U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File number 0-26559
CHINA MOBILITY SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
N/A
(Former name of registrant)
Florida
| 330-751560
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(State or other jurisdiction of incorporation or organization)
| (IRS Employer Identification No.)
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#900 - 789 West Pender Street, Vancouver, B.C., Canada V6C 1H2
(Address of principal executive offices)
(604) 632-9638
(Issuer's telephone number)
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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x] State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 20,011,792 shares of common stock, par value $0.001 per share, outstanding as of May 10, 2006.
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EXPLANATORY PARAGRAPH
This Amendment No. 2 to the Form 10-QSB of China Mobility Solutions, Inc. for March 31, 2006, is being filed solely to amend Part I, Item 3. Controls and Procedures.
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PART I
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| 8-13
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PART II
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| 17
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The financial statements have been adjusted with all adjustments, which, in the opinion of management, are necessary in order to make the financial statements not misleading. For financial information, please see the financial statements and the notes thereto, attached hereto and incorporated herein by this reference. The financial statements have been prepared by China Mobility Solutions, Inc., a Florida corporation (the "Company"), without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These financial statements include all of the adjustments which, in the opinion of management, are necessary to make a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the audited financial statements at December 31, 2005, included in the Company's Form 10-KSB. Cautionary and Forward Looking Statements In addition to statements of historical fact, this Form 10-QSB contains forward-looking statements. The presentation of future aspects of the Company found in these statements is subject to a number of risks and uncertainties that could cause actual results to differ materially from those reflected in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," or "could" or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company's actual results to be materially different from any future results expressed or implied in those statements. Important facts that could prevent the Company from achieving any stated goals include, but are not limited to, the following: Some of these risks might include, but are not limited to, the following: (a) volatility or decline of the Company's stock price; (b) potential fluctuation in quarterly results; (c) failure of the Company to earn revenues or profits; (d) inadequate capital to continue or expand its business, inability to raise additional capital or financing to implement its business plans;
(e) failure to commercialize its technology or to make sales; (f) rapid and significant changes in markets; (g) litigation with or legal claims and allegations by outside parties; (h) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, successfully develop, manage or market its products and services, and attract or retain qualified executives and technology personnel. The Company's products and services may become obsolete, and government regulation may hinder the Company's businesses. Additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of warrants and stock options. There are also other risks inherent in the Company's businesses. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof, subject to applicable law. Readers should carefully review the factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-QSB and Annual Report on Form 10-KSB for December 31, 2005 and any Current Reports on Form 8-K filed by the Company.
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CONSOLIDATED BALANCE SHEETS
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Stated in U.S. dollars
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| March 31, 2006
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| December 31, 2005
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| (Unaudited)
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| (Audited)
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ASSETS
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Current Assets
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Cash and Cash Equivalents
| $
| 5,741,569
| $
| 6,138,609
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Accounts receivable
| | 6,835
| | 5,870
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Prepaid Expenses and Other Current Assets
| | 113,131
| | 235,165
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Amount due from related parties
| | 45,721
| | 33,249
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Total Current Assets
| | 5,907,256
| | 6,412,893
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Investment
| | 1
| | 1
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Property and Equipment, Net (Note 2)
| | 5,646
| | 6,248
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Goodwill
| | 4,802,520
| | 4,802,520
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Other assets
| | 692
| | 701
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Total Assets
| $
| 10,716,115
| $
| 11,222,363
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
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Accounts Payable and Other Accrued Liabilities
| $
| 336,735
| $
| 362,013
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Deferred Revenue
| | 2,626,886
| | 3,053,282
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Convertible Debentures (Note 3)
| | 3,350,000
| | 3,350,000
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Total Current Liabilities
| | 6,313,621
| | 6,765,295
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Stockholders' Equity
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Common Stock : $0.001 Par Value
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Authorized : 500,000,000 common shares
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Issued and Outstanding : 20,011,792 shares (2005: 20,011,792 shares)
| | 20,012
| | 20,012
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Additional Paid In Capital
| | 18,442,826
| | 18,442,826
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Accumulated Deficit
| | (13,862,008)
