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: September 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ____________ to ______________
Commission file number: 333-49388
CHINA WIRELESS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1966948
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1746 COLE BOULEVARD, SUITE 225, GOLDEN, COLORADO 80401-3208
(Address of principal executive offices)
(303) 277-9968
(Issuer's telephone number)
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
September 30, 2006 was 133,484,702.
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 September 30, 2006 and 2005;
and Nine months Ended September 30, 2006 and
2005 (Unaudited)............................................3
- Condensed Consolidated Balance Sheet
As of September 30, 2006 (Unaudited)........................4
- Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2006 and 2005 (Unaudited)...5
- Notes to the Condensed Consolidated Financial
Statements (Unaudited)......................................6
Item 2. - Management's Discussion and Analysis or Plan of
Operations.................................................10
Item 3. - Controls and Procedures....................................13
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings .........................................13
Item 2. - Unregistered Sales of Equity Securities and Use of
Proceeds...................................................13
Item 3. - Defaults Upon Senior Securities ...........................13
Item 4. - Submission of Matters to a Vote of Security Holders........13
Item 5. - Other Information .........................................13
Item 6. - Exhibits...................................................13
SIGNATURES ...................................................................17
Page 2
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended For the three months ended
September 30, September 30,
------------------------------------ ------------------------------------
2006 2005 2006 2005
Operating revenue:
Sales $ 265,793 $ 300,118 $ 118,473 $ 171,469
Cost of sales 246,577 286,534 107,003 162,934
------------------------------------ ------------------------------------
GROSS PROFIT 19,216 13,584 11,470 8,535
Operating expenses:
Common stock issued for compensation 1,853,265 1,361,228 70,960 429,800
Bad debt expense 39,389 - - -
General and administrative expenses 270,668 18,712 38,647 8,522
------------------------------------ ------------------------------------
TOTAL OPERATING EXPENSES 2,163,322 1,379,940 109,607 438,322
------------------------------------ ------------------------------------
Loss from operations (2,144,106) (1,366,356) (98,137) (429,787)
Non-operating income (expenses):
Other income 27,623 10,631 228 6,762
Interest income (expense) (16,866) 93 (6,507) 93
------------------------------------ ------------------------------------
TOTAL NON-OPERATING INCOME (EXPENSES) 10,757 10,724 (6,279) 6,855
------------------------------------ ------------------------------------
NET LOSS $ (2,133,349) $ (1,355,632) $ (104,416) $ (422,932)
==================================== ====================================
Net loss per share (0.0172) (0.0204) (0.0008) (0.0053)
Basic and fully diluted net loss per common share (0.0172) (0.0204) (0.0008) (0.0053)
Weighted average common shares outstanding,
basic and fully diluted 123,724,714 66,290,980 131,955,613 79,895,703
The financial statements should be read in conjunction with the
accompanying notes
Page 3
CHINA WIRELESS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2006
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 23,560
Prepaid expenses 1,828
Accounts receivables 42,925
Advances to suppliers 29,533
Other receivables 9,875
Inventory 63,483
--------------------
Total current assets 171,204
Fixed assets:
Vehicle 20,125
Office equipment 356
Accumulated depreciation (12,364)
--------------------
Fixed assets, net 8,117
--------------------
TOTAL ASSETS $ 179,321
====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 285,368
Advances from customers 79,181
Interest payable 32,528
Notes payable 321,988
--------------------
TOTAL CURRENT LIABILITIES 719,065
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,
133,484,702 shares of stock issued and outstanding 133,485
Additional paid-in capital 11,658,668
Accumulated deficit (12,331,897)
--------------------
TOTAL STOCKHOLDERS' DEFICIT (539,744)
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 179,321
====================
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 nine months ended September 30,
2006 2005
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,133,349) $ (1,355,632)
Adjustments to reconcile net loss to net cash (used in) operating
activities:
Depreciation 1,873 999
Common stock issued for compensation 1,853,265 1,361,228
Bad debts 39,389 -
(Increase) decrease in operating assets:
Prepayments and other receivables (76,242) (192,850)
Inventory (63,483) -
Increase (decrease) in operating liabilities:
Accounts payables and accrued expenses 65,345 72,280
Advances from customers 22,251 72,895
Interest payable 16,867 7,217
-------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (274,084) (33,863)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (232) (16,570)
-------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (232) (16,570)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 131,282 -
Proceeds from issuance of notes payable 151,815 75,250
-------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 283,097 75,250
-------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,781 24,817
CASH AND CASH EQUIVALENTS:
Beginning of period 14,779 4,789
End of period $ 23,560 $ 29,606
=====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ -
-------------------------------------
Income taxes paid $ - $ -
-------------------------------------
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Common stock issued for compensation $ 1,853,265 $ 1,361,228
=====================================
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 September 30, 2006 and for the
three months ended September 30, 2006 have been prepared by China
Wireless Communications, Inc. (the "Company"), without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. However, the
Company believes that the disclosures are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the notes
thereto of the Company, included in the Company's form 10-KSB for the
year ended December 31, 2005.
