UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
------------ -------------
Commission file number: 333-49388
CHINA WIRELESS COMMUNICATIONS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 91-1966948
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1746 Cole Boulevard, Suite 225, Golden, Co 80401-3210
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 303-277-9968
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
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 [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $35,372
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $ 18,693,150 as of April 7, 2004
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 29,208,048 as of April 7, 2004
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Under the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 (the "PSLRA"), we caution readers regarding forward looking
statements found in this report and in any other statement made by, or on our
behalf, whether or not in future filings with the Securities and Exchange
Commission. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results
or other developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by or on our behalf. We disclaim any
obligation to update forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Introduction
Unless the context otherwise requires, the terms "we", "our", and "us"
refers to China Wireless Communications, Inc.
Background
AVL Information Systems Ltd. ("AVL") was a Canadian public company that
owned and licensed certain technology and automatic vehicle location systems. On
March 8, 1999, AVL incorporated in Nevada under the name AVL SYS International
Inc ("AVL SYS"). On March 9, 2000, AVL SYS changed the name to I-Track, Inc
("ITI").
Effective September 30, 2001, ITI entered into an exclusive worldwide
distribution agreement with AVL. Under the agreement, ITI was licensed to market
and distribute all of the products manufactured by AVL. The exclusive
distribution agreement with AVL was cancelled in September 2002 at which point
the Company began to seek another business opportunity. On March 21, 2003, the
Company entered into an "Assignment and Assumption Agreement" with AVL
Information Systems Ltd. (AVL) whereby the Company distributed to AVL all its
assets and AVL assumed all liabilities of the Company. Accordingly, as of March
21, 2003, the Company entirely ceased its prior business operations. 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, the
Company's name was changed to China Wireless Communication, Inc.
SCP was incorporated in the State of Wyoming on August 13, 2002. It
provides financial, technical, and marketing services for its operation in
Beijing, People's Republic of China ("PRC"). Strategic Communications Partners
Limited ("SCPL") is a subsidiary of SCP. SCPL was incorporated in Hong Kong on
December 9, 2002. SCPL's business activities to date consist solely of
supporting the Beijing operations. On March 4, 2003, SCPL set up a wholly owned
enterprise, Beijing In-Touch Information System Co. Ltd. ("In-Touch") in the
PRC.
2
Industry Background
With over 60 million users, China has surpassed Japan to become the
world's second largest Internet market. Enterprises have installed high-speed
local area networks to support bandwidth-intensive applications, and the large
monopoly carriers have invested hundreds of millions of dollars in fiber optic
networks to provide massive backbone network capacity. However, many of those
networks are operating far below capacity.
We are in the business of providing high speed wireless broadband for
its customers. We utilize proven reliable high speed wireless technologies to
complete the "last mile" connection from these backbone networks to the end
users. These customers would include businesses located primarily in commercial
buildings and Internet Service Providers ("ISP"s).
Key Alliances and Partnerships
We are in the midst of developing a technologically advanced wireless
network to serve areas of business concentration in Beijing, China. In order to
effectively deploy the broadband wireless network, we need to partner with
companies whose business and products are complimentary to those of the Company.
However, there is no guarantee that we can find suitable partner and we will be
able to come to mutually agreeable terms if suitable partner could be found.
On July 8, 2003, we concluded a strategic alliance with WPCS
International Incorporated ("WPCS") to support the expansion of our broadband
wireless network in China. The alliance calls for WPCS to provide wireless
products and design services to us on an "as
needed" basis.
On August 14, 2003, we signed a cooperative agreement with P-Com, Inc.
("P-Com") to develop a broadband wireless network within China. P-Com will
provide equipment and support for their line of wireless products to assist us
in building a wireless broadband network in China. We will use our marketing
resources and sales platform to recommend and popularize the products of P-Com.
On August 15, 2003, we signed a contract with MCI International Ltd.