| | (13,804,409)
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Accumulated Other Comprehensive Loss
| | (198,336)
| | (201,361)
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Total Stockholders' Equity
| | 4,402,494
| | 4,457,068
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Total Liabilities and Stockholders' Equity
| $
| 10,716,115
| $
| 11,222,363
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(The accompanying notes are an integral part of these consolidated financial statements)
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
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| Three Months Ended
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Stated in U.S. dollars
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| March 31, 2006
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| March 31, 2005
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Revenue
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Mobile marketing services
| $
| 1,440,917
| $
| 1,052,529
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Tuition fee
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| 19,027
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| 74,678
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| | | 1,459,944
| | 1,127,207
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Cost of revenue
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Mobile marketing services
| | 291,833
| | 223,545
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Tuition fee
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| 4,632
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| 10,439
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| | | 296,465
| | 233,984
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Gross profit
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| 1,163,479
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| 893,223
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Expenses
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Advertising and promotion
| | 199,171
| | 141,320
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Consulting and professional
| | 89,979
| | 16,156
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Depreciation
| | 611
| | 592
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Foreign exchange loss (gain)
| | (1,310)
| | 3,578
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General and administrative
| | 36,274
| | 24,317
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Interest expense
| | 54,312
| | -
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Investor relations
| | 87,825
| | -
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Liquidated damages
| | 201,000
| | -
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Rent
| | 235,913
| | 158,615
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Salaries, wages and sub-contract
| | 341,861
| | 300,583
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Website development
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| -
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| 80,000
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| | 1,245,636
| | 725,161
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Operating Income (Loss)
| | (82,157)
| | 168,062
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Other Income
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Interest income
| | 24,558
| | 17,242
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Other income
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| -
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| 1,984
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| | | 24,558
| | 19,226
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Income (loss) before minority interest
| | (57,599)
| | 187,288
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Minority interest
| | -
| | (126,547)
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Net Income (Loss) Available to Common Stockholders
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| $ (57,599)
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| $60,741
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Earnings (loss) per share attributable to common stockholders:
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Basic and diluted
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| (0.00)
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| $0.00
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Weighted average number of common shares outstanding:
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Basic and diluted
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| 20,011,792
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| 16,024,670
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(The accompanying notes are an integral part of these consolidated financial statements)
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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For the three month period ended March 31, 2006 and year ended December 31, 2005
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(Unaudited)
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| | Accumulated
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| | | Stock
| Additional
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| | Other
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| | Common
| Amount At
| Paid In
| Accumulated
| Comprehensive
| Comprehensive
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Stated in U.S. dollars
| Shares
| Par Value
| Capital
| Deficit
| Income (Loss)
| Income (Loss)
| Total
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Balance, December 31, 2004
| 15,826,792
| $ 15,827
| $ 8,770,378
| $ (4,640,956)
| | $ (183,532)
| $3,961,717
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Issuance of common stock for cash on
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exercise of stock options on February
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24, 2005 @$0.30
| 495,000
| 495
| 148,005
| | | | 148,500
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Issuance of common stock for services
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rendered
| 600,000
| 600
| 350,700
| | | | 351,300
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Issuance of common stock for cash on
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exercise of stock options on September
| | | | | | | |
1, 2005 @$0.40
| 500,000
| 500
| 199,500
| | | | 200,000
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Issuance of common stock for cash on
| | | | | | | |
exercise of stock options on September
| | | | | | | |
1, 2005 @$0.35
| 2,590,000