In the opinion of the management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows of the Company have been
made. The results of operations for the three and nine months ended
September 30, 2006 are not necessarily indicative of the operating
results for the full year.
STOCK-BASED COMPENSATION
Effective July 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
outstanding options on December 31, 2005 or September 30, 2006.
Compensation cost for common stock issued as compensation was recorded
at fair value at the time it was issued.
STOCK-BASED COMPENSATION
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------------------------
2006 2005 2006 2005
Net loss
As reported (2,133,349) (1,355,632) (104,416) (422,932)
SFAS 123R stock-based compensation
expenses - - - -
------------------------------------------------------
Pro forma (2,133,349) (1,355,632) (104,416) (422,932)
======================================================
Basic net loss per share
As reported (0.0172) (0.0204) (0.0008) (0.0053)
======================================================
Pro forma (0.0172) (0.0204) (0.0008) (0.0053)
======================================================
Page 6
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. ORGANIZATION
On May 24, 2005, the Company acquired 51% of the stock of Tianjin
Create IT Company Ltd. (the "Tianjin Create Co."), a systems
integration and information technology company located in Tianjin,
China. Tianjin Create Co. was established in 2002 by Frank Li, a former
professor of engineering at NanKai University, the oldest university in
China. On May 18, 2006, the Company entered into an amended agreement
whereby it agreed to further pay $105,307 in cash to the founders of
Tianjin Create Co., by August 31, 2006 in connection with the
acquisition of Tianjin Create Co. On October 25, 2006, the Company and
Mr. Li entered into a further amended agreement whereby the Company
agreed to a cash payment of $10,531 as well as 6,318,404 shares of
China Wireless common stock to take place on December 31, 2006 in lieu
of the previous amount to complete the acquisition.
Tianjin Create Co. was acquired by China Wireless in part because of
its strategic location in Tianjin City, the third largest city in
China. Also, as an established, young, forward-looking company with a
customer base in the education, oil & gas, banking, brokerage,
commercial and government sectors, Tianjin Create Co. provides a solid
base for China Wireless to build its presence in China.
3. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. In
applying the accounting principles, management must often make
individual estimates and assumptions regarding expected outcomes or
uncertainties. As a result, the actual results or outcomes might
generally be different from the estimated or assumed results or
outcomes. These differences are included in the consolidated financial
statements as soon as they are known. Management's estimates, judgments
and assumptions are continually evaluated based on available
information and experience. Because of the use of estimates inherent in
the financial reporting process, actual results could differ materially
from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial information
of the Company and all of its subsidiaries, namely Tianjin Create Co.
and CW Communications. All material inter-company balances and
transactions have been eliminated on consolidation.
FOREIGN CURRENCIES
Transactions involving foreign currencies are translated at the rates
of exchange ruling at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date
are retranslated at the rates of exchange ruling at that date.
On consolidation, the balance sheets of overseas subsidiaries
denominated in foreign currencies are translated at the rates of
exchange ruling at the balance sheet date while the statements of
operations are translated at average rates for the period. All exchange
differences arising on consolidation are included in other
comprehensive income.