Co. ("MCI"). This contract permits us to extend the reach of our Broadband
Wireless Access Network in Beijing, China. We will be adding MCI International
ATM [asynchronous transport mode] services to reach North America, South
Pacific, Asian and European markets to our existing suite of broadband product
and service offerings.
Alliances and partnerships with Tier One Telecom Carriers are critical
to our growth strategy. We believe current broadband access providers in China
are searching for economically viable ways to connect more end users to their
backbones and to direct more traffic to their underutilized networks. We provide
services meeting this growing demand. Over the last few months we have entered
into agreement with China Netcom Group Beijing Company to cooperate in building
out a network to serve its customers. We expect this and other such partnerships
to help us enter and develop in China's highly regulated telecom sector
successfully as a foreign invested enterprise. There are no guarantees that
these partnerships will be successful.
Compliance with Governmental Regulations
Our operations are subject to various levels of government controls and
regulations in the PRC.
ITEM 2. DESCRIPTION OF PROPERTY.
Our principal executive offices are located at 1746 Cole Boulevard,
Suite 225, Golden, Colorado, where we lease approximately 800 square feet of
space on a lease expiring in August 2004. In-Touch is located at Hanwei Plaza,
6th Floor Block A, No. 7 Guanghua Road, Beijing, where In-Touch leases
approximately 7,535 square feet of space on a lease expiring in November 2004.
3
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
4
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock was approved for trading on the over-the-counter
bulletin board ("OTCBB") under the symbol "ITRK" on August 7, 2001. On December
2, 2002, the symbol was changed to "ITCK" and there was a 1-for-20 reverse stock
split. On March 28,2003, the symbol was changed to "CWLC", after we changed our
name to China Wireless Communications, Inc. The following table sets forth the
range of high and low closing bid quotations of our common stock for each fiscal
quarter shown, as adjusted to reflect the reverse stock split:
Bid or Trade Prices
------------------------
2002 Fiscal Year High Low
---------------- ------ ------
Quarter Ending 03/31/02............... $ 8.80 $ 3.60
Quarter Ending 06/30/02............... $ 4.80 $ 2.40
Quarter Ending 09/30/02............... $ 2.50 $ 0.80
Quarter Ending 12/31/02............... $ 1.20 $ 0.12
2003 Fiscal Year High Low
---------------- ------ ------
Quarter Ending 03/31/03............... $ 1.00 $ 0.05
Quarter Ending 06/30/03............... $ 1.00 $ 0.22
Quarter Ending 09/30/03............... $ 1.09 $ 0.77
Quarter Ending 12/31/03............... $ 0.82 $ 0.47
As of December 31, 2003, there were approximately 202 record holders of
our common stock
On April 6, 2004, the closing price for our common stock on the OTCBB
was $0.59.
The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
During the last three fiscal years, no cash dividends have been
declared on our common stock and we do not anticipate that dividends will be
paid in the foreseeable future.
A 2003 Stock Plan was adopted in January 2003.
--------------------------------------------------------------------------------------------------------
Plan Category Number of securities to Weighted-average Number of securities
be issued upon exercise of exercise price of remaining available for
outstanding options outstanding options future issuance under
equity compensation
plans
--------------------------------------------------------------------------------------------------------
Equity compensation 550,000(1) 0.36 638,341
plans approved by
securities holders
--------------------------------------------------------------------------------------------------------
Equity compensation None None None
plans not approved by
securities holders
--------------------------------------------------------------------------------------------------------
Total 550,000 0.36 638,341
--------------------------------------------------------------------------------------------------------
(1) The 2003 Stock Plan allows our Board of Directors to issue shares
or options under the plan up to a total number of shares up to 15 percent of the
total common shares outstanding.
5
RECENT SALES OF UNREGISTERED SECURITIES
On April 23, 2003 we issued a convertible promissory note in the amount
of Eleven Thousand ($11,000) Dollars. This instrument provides that at our sole
option principal is payable through the issuance of shares of our Common Stock
at a price of $.40 per share, and interest is payable through the issuance of
shares of our Common Stock at a price of $.55 per share. This instrument was
issued pursuant to the exemption from the registration provisions of the
Securities Act provided by Section 4(2) of the Act and Regulation D promulgated
thereunder. We have repaid the principal and interest of this instrument in
cash.