| 2,590
| 903,910
| | | | 906,500
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Stock-based compensation
| | | 126,000
| | | | 126,000
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Fair value of new Series 'A' warrants issued
| | | 3,254,305
| | | | 3,254,305
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Fair value of new Series 'B' warrants issued
| | | 3,637,165
| | | | 3,637,165
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Intrinsic value of the conversion feature of the
| | | | | | | |
convertible debenture
| | | 1,052,863
| | | | 1,052,863
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Net income (loss) for the year ended
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December 31, 2005
| | | | (9,163,453)
| (9,163,453)
| | (9,163,453)
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Foreign currency translation adjustments
| | | | | (17,829)
| (17,829)
| (17,829)
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Total comprehensive income (loss)
| | | | | $ (9,181,282)
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Balance, December 31, 2005
| 20,011,792
| $ 20,012
| $18,442,826
| $ (13,804,409)
| | $ (201,361)
| $4,457,068
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Net income (loss) for the three months ended
| | | | | | | |
March 31, 2006
| | | | (57,599)
| (57,599)
| | (57,599)
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Foreign currency translation adjustments
| | | | | 3,025
| $3,025
| 3,025
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Total comprehensive income (loss)
| | | | | $(54,574)
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| | | | | | | | |
Balance, March 31, 2006
| 20,011,792
| $20,012
| $18,442,826
| $ (13,862,008)
| | $(198,336)
| $4,402,494
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(The accompanying notes are an integral part of these consolidated financial statements)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
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| | | Three Months Ended
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Stated in U.S. dollars
|
| March 31, 2006
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| March 31, 2005
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| | | | | |
Cash flows from operating activities
| | | | |
Net income (loss)
| | $(57,599)
| | $60,741
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Adjustments to reconcile net loss to net cash
| | | | |
Provided by (Used in) operating activities
| | | | |
Depreciation and amortization
| | 611
| | 592
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Interest expenses on intrinsic value of the convertible debenture
| | | | |
Translation adjustments
| | 3,025
| | 2,045
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Minority interest
| | -
| | 126,547
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Changes in assets and liabilities
| | | | |
(Increase)Decrease in accounts receivable
| | (965)
| | 5,336
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(Increase)Decrease in prepaid expenses and other current assets
| | 122,034
| | 8,451
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Increase in amount due from (to) related parties
| | (12,472)
| | (29,202)
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Decrease in accounts payable
| | (25,278)
| | 59,522
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Increase in deferred revenue
| | (426,396)
| | (95,419)
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Net cash provided by (used in) operating activities
|
| (397,040)
|
| 138,613
|
| | | | | |
| | | | | |
Cash flows from financing activities
| | | | |
Issuance of common stock for cash
| | -
| | 148,500
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Net cash flows provided by financing activities
|
| -
|
| 148,500
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| | | | | |
Increase (Decrease) in cash and cash equivalents
| | (397,040)
| | 287,113
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| | | | | |
Cash and cash equivalents - beginning of period
| | 6,138,609
| | 5,380,622
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| | | | | |
Cash and cash equivalents - end of period
|
| $5,741,569
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| $5,667,735
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| | | | | |
Supplemental Information :
| | | | |
Cash paid for :
| | | | |
Interest
| | $53,600
| | $1
|
Income taxes
| | -
| | -
|
| | | | | |
| | | | | |
(The accompanying notes are an integral part of these consolidated financial statements)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
( Unaudited )
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results for the entire year. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2005 included in its Annual Report on Form 10-KSB. The unaudited condensed consolidated financial statements include China Mobility Solutions, Inc. and its subsidiaries. All inter-company transactions and accounts have been eliminated.
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Certain items have been reclassified to conform to the current period presentation. There is no effect on total results of operations or stockholders’ equity.
2. Property and Equipment
| | | March 31,
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| December 31,
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| 2006
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| 2005
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Equipment
| | $ 26,986
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| $ 26,986
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Library
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| 9,554
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| 9,554
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Furniture
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| 10,189
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| 10,189
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Total
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| 46,729
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| 46,729
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Less : Accumlated depreciation
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| (41,083)
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| (40,481)
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Net book figures
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| $ 5,646
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| $ 6,248
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The depreciation expense charged to continuing operations for the three-month period ended March 31, 2006 was $611 (2005: $592).