REVENUE RECOGNITION
Revenue is recognized when it is probable that the economic benefits
will flow to the Company and when the revenue and cost, if applicable,
can be measured reliably and on the following bases. Service revenue is
recognized in the period when services are rendered.
Page 7
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
REVENUE RECOGNITION (CONTINUED)
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 is in the process of rebuilding its business to execute on
its new business plan, which is focused on acquiring unique and
innovative technologies to market in China. The Company has incurred
losses of $12,331,897 since inception, which raises substantial doubt
about the Company's ability to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the
successful implementation of its business plan and ultimately achieving
profitable operations. However, there can be no assurance that the
business plan will be successfully implemented. The inability of the
Company to implement the business plan successfully could adversely
impact the Company's business and prospects. Details of the plans of
operations of the Company are set out in Item 2 of this Form 10-QSB
under the heading "Plan of Operation".
5. LOSS PER COMMON STOCK
The weighted average number of shares of common stock outstanding used
in the calculation of basic loss per share for the three months ended
September 30, 2006 is 131,955,613 shares.
As of September 30, 2006, 9,022,684 shares in total could be issued
pursuant to the outstanding convertible debt, stock warrants and stock
options of the Company. No diluted loss per share is presented because
their effects would be anti-dilutive.
6. RELATED PARTY
During the first five months of 2006, Henry Zaks, a director, loaned
the Company $23,217 and on May 3, 2006, the Company issued a promissory
note in such amount to Mr. Zaks payable in full on October 2, 2006. At
the request of Henry Zaks, the note in the amount of $23,217 was
converted to Company restricted stock on October 30, 2006. The total
amount converted, including interest, was $24,127. The amount of shares
issued for this note was 482,542 shares of restricted common stock at a
rate of $0.05 per share based on the convertible note agreement.
During the 2nd Quarter of 2006, Henry Zaks, a director, loaned the
Company $2,000 and on June 16, 2006, the Company issued a promissory
note in such amount to Mr. Zaks payable in full on December 1, 2006.
Also, during the 2nd Quarter of 2006, Henry Zaks, a director, loaned
the Company $7,680 and on June 26, 2006, the Company issued a
promissory note in such amount to Mr. Zaks payable in full on December
1, 2006.
During the first five months of 2006, Pedro E. Racelis, the Company's
CEO/President/director loaned the Company $15,500 and on May 3, 2006,
the Company issued a promissory note in such amount to Mr. Racelis
payable in full on July 2, 2006. At the request of Pedro E. Racelis
III, the note in the amount of $15,500 was converted to Company
restricted stock on October 5, 2006. The total amount converted to
Company restricted stock was $15,500. The amount of shares issued for
this note was 300,000 shares.
During the 2nd Quarter of 2006, Pedro E. Racelis, the Company's
CEO/President/director loaned the Company $3,612 and on May 30, 2006,
the Company issued a promissory note in such amount to Mr. Racelis
payable in full on December 1, 2006.
Page 8
CHINA WIRELESS COMMUNICATIONS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RELATED PARTY (CONTINUED)
During the first five months of 2006, Michael Bowden, the Company's COO
and a director, loaned the Company $73,059 and on May 3, 2006, the
Company issued a promissory note in such amount to Mr. Bowden payable
in full on July 2, 2006 and on July 5, 2006 Mr. Bowden forgave the note
in full.
During the 2nd Quarter of 2006, Michael Bowden, the Company's COO and a
director, loaned the Company $1,612 and on June 16, 2006, the Company
issued a promissory note in such amount to Mr. Bowden payable in full
on December 1, 2006.
Also, during the 2nd Quarter of 2006, Michael Bowden, the Company's COO
and a director, loaned the Company $10,000 and on June 26, 2006, the
Company issued a promissory note in such amount to Mr. Bowden payable
in full on December 31, 2006.
During the 3rd Quarter of 2006, Henry Zaks, a director, loaned the
Company $4,708 and on September 28, 2006, the Company issued a
promissory note in such amount to Mr. Zaks payable in full on March 1,
2007. The note will convert to 174,370 shares of common stock on March
1, 2007.