On June 11, 2003 we issued a convertible promissory note in the amount
of Thirty Thousand ($30,000) Dollars. This instrument is convertible into shares
of our Common Stock at a price of $.25 per share. This instrument was issued
pursuant to the exemption from the registration provisions of the Securities Act
provided by Section 4(2) of the Act and Regulation D promulgated thereunder.
Commencing November 2003 and through the end of 2003, we raised
$402,504, selling 1,380,202 shares of our common stock. The principal
underwriter was Bellador Advisory Services Ltd. ("Bellador"), a Malaysian-based
international business company and the securities were sold under Regulation S
promulgated under the Securities Act. The total offering price of these
securities was $894,453, less $491,949 in underwriting discounts and
commissions. The Agreement signed with Bellador, provides that the Company is to
receive a price equivalent to 45% of the market price, that its common stock
trades, all as defined in our agreement with Bellador. Bellador further has an
agreement with each investor, that the stock must be held for one year, before
its Regulation S restriction is removed.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview
On March 21, 2003, we entered into an "Assignment and Assumption
Agreement" with a related entity whereby we distributed to the related entity
all of our assets and the related entity assumed all of our liabilities.
Accordingly, as of March 21, 2003, the Company entirely ceased its prior
business operations.
On March 22, 2003, I-Track Inc., 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,
resulting in the shareholders and management of SCP having actual and effective
control of I-Track Inc. On March 24, 2003, I-Track Inc. changed its name to
China Wireless Communications, Inc. to better reflect the business activities of
the Company.
We are a facilities-based provider of broadband data, video and voice
communications services to customers that are not served by existing landline
based fiber networks. We typically deliver our services over fixed wireless
networks that we design, construct, own and operate. Over this infrastructure,
we offer ultra high-speed Internet access, and other broadband data services.
Other value added services being offered by us include systems integration and
other telecom professional services.
Agreements with Goldvision
On December 18, 2002, SCP entered into agreements (the "Investment
Contract") with Goldvision Technologies Ltd ("Goldvision"), a company
incorporated in the PRC, which is engaged in the business of providing satellite
communication, broadband internet, content, wireless access and transport in
Beijing, whereby SCP was to earn an initial 18% equity interest in Goldvision by
paying $4,800,000 with the purchase price to be paid prorata over 12 months from
the effective date of the agreement, which is February 18, 2003. SCP was to have
an 18% equity interest in Goldvision after these payments. SCP could have
acquired an additional 6% equity interest in Goldvision by contributing
$2,400,000 over a period of 12 months after the purchase of the initial
interest. Under these agreements, SCP was to have received 49% of all future net
revenues from the sale of all services. SCP made payments to Goldvision,
totaling $55,000 under the Investment Contract.
On March 14, 2003, SCP signed an agreement with the subsidiary of
Goldvision, Goldtel, which holds the licenses used to sell its high-speed
wireless broadband services. This agreement is for five years and allows us to
market and sell all services which the licenses held by Goldtel may be used to
provide. This agreement is only cancelable upon the written mutual consent of
both parties.
On August 5, 2003, an extension agreement was entered into between us
and Goldvision to extend the due dates of the Investment Contract through
September 5, 2003.
6
In October 2003, SCP decided not to request an additional extension of
the Investment Contract after the expiration date of September 5, 2003. We
anticipate that they will continue to provide services under the March 14, 2003
Agreement on a case-by-case basis. We are no longer liable to provide any
capital to Goldvision under these prior agreements. We do not believe that the
termination of the Investment Contract will have any material effect on our
business operations.
Beijing In-Touch Information System Company Ltd.