3. Convertible debentures
| On August 15, 2005, the Company completed an offering of 134 units ("Units") for $3,350,000. Each Unit was sold for $25,000, consisting of $25,000 principal amount of senior convertible debentures (the "Debentures"), and one new Series “A” Warrant and one new Series “B” Warrants. The Debentures are initially convertible at $0.35 per share for 71,429 shares of common stock of the Company; maturing on August 15, 2006 and accruing interest at a rate of not less than 6% per annum equal to the sum of 2% per annum plus the one-month London Inter-Bank Offer Rate (“LIBOR”). The Debentures are subject to redemption at 125% of the principal amount plus accrued interest commencing six months after the effective date (the "Effective Date") of the registration statement. The registration statement has not been approved by the regulatory authority. |
| Each Unit also includes: (i) new Series “A” Warrants exercisable at $0.44 per share to purchase 71,429 shares of Common Stock of the Company for two years from the Effective Date, but no later than February 15, 2008; and (ii) new Series “B” Warrants exercisable at $0.52 per share to purchase 71,429 shares of Common Stock for three years from the Effective Date, but no later than February 15, 2009. The new Series “A” and new Series “B” Warrants are subject to redemption by the Company at $0.001 per Warrant at any time commencing six months and twelve months, respectively, from the Effective Date, provided the average closing bid price of the common stock of the Company equals or exceeds 175% of the respective exercise prices for 20 consecutive trading days.
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On January 18, 2006, the Company received a letter (the “Default Notice”) from the attorney for Southridge Partners, LP, (the “Lender”) the holder of $500,000 principal amount of the Company's Senior Convertible Debentures (the “Debenture”) stating that the Company was in default of certain transaction agreements (the “Transaction Agreements”) issued in connection with the Debenture by virtue of the Company's issuance of registered shares of stock to employees and consultants under a Form S-8 registration statement and the filing of the Form S-8 prior to the date of effectiveness (the “Effective Date”) of the Company’s SB-2 Registration Statement required under the Registration Rights Agreement (one of the Transaction Agreements).
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The Debenture was issued on August 15, 2005, as part of a $3,350,000 offering of units. Under the original terms of the Debenture, each unit included $25,000 principal amount of Debentures, initially convertible at $.35 per share, matured on August 15, 2006 and accrued interest at not less than 6% per annum equal to the sum of 2% per annum plus the one month LIBOR rate. Each unit also included Class A Warrants exercisable at $.44 per share and Class B Warrants exercisable at $.52 per share.
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The Company denied that it was in default of the Transaction Agreements; however, in order to avoid costly litigation, the parties entered into a waiver/settlement agreement as of May 4, 2006 (the “Waiver/Settlement Agreement”). In accordance with the terms of the Waiver/Settlement Agreement, the initial conversion price of the Debenture was reduced from $.35 per share to $.30 per share, the Class A Warrant exercise price was reduced from $.44 to $.38 per share and the Class B Warrant exercise price was reduced from $.52 to $.45 per share. In addition, the number of shares of the Company’s common stock exercisable upon conversion of each $25,000 principal amount of Debenture and upon exercise of the Class A and Class B Warrants included in each Unit was increased from 71,429 shares to 83,333 shares for each of the Debenture, Class A Warrants and Class B Warrants, or an aggregate of 250,000 shares per unit.
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The Lender waived the S-8 Default set forth in the Default Notice and the Company agreed not to file any additional S-8 Registration Statements prior to 45 days after the Effective Date of the Registration Statement.
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The Company has recorded $201,600 as expense for estimated liquidated damages in the statement of operations for the quarter ended March 31, 2006.
As of March 31, 2006, interest payable of $27,512 has been recorded as part of the accounts payable.
4. Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share are computed by dividing net earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings available to common stockholders by the weighted-average number of common shares outstanding during the period increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
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The following table sets forth the computations of shares and net loss used in the calculation of basic and diluted loss per share for the three-month periods ended March 31, 2006 and 2005:
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| | | Three months ended
|
|
| March 31,
|
|
| 2006
| 2005
|
| | | | |
Net income (loss) for the period
| | (57,599)
| 60,741
|
| | | |
Weighted-average number of shares outstanding
| | 20,011,792
| 16,024,670
|
| | | | |
Effective of dilutive securities :
| | | |
Dilutive options - $0.30
| | -
| -
|
Dilutive warrants new Series "A" - $0.44
| | -
| -
|
Dilutive warrants new Series "B" - $0.52
| | -
| -
|
Dilutive potential common shares
| | -
| -
|
| | | | |
Adjusted weighted-average shares and assumed conversions
| | 20,011,792
| 16,024,670
|
| | | |
Basic income (loss) per share attributable to common shareholders
| | $ (0.00)
| $ 0.00
|
| | | | |
Diluted income (loss) per share attributable to common shareholders
| | $ (0.00)
| $ 0.00
|
| | | | |
Index
5. Share Purchase Warrants
During the quarter ended March 31, 2006, 10 Series “B” warrants which entitle the holders to purchase a common share of the Company at $2.25 each expired on March 31, 2006.
