------------------------------------------------------------------------
10.22 Amendment to Letter Agreement Tianjin Create IT Company Ltd.
dated November 7, 2006 (8)
--------------------------------------------------------------------------------
Page 16
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
10.23 Conversion Election Letter dated November 7, 2006 from Henry
Zaks (9)
--------------------------------------------------------------------------------
10.24 Conversion Election Letter dated November 7, 2006 from Henry
Zaks (9)
--------------------------------------------------------------------------------
10.25 Promissory Note, dated November 8, 2006 in the amount of $30,000
payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.26 Promissory Note, dated November 8, 2006 in the amount of $6,000
payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.27 Forgiveness of Promissory Note, dated November 8, 2006 in the
amount of $30,000 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.28 Promissory Note, dated November 10, 2006 in the amount of
$20,000 payable to Henry K. Zaks (9)
--------------------------------------------------------------------------------
10.29 Conversion Election Letter dated November 13, 2006 from Michael
A. Bowden (9)
--------------------------------------------------------------------------------
10.30 Conversion Election Letter dated November 13, 2006 from Michael
A. Bowden (9)
--------------------------------------------------------------------------------
10.31 Conversion Election Letter dated November 13, 2006 from Michael
A. Bowden (9)
--------------------------------------------------------------------------------
10.32 Promissory Note, dated November 14, 2006 in the amount of $3,900
payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.33 Forgiveness of Promissory Note, dated November 17, 2006 in the
amount of $6,300 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.34 Forgiveness of Promissory Note, dated November 17, 2006 in the
amount of $5,000 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.35 Forgiveness of Promissory Note, dated November 17, 2006 in the
amount of $6,000 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.36 Forgiveness of Promissory Note, dated November 30, 2006 in the
amount of $3,900 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.37 Promissory Note, dated December 11, 2006 in the amount of $4,800
payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.38 Forgiveness of Promissory Note, dated December 15, 2006 in the
amount of $4,800 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.39 Promissory Note, dated December 27, 2006 in the amount of $5,200
payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.40 Promissory Note, dated December 2, 2006 in the amount of $3,200
payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.41 Forgiveness of Promissory Note, dated December 29, 2006 in the
amount of $5,200 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
Page 17
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
10.42 Forgiveness of Promissory Note, dated December 31, 2006 in the
amount of $20,000 payable to Henry Zaks (9)
--------------------------------------------------------------------------------
10.43 Forgiveness of Promissory Note, dated December 31, 2006 in the
amount of $3,200 payable to Michael A. Bowden (9)
--------------------------------------------------------------------------------
10.44 Revolving Line of Credit Agreement and Promissory Note, dated
January 1, 2007 in the amount of $30,000 payable to Pedro E.
Racelis III (9)
--------------------------------------------------------------------------------
10.45 Revolving Line of Credit Agreement and Promissory Note, dated
January 1, 2007 in the amount of $30,000 payable to Henry Zaks
(9)
--------------------------------------------------------------------------------
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 from the exhibits to the Registration
Statement on Form SB-1 filed on November 6, 2000, File No. 333-49388.
(2) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated March 22, 2003, filed March 31, 2003.
(3) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated November 22, 2004, filed November 24, 2004.
(4) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2002, filed April
9, 2003.
(5) Incorporated by reference to the exhibits to the registrant's amended
current report on Form 8-K dated May 24, 2005, filed June 6, 2005.
(6) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2005, filed May
22, 2006.
(7) Incorporated by reference to the exhibits to the registrant's quarterly
report on Form 10-QSB for the quarter ended June 30, 2006, filed August
4, 2006.
(8) Incorporated by reference to the exhibits to the registrant's quarterly
report on Form 10-QSB for the quarter ended September 30, 2006, filed
November 14, 2006.
(9) Incorporated by reference to the exhibits to the registrant's current
report on Form 10-KSB dated December 31, 2006, filed April 13, 2007.
Page 18
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: May 15, 2007 By: /s/ PEDRO E. RACELIS III
-------------------------------------
Pedro E. Racelis III,
President and Chief Financial Officer
Page 19