On March 4, 2003, SCP set up a wholly owned foreign enterprise, Beijing
In-Touch Information System Co. Ltd ("In-Touch") in the PRC. In-Touch has
commenced operations in Beijing, through cooperation agreements with local
telecommunications operators.
On December 25, 2003 In-Touch started deploying a high speed broadband
fiber network as the backbone to construct its fixed wireless broadband network
system in Beijing. This network will make available 2.5 Gbps of capacity on a
fiber network that surrounds the 66 kilometer-long fourth ring road in Beijing.
The new additional capacity will support up to 100,000 business-class broadband
business customers on its Beijing network.
The first phase of the fixed wireless broadband network system in
Beijing is expected to be completed during the second or third quarter in fiscal
2004, at which time In-Touch will begin full-service operations. In-Touch will
be providing high speed wireless services, Virtual Private Network's and other
wireless access, transport and enhanced data services.
We continue to build innovative partnership and acquisition strategies
to maximize the coverage of our network in Beijing. We plan to replicate our
Beijing model in other strategic cities in China during late 2004 or 2005.
Employees
As of December 31, 2003, we have three employees, all of whom are
full-time in the United States. As of December 31, 2003, SCPL has no full-time
employees in Hong Kong and In-Touch has 47 full-time employees all of whom are
located in Beijing. None of our employees is covered by a collective bargaining
agreement.
Chinese Tax Holiday
In-Touch is registered in the Beijing Zhong Guan Cun High Tech Park and
also recognized as a High Tech company. In-Touch will receive a tax holiday from
2003 to 2005 followed by a 50% reduction for the next three years.
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.
7
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. Exchange gains and losses are recorded in the statement
of operations.
Results of Operations. We are in the development stage and have not yet
generated significant revenues from planned principal operations. SCP had no
revenues in 2002. We began to record revenues in June 2003. Our primary
activities during 2003 included: the finalization of our analysis of the market
in Beijing and China for wireless broadband; setting up a Beijing office with a
sales, engineering and administrative staff to market and support the sale of
our high speed wireless broadband services; negotiating agreements and alliances
with its partners which allow In-Touch to sell it services and value-added
products; and, the initiation of the construction of its Fixed Wireless
Broadband Network System in Beijing.
We generated revenue of $35,372 for wireless broadband access services
for the year ended December 31, 2003, through cooperation agreements with local
telecommunications operators. Our Fixed Wireless Broadband Network System in
Beijing is expected to begin operation in during the second quarter of 2004. We
were not able to sell into our own network in 2003, as it was still under design
and construction. Operational expenses totaled $3,529,832 for the year ended
December 31, 2003. Of this amount, $2,325,604 were costs recorded for common
stock issued for compensation, primarily to third party contractors which
performed consulting services for us. Operational expenses totaled $1,015,482
for the period from August 13, 2002 (inception) to December 31, 2002. As a
result, we incurred a net loss of $3,536,067 for the year ended December 31,
2003, as compared to $1,014,999 for the period from August 13, 2002 (inception)
to December 31, 2002. This increase of losses was due to the increased
operational expenses to support our business development in Beijing. Total
assets increased 243.8% from $257,576 in 2002 to $627,873 in 2003, of which
$400,239 was property, plant and equipment.
Liquidity and Capital Resources. For the year ended December 31, 2003,
we used cash of $1,138,054 for operating activities. In comparison, for the
period from August 13, 2002 (inception) to December 31, 2002, we used cash of
$134,874 in our operations. The most significant adjustment to reconcile the net
loss to net cash used in operations was that common stock was issued as
compensation amounting to $2,325,604. Investing activities also used cash of
$381,468, which was comprised mainly of acquisition cost for equipment used to
provide services to our customers and a cash payment in connection with the
closing of the acquisition. Net cash provided by financing activities were
$1,319,143, of which $755,122 were proceeds from issuance of common stock,
$275,000 from issuance of notes payable, $41,000 from issuance of convertible
debt and $367,921 from inception of loans, net of $119,900 repayment of notes
payable.