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As of March 31, 2006, 134 new Series “A” warrants were outstanding which entitle the holders to purchase 71,429 common shares of the Company at $0.44 each within two years from the Effective Date but no later than February 15, 2008. 134 new Series “B” warrants were outstanding which entitle the holders to purchase 71,429 common shares of the Company at $0.52 each within three years from the Effective Date but no later than February 15, 2009.
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6. Stock Options
The Company filed a Form S-8 Registration Statement for its 2006 non-qualified Stock Option Plan” with Securities Exchange Commission on November 3, 2005. The total number of shares of the Company available for grants of stock options and common stock under the Plan shall be 4,000,000 common shares. Stock options may be granted to non-employees and directors of the Company or other persons who are performing or who have been engaged to perform services of special importance to the management, operation or development of the Company. All stock options granted hereunder must be granted within ten years from the earlier of the date of this Plan is adopted or approved by the Company’s shareholders. No stock option granted to any employee or 10% shareholder shall be exercisable after the expiration of ten years from the date such non qualifying stock option (“NQSO”) is granted. The Company, in its discretion, may provide that an Option shall be exercisable during such ten year period or during any lesser period of time, through the delivery of fully paid and non-assessable common shares, with an aggregate fair market value on the date the NQSO is exercised equal to the option price, provided such tendered shares have been owned by the Optionee for at least one year prior to such exercise.
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Options outstanding at March 31, 2006 were 660,000 with an option price of $0.30 each. No options were granted, exercised, canceled or forfeited during the quarter ended March 31, 2006. The weighted average remaining contractual life is 1.31 years.
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Prior to January 1, 2006, the Company accounted for stock-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. The intrinsic value method of accounting resulted in compensation expense for stock options to the extent that the exercise prices were set below the fair market price of the Company’s stock at the date of grant.
|
As of January 1, 2006, the Company adopted SFAS No. 123(R) using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with the Company’s valuation techniques previously utilized for options in footnote disclosures required under SFAS No. 123, “Accounting for Stock Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock Based Compensation Transition and Disclosure”.
|
Since the Company did not issue stock options to employees during the three months ended March 31, 2006 or 2005, there is no effect on net loss or earnings per share had the Company applied the fair value recognition provisions of SFAS No. 123(R) to stock-based employee compensation. When the Company issues shares of common stock to employees and others, the shares of common stock are valued based on the market price at the date the shares of common stock are approved for issuance.
|
7. Related Party Transactions
| During the three-month period ended March 31, 2006, the Company paid $14,475, as compared with $5,296 during the comparable period in 2005, to a director and an officer as wages and benefits. As of March 31, 2006, the Company had an amount of $21,421, as compared with $21,443 as of December 31, 2005, due from a company with a common director without interest or specific terms of repayment. As of March 31, 2006, the Company advanced $9,730, as compared with $8,485 as of December 31, 2005, to a director of the Company for expenses to be incurred on behalf of the Company.
