U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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 80401-321
(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:
34,737,364 SHARES OF COMMON STOCK, $0.001 PAR VALUE,
AS OF JUNE 30, 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 June 30, 2004 and 2003; and Six Months
Ended June 30, 2004 and 2003......................................3
-Condensed Consolidated Balance Sheet (Unaudited)
As of June 30, 2004...............................................4
-Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2004 and 2003...........................5
-Condensed Consolidated Statements of Stockholders'
Equity (Unaudited)................................................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..........................................14
PART II. OTHER INFORMATION
Item 1.-Legal Proceedings ...............................................15
Item 2.-Changes in Securities............................................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 and Reports on Form 8-K ................................16
SIGNATURES ...................................................................17
SPECIAL NOTE: Our independent accountants, Moores Rowland Mazars, have not
performed any review procedures at the time of filing this quarterly report on
Form 10QSB for the three and six month periods ended June 30, 2004 as required
under Item 310(b) of Regulation S-B.
Page 2 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
====================================================================================================================================
THREE
THREE MONTHS MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE
30,2004 30,2003 30,2004 30,2003
NOTE US$ US$ US$ US$
OPERATING REVENUE
Service revenue 94,567 4,059 119,884 4,059
Cost of services 75,419 3,392 92,643 3,392
GROSS PROFIT 19,148 667 27,241 667
------------- ------------- ------------- -------------
OPERATING EXPENSES
Depreciation expenses 8,732 2,651 15,713 3,966
General and administrative expenses 2,769,381 473,325 3,313,625 1,775,136
------------- ------------- ------------- -------------
Total operating expenses 2,778,113 475,976 3,329,338 1,779,102
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (2,758,965) (475,309) (3,302,097) (1,778,435)
------------- ------------- ------------- -------------
NON-OPERATING INCOME (EXPENSES)
Interest income 76 - 124 -
Other income (2,393) - (2,393) -
Interest expenses - (2,296) (2,817) (3,285)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (2,761,282) (477,605) (3,307,183) (1,781,720)
------------- ------------- ------------- -------------
Income taxes - - - -
------------- ------------- ------------- -------------
NET LOSS (2,761,282) (477,605) (3,307,183) (1,781,720)
============= ============= ============= =============
NET LOSS PER SHARE OF COMMON STOCK: 5
Basic (0.0882) (0.0222) (0.1136) (0.0828)
=============== ============= ============= =============
Diluted N/A N/A N/A
=============== ============= ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 31,305,143 21,519,868 29,125,034 21,509,989
=============== ============= ============= =============
The financial statements should be read in conjunction with the accompanying
notes - page 3 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
================================================================================
AS OF
JUNE
30, 2004
ASSETS US$
CURRENT ASSETS
Cash and cash equivalents 263,423
Pledged deposits 1,381
Prepayments and other receivables 181,008
---------------
Total current assets 445,812
Property, plant and equipment, net 515,427
---------------
TOTAL ASSETS 961,239
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Trade and other payables 304,736
Loans 553,641
Notes payable 198,600
Convertible debts 30,000
---------------
TOTAL LIABILITIES 1,086,977
---------------
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$0.001 each
50,000,000 shares of stock authorized,
34,737,364 shares of stock issued and outstanding 34,737
Additional paid-in capital 7,697,774
Accumulated deficit (7,858,249)
---------------
TOTAL STOCKHOLDERS' DEFICIT (125,738)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 961,239
===============
The financial statements should be read in conjunction with the accompanying
notes - page 4 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
=========================================================================================================================
For six months ended June 30,
----------------------------------------
2003 2004
US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (3,307,183) (1,781,720)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 15,713 3,966
Write off of property, plant and equipment 7,281 -
Common stocks issued for compensation 2,795,283 1,022,900
Changes in working capital:
Prepayments and other receivables 20,623 (40,274)
Trade and other payables (21,047) 221,448
----------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (489,330) (573,680)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (138,182) (100,232)
i-Track and Strategic Communications Partners, Inc merger - (50,000)
Advances to a related party - (12,731)
Decrease in pledged deposits 20,816 -