During the 3rd Quarter of 2006, Michael Bowden, the Company's COO and a
director, loaned the Company $6,300 and on July 27, 2006, the Company
issued a promissory note in such amount to Mr. Bowden payable in full
on January 31, 2007.
Mr. Bowden made an additional loan to the Company for $5,000 and on
September 26, 2006, the Company issued a promissory note in such amount
to Mr. Bowden payable in full on January 31, 2007.
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
Included in this report are various forward-looking statements, which can be
identified by the use of forward looking terminology such as "may", "will,"
"expect," "anticipate," "estimate," "continue," "believe," or similar words. We
have made forward-looking statements with respect to the following, among
others: our goals and strategies; our expectations related to growth of our
broadband internet, content and wireless access and transport in China and the
performance under our agreements; our ability to obtain and operate licenses and
permits to operate in China; our ability to earn sufficient revenues in China;
the importance and expected growth of satellite communications, broadband
internet, content and wireless access and transport in China and the demand for
these services in China; our ability to continue as a going concern; and our
future performance and our results of operations. These statements are forward
looking and reflect our current expectations. We are subject to a number of
risks and uncertainties, including but not limited to, changes in the economic
and political environments in China, economic and political uncertainties
affecting the capital markets, changes in technology, changes in satellite
communications, broadband internet, content and wireless access and transport in
the marketplace in China, competitive factors and other risks described in our
annual report on Form 10-KSB filed with the United States Securities and
Exchange Commission on May 19, 2006. In light of the many risks and
uncertainties surrounding the Company, China, and the satellite communications,
broadband internet, content and wireless access and the transport marketplace in
China, you should keep in mind that we cannot guarantee that the forward-looking
statements described in this report will transpire and you should not place
undue reliance on forward-looking statements.
OVERVIEW
We were originally incorporated in Nevada on March 8, 1999 under the name AVL
SYS International Inc ("AVL SYS"). On March 9, 2000, AVL SYS changed its name to
I-Track, Inc ("ITI").
On March 22, 2003, ITI acquired all of the issued and outstanding shares of
Strategic Communications Partners, Inc., a Wyoming corporation ("SCP"), pursuant
to the terms of a Share Exchange Agreement. A total of 19,000,000 restricted
shares of ITI's common stock were issued to the shareholders of SCP, resulting
in the SCP shareholders as a group owning approximately 88.4% of the outstanding
shares of common stock. At this time, SCP became a wholly owned subsidiary. On
March 24, 2003, in connection with our acquisition of SCP, ITI's name was
changed to China Wireless Communications, Inc.
Our business plan has been 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 our customers. As part of our
business plan, we acquired an interest in Tianjin Create Co., a systems
integration and information technology company located in Tianjin, China. On May
24, 2005, we entered into a letter of agreement to acquire 51% of the stock of
Tianjin Create Co. for total consideration of $53,840, comprised of cash in the
amount of $40,380 and 448,665 shares of our common stock valued at $0.03 per
share, (a total of $13,460 in our common stock). We have since paid $13,460 in
common stock and cash of $8,000 to the founders of Tianjin Create Co. On May 18,
2006, we entered into an amended agreement whereby we agreed to further pay
$105,307 in cash to the founders of Tianjin Create Co. by August 31, 2006. On
October 25, 2006, China Wireless and Frank Li further amended the purchase
agreement whereby we agreed to a cash payment of $10,530.70 as well as 6,318,404
shares of China Wireless common stock to take place on December 31, 2006 in lieu
of the previous purchase price to complete the acquisition.
Additionally in the 3rd quarter of 2006, we formed a new venture in the area of
video surveillance design, engineering and installation, CW Communications, Inc.
("CW Communications"), a wholly owned subsidiary. CW Communications operates in
north Texas and we intend to leverage the technical and sales opportunities
presented by the IT side of our business. We intend to market the products and
services of China Wireless, Tianjin 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. In
addition, the Company and its subsidiaries can provide wireless connectivity for
data and video surveillance networks.