|
8. New Accounting Pronouncements
| There have been no new pronouncements issued since March 31, 2005, that are expected to have a material impact on the Company’s financial statements. |
9. Segment and Geographic Data
| The Company’s reportable segments are geographic areas and two operating segments, the latter comprised of mobile communication and ESL education. Summarized financial information concerning the Company’s reportable segments is shown in the following table. The “Other” column includes corporate related items, and, as it relates to segment profit (loss), income and expenses not allocated to reportable segments. |
A. By geographic areas
|
| China
| Canada
| Other
| Total
|
| | | | | | |
Three months ended March 31, 2006
| | | | | |
Revenue from continuing operations
| | $ 1,440,917
| $ 19,027
| $ -
| $ 1,459,944
|
Operating income (loss)
| | 387,730
| (39,158)
| (430,729)
| (82,157)
|
Total assets
| | 3,257,230
| 298,983
| 7,159,902
| 10,716,115
|
Depreciation
| | -
| 611
| -
| 611
|
Interest income
| | 6,303
| 397
| 17,858
| 24,558
|
Income from discontinued operations
| | -
| -
| -
| -
|
Investment in equity method investee
| | -
| -
| 1
| 1
|
| | | | | | |
Three months ended March 31, 2005
| | | | | |
Revenue from continuing operations
| | $ 1,052,529
| $ 74,678
| $ -
| $ 1,127,207
|
Operating income (loss)
| | 257,183
| 7,212
| (96,333)
| 168,062
|
Total assets
| | 6,589,865
| 112,381
| 46,720
| 6,748,966
|
Depreciation
| | -
| 584
| 8
| 592
|
Interest income
| | 17,238
| 4
| -
| 17,242
|
Income from discontinued operations
| | -
| -
| -
| -
|
Investment in equity method investee
| | -
| -
| 1
| 1
|
| | | |
|
| | |
B. By operating segments
| | |
|
| Other
| Total
|
| | | | | | | |
For the three months ended March 31, 2006
| | | | | | |
Revenue from external customers
| | | $ 1,440,917
| $ 19,027
| $ -
| $ 1,459,944
|
Intersegment revenue
|
|
| -
| -
| -
| -
|
Interest revenue
|
|
| 6,303
| 397
| 17,858
| 24,558
|
Interest expense
|
|
| -
| -
| 54,312
| 54,312
|
Depreciation
|
|
| -
| 436
| 175
| 611
|
Segment operation profit (loss)
|
|
| 387,730
| (12,385)
| (457,502)
| (82,157)
|
Segment assets
|
|
| 3,257,230
| 78,739
| 7,380,146
| 10,716,115
|
|
|
|
|
|
|
|
For the three months ended March 31, 2005
|
|
|
|
|
|
|
Revenue from external customers
|
|
| $ 1,052,529
| $ 74,678
| $ -
| $ 1,127,207
|
Intersegment revenue
|
|
| -
| -
| -
| -
|
Interest revenue
|
|
| -
| 4
| 17,238
| 17,242
|
Interest expense
|
|
| -
| -
| 1
| 1
|
Depreciation
|
|
| -
| 542
| 50
| 592
|
Segment operation profit (loss)
|
|
| 258,260
| 28,235
| (118,433)
| 168,062
|
Segment assets
| | | 2,303,522
| 99,819
| 4,345,625
| 6,748,966
|
| The information presented here should be read in conjunction with China Mobility Solutions, Inc.'s consolidated financial statements and related notes. In addition to historical information, the following discussion and other parts of this document contain certain forward-looking information. When used in this discussion, the words "believes," "anticipate," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected due to a number of factors beyond the Company's control. The Company does not undertake to publicly update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are also urged to carefully review and consider the Company's discussions regarding the various factors, which affect its business, included in this section and elsewhere in this report. |
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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 disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable and allowance for doubtful accounts, intangible and long-lived assets, and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
|
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
|
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2006 AS COMPARED TO THE QUARTER ENDED MARCH 31, 2005
| Revenues. The Company had revenues of $1,459,944 in the first quarter of 2006 compared to $1,127,207 in the first quarter of 2005, an increase of 29.5%. The Company's revenue in the first quarter of 2006, were in the form of net sales of mobile marketing services (Quicknet) of $1,440,917 and tuition fees (Windsor) of $19,027, as compared with mobile marketing sales of $1,052,529 and tuition fees of $74,678 in the first quarter of 2005. The Company incurred operating expenses of $1,245,636 in the first quarter of 2006 compared to operating expenses of $725,161 in the first quarter of 2005. The Company had an operating loss of $82,157 in the first quarter of 2006, and a net loss of $57,599 compared to an operating income of $168,062 and a net income of $60,741 in the first quarter of 2005. |
Business Segments
During the quarter, the Company had revenues in two segments:
|
|
Mobile marketing services
| $
| 1,440,917
|
Windsor - ESL Education
| $
| $19,027
|
The cost of revenue in each segment was:
|
| |
Mobile marketing services
| $
| 291,833
|
Windsor
| $
| 4,632
|
The gross profit from each of the business segments was:
|
| |
Mobile
| $
| 1,149,084
|
Windsor
| $
| 14,395
|
| $
| 1,163,479
|
Net Income/Loss per share: The per share earnings for the first quarter of 2006 was nil, and the per share earnings for the first quarter of 2005 was nil.