At December 31, 2003, we had $19,394 in the form of cash and cash
equivalents, including $22,197 of pledged deposits.
Plan of Operation
We have been focusing our efforts on finishing the design and
construction of our Fixed Wireless Broadband Network System in Beijing, This
system is estimated to commence operation during the second quarter of 2004. We
will focus our primary marketing efforts on providing high-speed Internet
access, VOIP, VPN private circuit, International leased line, and other
8
broadband services to our clients. We are also in the midst of building
partnership(s) with major telecom carriers of China. To connect more users to
their backbone networks, we believe the carriers have motivation to cooperate
with us in providing the high-speed wireless services to their customers on a
revenue sharing basis. Following entering into the cooperative agreement with
China Netcom Beijing Company on September 1, 2003, we are in the process of
reviewing a similar arrangement with another Tier One Carrier. However, there is
no guarantee that we will enter into agreement and no guarantee that the terms
will be favorable to us.
During 2004 we will develop Beijing, providing additional
infrastructure which will allow us to expand our geographical coverage in
Beijing. Using this same model, we plan to replicate our wireless broadband
network in a dozen selected major metropolitan areas in the PRC. In each city,
we will deploy multi-advanced technologies, including MSTP, ATM/IP, broadband
wireless, soft switch, to provide high-speed Internet access, VOIP, Virtual
Private Network, private circuit, International leased line and other value
added services. We plan to expand Network Systems beyond Beijing starting in
late 2004 or early 2005. Our ability to do this will be primarily limited by our
ability to raise capital. There is no guarantee that we will be successful in
raising funds or if we do raise funds it will be at terms more favorable to us.
We have positioned ourselves as a high quality service provider,
offering network reliability complemented with quality customer support. We are
setting up a call center to accommodate queries and to provide a quick response
to any queries from customers. We will focus our effort on customer satisfaction
by attracting and retaining a core team of professionals.
The continuation of us as a going concern is dependent upon the
successful implementation of our business plan, raising capital, and ultimately
achieving profitable operations. However, there can be no assurance that the
business plan will be successfully implemented. The inability of us to implement
the business plan successfully could adversely impact our business and
prospects.
We plan currently to increase our staffing levels only as required by
our operations.
ITEM 7. FINANCIAL STATEMENTS.
See pages beginning with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Effective February 19, 2003, we engaged The Rehmann Group ("Rehmann")
as our principal accountant (such engagement was approved by our then board of
directors). Edwards, Melton, Ellis, Koshiw & Company, P. C. ("Edwards") was our
principal accountant preceding Rehmann. Edwards resigned as our independent
accountant because it informed us that it was no longer going to be conducting
audits of public companies.
Prior to our engagement of Rehmann, we had not consulted with Rehmann
as to the application of accounting principles to any specific completed or
contemplated transaction, or the type of audit opinion that might be rendered on
our financial statements, and no written or oral advice was provided that was an
important factor considered by us in reaching a decision as to an accounting,
auditing or financial reporting issue.
During the period, there were no disagreements with Rehmann on any
matter of accounting principals or practices, financial statements disclosure,
or auditing scope procedure, which disagreements, if not resolved to the
satisfaction of Rehmann, would have caused such firm to make reference to the
subject matter of the disagreements in connection with its report on our
financial statements.
9
In May 2003, Moores Rowland was engaged to be our international
accounting firm (such engagement was approved by our then board of directors).
Previously, in February 2003, SCP engaged Moores Rowland as our principal
accountant.
Prior to our engagement of Moores Rowland, we had not consulted with
Moores Rowland as to the application of accounting principles to any specific
completed or contemplated transaction, or the type of audit opinion that might
be rendered on our financial statements, and no written or oral advice was
provided that was an important factor considered by us in reaching a decision as
to an accounting, auditing or financial reporting issue.
On October 1, 2003, Moores Rowland merged with Mazars and is now
practicing under the name of Moores Rowland Mazars.