----------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (117,366) (162,963)
----------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net proceeds from issuance of common stock 679,202 338,150
Proceeds from additions of loans 266,551 -
Repayment of loans (80,831) -
Proceeds from issuance of notes payable - 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 872,922 544,250
----------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 266,226 (192,393)
CASH AND CASH EQUIVALENTS, AS OF BEGINNING
OF THE PERIOD (2,803) 197,576
----------------- ----------------
CASH AND CASH EQUIVALENTS, AS OF END OF THE PERIOD 263,423 5,183
================= ================
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Bank balances 263,423 5,183
================= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid 2,817 3,285
================= ================
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Common stocks issued for compensation by SCP* - 865,432
Common stocks issued for compensation
by the Company 2,795,283 157,468
----------------- ----------------
2,795,283 1,022,900
================= ================
* SCP is defined in the Condensed Consolidated Statements of Stockholders'
Equity
The financial statements should be read in conjunction with the accompanying
notes - page 5 of 17
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
31, 2003 26,213,953 26,214 4,231,812 (4,551,066) (293,040)
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 cash 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
$0.63 per share, net of
issuance costs of $274,286 898,000 898 223,236 224,134
Net loss for the period - - - (2,761,282) (2,761,282)
------------- --------- --------------- ------------- --------------
AS OF JUNE 30, 2004 34,737,364 34,737 7,697,774 (7,858,249) (125,738)
============= ========= =============== ============= ==============
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 - page 6 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Six Months Ended June 30, 2004
================================================================================
1. BASIS OF PRESENTATION
The accompanying financial data as of June 30, 2004 and for the three
months and six months ended June 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 filings on form
10-KSB for the fiscal year ended Decembe 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 six months ended June 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 has 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.
2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States requires
us 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 our accounting principles, we must often make individual
estimates and assumptions regarding expected outcomes or uncertainties.
As you might expect, the actual results or outcomes are generally
different than the estimated or assumed results or outcomes. These
differences are usually minor (but they could be material) and are
included in our consolidated financial statements as soon as they are
known. Our 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.
3. FOREIGN CURRENCIES
Balance Sheet transactions in foreign currencies are translated at the
rates of exchange on the date of the Balance Sheet. Income Statement
transactions in foreign currencies are translated at the average rates
of exchange for the reporting period. Exchange gains and losses are
recorded in the statement of operations.
Page 7 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Six Months Ended June 30, 2004
================================================================================
4. PREPARATION OF FINANCIAL STATEMENTS
The Company has incurred losses of US$7,858,249 since inception, which
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".
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 six months ended June
30, 2004 and three month ended June 30, 2004 are 29,125,034 shares and
31,305,143 shares respectively.
As of June 30, 2004, 2,891,122 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.
6. 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:
Page 8 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO AND FORMING PART OF THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Six Months Ended June 30, 2004
================================================================================
6. STOCK-BASED COMPENSATION (CONTINUED)
For six months ended June 30, For three months ended June 30,
2004 2003 2004 2003
US$ US$ US$ US$
Net loss
As reported (3,307,183) (1,781,720) (2,761,282) (477,605)
Total stock-based compensation
expenses (8,592) - (4,296) -
------------- ------------- -------------- -------------
Pro forma (3,315,775) (1,781,720) (2,765,578) (477,605)
============= ============= ============== =============
Basic net loss per share
As reported (0.1101) (0.0828) (0.0850) (0.0222)
============= ============= ============== =============
Pro forma (0.1104) (0.0828) (0.0851) (0.0222)
============= ============= ============== =============
Page 9 of 17
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 is a wholly
owned subsidiary of CWC. It provides financial, technical, and marketing
services for its operation in Beijing, People's Republic of China ("PRC").