Page 10
GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of us as a going concern. We incurred a
net loss for the nine months ended September 30, 2006 of $2,133,349 and a net
loss of $1,960,714 for the year ended December 31, 2005. At September 30, 2006,
we had an accumulated deficit of $12,331,897 and a working capital deficit of
$547,861. These conditions raise substantial doubt as to our ability to continue
as a going concern. These consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. These
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions; however, we believe
that our estimates, including those for the above-described items, are
reasonable.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the rates of exchange on
the dates of transactions. Monetary assets and liabilities denominated in
foreign currencies at year-end are translated at the approximate rates ruling at
the balance sheet date. Non-monetary assets and liabilities are translated at
the rates of exchange prevailing at the time the asset or liability was
acquired.
RESULTS OF OPERATIONS
In the quarter ended September 30, 2006 we formed CW Communications, Inc. to
focus on the design and install of video surveillance systems.
Operating expenses for the three months ended September 30, 2006, were $109,607
compared to $438,322 for the three months ended September 30, 2005. Operating
expenses for the three months ended September 30, 2006 showed a reduction due to
the implementation of better cost controls and reduced consulting fees of
$318,516 compared to the prior year. Net losses for the three months ended
September 30, 2006 and 2005 were $104,416 and $422,932, respectively.
Operating expenses for the nine months ended September 30, 2006, were
$2,163,322, as compared to $1,379,940 for the nine months ended September 30,
2005. Net losses for the nine months ended September 30, 2006 and 2005 were
$2,133,349 and $1,355,632, respectively. Operating expenses for the nine months
ended September 30, 2006 included $1,853,265 related to the issuance of stock
for compensation versus $1,361,228 for nine months ended September 30, 2005, an
increase of $492,037.
During the nine months ended September 30, 2006, the Company generated sales
revenues of $265,793 compared with $300,118 for the nine months ended September
30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2006, we used $274,084 in cash for
operating activities. The most significant adjustment to reconcile the net loss
to net cash used in operations was common stock issued as compensation amounting
to $1,853,265. Financing activities provided cash of $283,097 through issuances
of our common stock and increases in
Page 11
notes payable through borrowings. Our directors loaned the Company a total of
$36,630 including $16,008 in Notes Payable during the quarter ended September
30, 2006.
At September 30, 2006, we had current assets of $171,204 and current liabilities
of $719,065, resulting in a working capital deficit of $547,861, as compared to
a deficit of $395,921 at December 31, 2005.
PLAN OF OPERATION
We are focusing our efforts on becoming a viable information technology company.
We believe that the information technology business is beginning to develop
quickly in China and that we can play a role in its development. Additionally,
we have identified several North American technologies that we believe can be
marketed to business customers in China through our subsidiary, Tianjin Create
Co. As the Company begins to execute its business plan, we will utilize the
leadership of Tianjin Create Co. to oversee and manage the operations in China.
Staffing levels in China will be increased only as required.
Tianjin Create Co. is the foundation to building our broad base information
technology, products and services in China, including computer installation and
maintenance, broadband transport service, server installation maintenance and
support, internet services, broadband transport redundancy, video surveillance,
fixed wireless transport and information hosting.
Tianjin Create Co. operates in Tianjin, the third largest city in China.
Comparable in many respects to Chicago, Illinois in the United States, 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 Beijing's gateway to the sea and has over 25 ten
thousand ton ship berths. Tianjin's harbor is geographically the second largest
in China. Tianjin is home to 31 of China's universities, including Tianjin
University, China's first neoteric university. The Tianjin area also includes
the Tanggu Economic Development Area, located where the Haihe River meets the
Bohai Sea.
Through Tianjin Create Co., we provide information technology and IP services to
customers in China. Our customer base includes Nankia University, Tianjin Sea
Transportation Company, Tianjin Gas Company, DaGang Oil Field and Tianjin North
Food Company. Additionally, 20 of Tianjin City's 31 universities utilize
products or services provided by Tianjin Create Co. We are also able to offer a
broad base of information technologies ranging from video surveillance, wireless
broadband, and Wi-Fi to "last mile" transport connections.