The Company expects the trend of losses to continue at about the same rate in the succeeding periods.
LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition at March 31 2006 as Compared to December 31, 2005.
At the end of the first quarter of 2006, Company had assets of $10,716,115 compared to $11,222,363 at year-end 2005. The current assets totaled $5,907,256 at the end of the first quarter of 2006 compared to $6,412,893 at 2005 year-end. Total current liabilities at the end of the first quarter of 2006 were $6,313,621 compared to $6,765,295 at 2005 year-end. At March 31, 2006, the Company had $ 5,741,569 in cash compared to $6,138,609 at year-end 2005.
|
The Company had cash capital of $5,741,569 at the quarter ended March 31, 2006, which will be used to fund continuing operations. The Company has no other capital resources other than the ability to use its common stock to achieve additional capital raising. Other than cash capital, its other assets would be illiquid.
|
| At the quarter ended March 31, 2006, it had $5,907,256 in current assets and current liabilities of $6,313,621, and a working capital deficit of $406,365.
|
The Company’s cash on hand decreased from $6,138,609 at December 31, 2005 to $5,741,569 at March 31, 2006. This was primarily a result of a decrease in cash used in operating activities of $397,040 resulting from a net loss of $57,599 and an increase in deferred revenue of $426,396, offset, in part, by a decrease in prepaid expenses and other current assets of $122,034.
|
Need for Additional Financing:
| The Company believes it has sufficient capital to meet its short-term cash needs, including the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934. However, if losses occur it may have to seek loans or equity placements to cover longer-term cash needs to continue operations and expansion. |
| No commitments to provide additional funds have been made by management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to cover operations expenses.
|
| If future revenue declines, or operations are unprofitable, it will be forced to develop another line of business, or to finance its operations through the sale of assets it has, or enter into the sale of stock for additional capital, none of which may be feasible when needed. The Company has no specific management ability, or financial resources or plans to enter any other business as of this date.
|
| From the aspect of whether it can continue toward the business goal of maintaining and expanding the businesses in Canada and grow the new business of mobile marketing services in China, it may use all of its available capital without generating a profit.
|
| The effects of inflation have not had a material impact on its operation, nor is it expected to in the immediate future.
|
Market Risk:
| The Company does not hold any derivatives or investments that are subject to market risk. The carrying values of any financial instruments, approximate fair value as of those dates because of the relatively short-term maturity of these instruments which eliminates any potential market risk associated with such instruments. |
Future Trends:
| For the Education Services side, we have operated for over two years now, the competition is very fierce in the market. The Canadian government has tightened its budget on English training for new immigrants, which lead to a termination of government funding for Windsor, and this change had negative effects to the revenue of Windsor Education Academy. |
| The Company has experienced growth in revenues in its Quicknet services, and it anticipates future growth in revenues although China must always be viewed as a highly competitive market where profitability may be difficult to achieve or sustain.
|
Item 3. Controls and Procedures.
Quarterly Evaluation of Controls.
As of the end of the period covered by this quarterly report on Form 10-QSB, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls") as defined in Rules 13a -15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This evaluation ("Evaluation") was performed by our Chief Executive Officer and Principal Accounting Officer, Angela Du, ("CEO") and Ernest Cheung, our Principal Financial Officer ("CFO"). In this section, we present the conclusions of our CEO and CFO based on and as of the date of the Evaluation, with respect to the effectiveness of our Disclosure Controls and Procedures.