Strategic Communications Partners Limited ("SCPL") is a subsidiary of SCP. SCPL
was incorporated in Hong Kong on December 9, 2002. SCP's and SCPL's operations
to date consist solely of supporting the Beijing operations.
Page 10 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
BEIJING IN-TOUCH INFORMATION SYSTEM COMPANY LIMITED
On March 4, 2003, SCP 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 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.
As of June 30, 2004, we have three employees, all of whom are full-time in the
United States. As of June 30, 2004, SCPL has no full-time employees in Hong Kong
and In-Touch has 62 full-time employees all of whom are located in Beijing. None
of our employees is covered by a collective bargaining agreement.
BEIJING PAN-ASIA INNOVATIVE SCIENCE AND TECHNOLOGY COMPANY LIMITED
The Company has purchased the 100% interest in Beijing Pan-Asia Innovative
Science and Technology Company Limited ("Pan-Asia") in the late 2003 to extend
its operations and the cost of investment was Rmb40,000. Pan-Asia has commenced
operations in Beijing in the 2nd quarter of 2004. The principal activity of
Pan-Asia is trading of telecommunication-related products.
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.
On August 15, 2003, we signed a contract with MCI International Ltd. Co.
("MCI"). This contract permits us to extend the reach of our Broadband Wireless
Access Network in 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 product and
service offerings.
Page 11 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
Alliances and partnerships with Tier One Telecom Carriers are critical to our
growth strategy. We believe current broadband access providers in China are
searching for economically viable ways to connect more end users to their
backbones and to direct more traffic to their underutilized networks. We provide
services meeting this growing demand. Over the last few months we have entered
into agreement with China Netcom Group Beijing Company to cooperate in building
out a network to serve its customers. We expect this and other such partnerships
to help us enter and develop in China's highly regulated telecom sector
successfully as a foreign invested enterprise. There are however, no guarantees
that these partnerships will be successful.
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.
Page 12 of 17
CHINA WIRELESS COMMUNICATIONS, INC
RESULTS OF OPERATIONS. During the second 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 second quarter of 2004 soared to $94,567, an
increase of over 270 percent from first quarter 2004. This explosive growth is a
direct result from China Wireless effectively bringing more customers and
services onto the Beijing broadband network. Revenues generated from inception
to June 30, 2004 total $155,256.
Operational expenses totaled $2,778,113 and $3,329,338 for the three months and
six months ended June 30, 2004 respectively. Of this amount, $2,446,283 and
$2,812,783, respectively, are costs recorded for common stock issued for
compensation for these 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.
In comparison, operational expenses for the three months and six months ended
June 30, 2003 were $475,976 and $1,779,102 respectively. Of this amount,
$113,000 and $1,022,900 were recorded for common stock issued for compensation
for these same periods. The increase in operational expenses is due primarily to
high consulting expenses and commissions.
LIQUIDITY AND CAPITAL RESOURCES. For the six-month period ended June 30, 2004,
CWC used cash of $205,279 for operating activities, decreased 64% compared to
six month ended June 30, 2003. The decrease is due mainly to decreases in legal
fees and accounting agency expenses. The most significant adjustment to
reconcile the net loss to net cash used in operations was common stock issued as
compensation amounting to $2,812,783, whereas $1,022,900 in six-month period
ended June 30, 2003. Investing activities also used cash of $117,366 and
$162,963 during six-month period ended June 30, 2004 and 2003, The Company has
$263,423 of cash and cash equivalent and pledged deposits of $1,381 at June 30,
2004.
As reflected in the statement of cash flows, the Company is still dependent upon
issuance of its common stock for cash utilized in its operations. For the six
months ended June 30, 2004, net proceeds from the issuance of common stock
provided cash of $661,702.
At June 30, 2004, the Company had a working capital deficit of $641,165, as
compared to a deficit of $693,279 at December 31, 2003.