The design and construction of fixed wireless broadband network systems will be
part of our overall information technology strategy. Each of our subsidiaries
has sufficient telephony and broadband access capabilities to meet their
business objectives. However, we plan to broaden our scope to become a systems
solutions company that will provide a broad base of information technologies
through our partnership companies. These technologies include, but are not
limited to, engineering design, implementation of Wi-Fi, fixed broadband
wireless, systems integration, network security, data storage, and
voice/video/data telecommunications services. We are exploring opportunities in
technology equipment manufacturing and network/computer security
The Board and management team believe the best path to establish profitability,
and improve the Company's stock performance is to focus on growing revenue in
our core competencies of information technology solutions and our new video
surveillance business and to assess acquisition opportunities that may be
favorable to revenue and cash flow as they arise.
We intend to expand our Tianjin Create Co. operation by adding to the sales
force in order to better take advantage of system integration opportunities
available. The focus of our systems integration efforts has been in the
educational, transportation, natural gas and manufacturing markets and our goal
is to expand into other industries. In addition, the pool of highly skilled
engineering, marketing, sales, and operations personnel in China is key to our
success in growing our business.
Our wholly owned subsidiary, CW Communications, Inc., 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. We believe that there are
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business opportunities in the design and installation of video surveillance that
are complementary to our information technology business. We believe that CW
Communications, Inc.'s business model can also be employed in the Chinese market
by Tianjin Create Co. as an additional service.
ITEM 3. CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
The Company's Chief Executive Officer / Chief Financial Officer has evaluated
the effectiveness of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act) as of the end of September 30,
2006. Based on such evaluation, such 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 our evaluation as of the end of the
fiscal quarter ended September 30, 2006, 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
--------------------------------------------------------------------------------
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)
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
3.4 Certificate of Amendment to Articles of Incorporation (4)
--------------------------------------------------------------------------------
10.1 Promissory Notes in the aggregate amount of $140,000, payable to
Buck Krieger (10)
--------------------------------------------------------------------------------
10.2 Promissory Note, dated June 27, 2003 in the amount of $50,000, and
dated July 31, 2003 in the amount of $30,000, payable to Henry Zaks
(5)
--------------------------------------------------------------------------------
10.3 Promissory Note, dated July 31, 2003 in the amount of $20,000,
payable to Robert Zappa (10)
--------------------------------------------------------------------------------
10.4 2003 Stock Plan, as amended (6)
--------------------------------------------------------------------------------
10.5 Investment Contract between Goldvision Technologies Ltd and SCP
dated December 18, 2003 (6)
--------------------------------------------------------------------------------
10.6 Extension Agreement to Investment Contract between Goldvision
Technologies Ltd. and the Company dated August 5, 2003 (5)
--------------------------------------------------------------------------------
10.7 Employment Agreement dated March 25, 2003 with Phillip Allen (6)
--------------------------------------------------------------------------------
10.8 Employment Agreement dated March 25, 2003 with Brad A. Woods (6)
--------------------------------------------------------------------------------
10.9 Separation & Voting Trust Agreement with Philip Allen (5)
--------------------------------------------------------------------------------
10.10 Agreement between the Company and Bellador Advisory Services, Ltd.
dated October 22, 2003 (5)
--------------------------------------------------------------------------------
10.11 Agreement between the Company and China Netcom Group Beijing
Company dated September 1, 2003 (5)
--------------------------------------------------------------------------------
10.12 Agreement between the Company and MCI International Ltd. Co. dated
August 14, 2003 (10)
--------------------------------------------------------------------------------
10.13 Amendment to Employment Agreement dated April 23, 2004 with Brad A.
Woods (7)
--------------------------------------------------------------------------------
10.14 Employment Agreement dated April 23, 2004 with Pedro E. Racelis III
(7)
--------------------------------------------------------------------------------
10.15 Consulting Agreement with Jiaxin Consulting Group, Inc. dated
December 8, 2004 (10)
--------------------------------------------------------------------------------
10.16 Letter agreement with Tianjin Create IT Company Ltd. dated May 24,
2005 (11)
--------------------------------------------------------------------------------
10.17 Employment Agreement dated July 20, 2005 with Michael A. Bowden
(12)
--------------------------------------------------------------------------------
10.18 Promissory Note, dated August 1, 2005 in the amount of $12,698.16
payable to Michael Bowden (12)
--------------------------------------------------------------------------------
10.19 Employment Agreement dated March 1, 2006 with Michael A. Bowden
(12)
--------------------------------------------------------------------------------
10.20 Employment Agreement dated March 1, 2006 with Pedro E. Racelis III
(12)