Based upon the Evaluation, our CEO and CFO determined that our disclosure controls and procedures are effective to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within time periods specified in the Commission’s rules and forms. Our CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by an issuer in the reports it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management including the CEO and CFO, to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal controls over financial reporting identified in connection with the Evaluation that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect the Company’s internal controls over our financial reports.
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PART II. OTHER INFORMATION
On February 7, 2005, we were sued by Sino-I Technology Limited, in the Supreme Court of British Columbia, for $88,270 for breach of warranty and a claim under a guarantee. Our lawyer submitted a Notice of Motion to the plaintiff's lawyer on March 7, 2005. There has been no further response from the plaintiff’s lawyer. Regardless of the outcome of this motion, the Company intends to vigorously defend the suit.
|
| No director, officer or affiliate of ours and no owner of record or beneficial owner of more than 5% of our securities, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to us in reference to pending litigation.
|
None
| On January 18, 2006, China Mobility Solutions, Inc. (the “Company”) received a letter (the “Default Notice”) from the attorney for Southridge Partners, LP, (the “Lender”) the holder of $500,000 principal amount of the Company's Senior Convertible Debentures (the “Debenture”) stating that the Company was in default of certain transaction agreements (the “Transaction Agreements”) issued in connection with the Debenture by virtue of the Company's issuance of registered shares of stock to employees and consultants under a Form S-8 registration statement and the filing of the Form S-8 prior to the date of effectiveness (the “Effective Date”) of the Company’s SB-2 Registration Statement required under the Registration Rights Agreement (one of the Transaction Agreements). |
The Company denied that it was in default of the Transaction Agreements; however, in order to avoid costly litigation, the parties entered into a waiver/settlement agreement as of May 4, 2006 (the “Waiver/Settlement Agreement”).
|
The Debenture was issued on August 15, 2005, as part of a $3,350,000 offering of units. Under the original terms of the Debenture, each unit included $25,000 principal amount of Debentures, initially convertible at $.35 per share, matured on August 15, 2006 and accrued interest at not less than 6% per annum equal to the sum of 2% per annum plus the one month LIBOR rate. Each unit also included Class A Warrants exercisable at $.44 per share and Class B Warrants exercisable at $.52 per share.
|
In accordance with the terms of the Waiver/Settlement Agreement, the initial conversion price of the Debenture was reduced from $.35 per share to $.30 per share, the Class A Warrant exercise price was reduced from $.44 to $.38 per share and the Class B Warrant exercise price was reduced from $.52 to $.45 per share. In addition, the number of shares of the Company’s common stock exercisable upon conversion of each $25,000 principal amount of Debenture and upon exercise of the Class A and Class B Warrants included in each Unit was increased from 71,429 shares to 83,333 shares for each of the Debenture, Class A Warrants and Class B Warrants, or an aggregate of 250,000 shares per unit.
|
The Lender waived the S-8 Default set forth in the Default Notice and the Company agreed not to file any additional S-8 Registration Statements prior to 45 days after the Effective Date of the Registration Statement.
|
None
None.
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K:
| (a) | Filed a Form 8-K on February 3, 2006 to report the receipt of a default letter with respect to the Company’s Senior Convertible Debenture.
|
| (b) | File a Form 8-K on May 10, 2006 to report the entry into a Waiver/Settlement Agreement with respect to the alleged default under the Company’s Senior Convertible Debenture.
|
Exhibits:
Copies of the following documents are included as exhibits to this quarterly report pursuant to Item 601 of Regulation S-B.
|
EXHIBIT INDEX
Exhibit Number
| Description
|
31.1
|
|
31.2
|
|
32.1
|
|
32.2
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
| CHINA MOBILITY SOLUTIONS, INC. (Registrant)
|
|
|
|
Date: July 24, 2006
| By:
| /s/ Angela Du
|
| Angela Du Chief Executive Officer and Principal Accounting Officer
|
|
|
|
|
|
|
|
|
Date: July 24, 2006
| By:
| /s/ Ernest Cheung
|
| Ernest Cheung Principal Financial Officer
|