Page 13 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
PLAN OF OPERATION
We have been focusing our efforts on finishing the design and construction of
our Fixed Wireless Broadband Network System in Beijing. This system successfully
opened and commence operations in the second quarter of 2004. We will focus our
primary marketing efforts on providing high-speed Internet access, VOIP, VPN
private circuit, International leased line, and other broadband services to our
clients. We are also in the midst of building partnership(s) with major telecom
carriers of China. To connect more users to their backbone networks, we believe
the carriers have motivation to cooperate with us in providing the high-speed
wireless services to their customers on a revenue sharing basis. Following
entering into the cooperative agreement with China Netcom Beijing Company on
September 1, 2003, we are in the process of reviewing a similar arrangement with
another Tier One Carrier. However, there is no guarantee that we will enter into
such agreement and no guarantee that the terms will be favorable to us.
During 2004 we will develop Beijing, providing additional infrastructure which
will allow us to expand our geographical coverage in Beijing. Using this same
model, we plan to replicate our wireless broadband network in a dozen selected
major metropolitan areas in the PRC. In each city, we will deploy multi-advanced
technologies, including MSTP, ATM/IP, broadband wireless, soft switch, to
provide high-speed Internet access, VOIP, Virtual Private Network, private
circuit, International leased line and other value added services. We plan to
expand Network Systems beyond Beijing starting in late 2004 and 2005. Our
ability to do this will be primarily limited by our ability to raise capital.
There is no guarantee that we will be successful in raising funds or if we do
raise funds it will be at terms more favorable to us.
We have positioned ourselves as a high quality service provider, offering
network reliability complemented with quality customer support. We are setting
up a call center to accommodate queries and to provide a quick response to any
queries from customers. We will focus our effort on customer satisfaction by
attracting and retaining a core team of professionals.
The continuation of us as a going concern 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. The inability of us to implement the business
plan successfully could adversely impact our business and prospects.
We plan currently to increase our staffing levels only as required by our
operations.
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 June 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 14 of 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
In the Second quarter of 2004, we raised $224,134, selling 898,000 shares of our
common stock. The principal underwriter was Bellador Advisory Services Ltd.
("Bellador"), a Malaysian-based international business company and the
securities were sold under Regulation S promulgated under the Securities Act.
The total offering price of these securities was $498,420, less $274,286 in
underwriting discounts and commissions. The Agreement signed with Bellador,
provides that the Company is to receive a price equivalent to 45% of the market
price, that its common stock trades, all as defined in our agreement with
Bellador. Bellador further has an agreement with each investor, that the stock
must be held for one year, before its Regulation S restriction is removed.
In addition, we raised $120,000, selling 522,224 shares of our common stock and
three-year warrants to purchase 261,112 shares of common stock at $0.50 per
share to four investors, pursuant to the exemption from registration contained
in Section 4(20 of the Securities Act of 1933. No underwriters were involved in
this private placement. The investors were deemed to be sophisticated with
respect to an investment in our securities as they consisted of one
management-level employee and three existing investors.
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 15 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
(A Development Stage Company)
Item 6. Exhibits and Reports on Form 8-K
a) 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)
16.2 Letter from Edwards, Melton, Ellis, Koshiw & Company, P.C.
dated January 20, 2003 (6)
16.3 Letter from the Rehmann Group, dated February 19, 2003 (7)
16.4 Letter from Moores Rowland, dated May 14, 2003 (8)
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 (9)
32.1 Certification of Chief Executive/Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (9)
(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.
(6) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated January 20, 2003.
(7) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated February 19, 2003.
(8) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated May 14, 2003.
(9) To be filed by amendment.
b) Reports on Form 8-K:
None.
Page 16 of 17
CHINA WIRELESS COMMUNICATIONS, INC.
(A Development Stage Company)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA WIRELESS COMMUNICATIONS, INC.
(Registrant)
Date: August 19, 2004 By: /s/ PEDRO E. RACELIS
-----------------------------------
Pedro E. Racelis
Interim President and Chief Financial Officer
Page 17 of 17