--------------------------------------------------------------------------------
10.21 Amendment to Letter agreement with Tianjin Create IT Company Ltd.
dated May 18, 2006 (12)
--------------------------------------------------------------------------------
10.22 Promissory Note, dated May 3, 2006 in the amount of $15,500 payable
to Pedro E. Racelis III (12)
--------------------------------------------------------------------------------
10.23 Promissory Note, dated May 3, 2006 in the amount of $23,217 payable
to Henry Zaks (12)
--------------------------------------------------------------------------------
10.24 Promissory Note, dated May 3, 2006 in the amount of $73,059 payable
to Michael Bowden (12)
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
10.25 Promissory Note, dated May 30, 2006 in the amount of $3,612 payable
to Pedro E. Racelis III (13)
--------------------------------------------------------------------------------
10.26 Promissory Note, dated June 16, 2006 in the amount of $2,000
payable to Henry Zaks (13)
--------------------------------------------------------------------------------
10.27 Promissory Note, dated June 16, 2006 in the amount of $1,612
payable to Michael A. Bowden (13)
--------------------------------------------------------------------------------
10.28 Promissory Note, dated June 26, 2006 in the amount of $10,000
payable to Michael A. Bowden (13)
--------------------------------------------------------------------------------
10.29 Promissory Note, dated June 27, 2006 in the amount of $7,680
payable to Henry Zaks (13)
--------------------------------------------------------------------------------
10.30 Forgiveness of Promissory Note, dated July 5, 2006 in the amount of
$73,059 payable to Michael A. Bowden
--------------------------------------------------------------------------------
10.31 Promissory Note, dated July 27, 2006 in the amount of $6,300
payable to Michael A. Bowden
--------------------------------------------------------------------------------
10.32 Promissory Note, dated September 26, 2006 in the amount of $5,000
payable to Michael A. Bowden
--------------------------------------------------------------------------------
10.33 Promissory Note, dated September 28, 2006 in the amount of $4,708
payable to Henry Zaks
--------------------------------------------------------------------------------
10.34 Conversion Election Letter dated October 5, 2006 from Pedro E.
Racelis III
--------------------------------------------------------------------------------
10.35 Conversion Election Letter dated October 30, 2006 from Henry Zaks
--------------------------------------------------------------------------------
10.36 Amendment to Letter Agreement with Tianjin Create Co. dated
November 7, 2006
--------------------------------------------------------------------------------
16.1 Letter from the Rehmann Group, dated April 22, 2003 (8)
--------------------------------------------------------------------------------
16.2 Letter from Moores Rowland, dated February 28, 2005 (9)
--------------------------------------------------------------------------------
21.1 Subsidiaries of the registrant (12)
--------------------------------------------------------------------------------
31.1 Rule 15d-14(a) Certification
--------------------------------------------------------------------------------
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
-----------------------
(1) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated March 17, 2003 filed March 18, 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, filed March 31, 2003.
(4) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated November 22, 2004, filed November 24, 2004.
(5) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2003, filed April
14, 2004.
(6) 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.
(7) Incorporated by reference to the exhibits to the registrant's
registration statement on Form S-8, File No. 333-104457, filed April
27, 2004.
Page 15
(8) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated April 15, 2003, filed April 22, 2003.
(9) Incorporated by reference to the exhibits to the registrant's amended
current report on Form 8-K dated January 11, 2005, filed January 18,
2005.
(10) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the year ended December 31, 2004, filed April
15, 2005.
(11) 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.
(12) 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.
(13) 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.
Page 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA WIRELESS COMMUNICATIONS, INC.
(Registrant)
Date: November 14, 2006 By: /s/ PEDRO E. RACELIS III
--------------------------------------
Pedro E. Racelis III,
President and Chief Financial Officer
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