ITEM 8A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our Chief Executive Officer / Chief Financial Officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures as
defined in Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934
within 90 days of the filing date of this report. Based on their evaluation, our
Chief Executive Officer / Chief Financial Officer concluded that the design and
operation of our disclosure controls and procedures were effective as of the
date of the evaluation.
There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in the preceding paragraph.
10
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Our executive officers and directors are:
Name Age Position
---- --- --------
Brad Woods 45 Interim President, Chief Executive
Officer and Director
Allan Rabinoff 58 Director
Henry Zaks 61 Director
Pete Racelis 53 Vice President
Vacancies in our board are filled by the board itself. Set forth below
are brief descriptions of the recent employment and business experience of our
executive officers and directors.
Brad Woods,Interim President, Chief Executive Officer and Chairman of the Board
of Directors
Mr. Brad Woods became our Interim President and Chief Executive Officer
on August 15, 2003. He was previously serving as our chief financial officer,
secretary, treasurer and a director. He is a member of Breckenridge Capital
Consulting Group, LLC. He has extensive experience in international investments,
acquisitions, taxation, and computer applications with both public and private
companies. Mr. Woods has also worked for Arthur Andersen & Co., where he
executed projects for and on behalf of clients in the oil and gas, financial
services, leasing, lodging, retail and light manufacturing industries. His
experience includes practicing before the Securities and Exchange Commission,
both with existing public companies and initial public offerings. He has also
served as an advisor to numerous companies. Mr. Woods is a CPA in Colorado
Allan Rabinoff, Director
Dr. Allan Rabinoff is a principal in Intelligent Network
Communications, LLC and IP2IP, LLC. Throughout his business career he has
focused on maximizing opportunities in a rapidly changing business environment.
He has extensive international experience in the areas of project
identification, contract negotiation, cross-cultural team building, marketing,
sales, M & A strategy and business development. The majority of his
international projects have been in the Far East. He became a director on
February 23, 2004.
Henry Zaks, Director
Henry Zaks is President of Zaks-Shane, LTD; a Wisconsin based
organization that specializes in marketing business-to-business solutions to
both corporations and small companies. He has over 30 years as a sales
professional, and is renowned as an insurance marketing expert. He became a
director on October 9, 2003.
Pete Racelis, Vice President
Mr. Racelis is responsible for sales to telecommunication and cable
companies, commercial and government markets. He also is responsible for all
administration in the US. A veteran of direct sales and management of channel
partners for more than 19 years, Pete is responsible for the portfolio of
products and services that are offered to retail business and wholesale
customers. Prior to joining the Company, Mr. Racelis sold hardware and software
to telecommunications carriers, financial institutions, and commercial
businesses both nationally and internationally in North America.
11
Conflicts of Interest
Our officers and directors are, so long as they are our officers or
directors, subject to the restriction that all opportunities contemplated by our
plan of operation which come to their attention, either in the performance of
their duties or in any other manner, will be considered opportunities of, and be
made available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies with which the officers and
directors are affiliated both desire to take advantage of an opportunity, then
said officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if we should decline to do so. Except as set forth above, we have
not adopted any other conflict of interest policy with respect to such
transactions.
Committees
In fiscal 2003 the board of directors did not have a standing audit,
nominating, or compensation committees, rather the entire board of directors
acted in such capacity.
We have not yet adopted a code of ethics. We intend to do so in the
near future.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information about the remuneration of
our officers for the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------------------------------- --------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------- ------------------------- ------------
Name and Other Restricted Securities All
Principal Annual Stock Underlying LTIP Other
Position Year Salary Bonus Compensation Award(s) Options/ Payouts Compensation
($) ($) ($) ($) SARs (#) ($) ($)
----------------------------------------------------------------------------------------------------------------------
Brad A.Woods 2003 153,305 15,750 -0- -0- -0- -0- -0-
Interim 2002 12,500 -0- -0- -0- -0- -0- -0-
President (1) 2001 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
Peter Racelis 2003 62,370 13,500 -0- -0- -0- -0- -0-
Vice 2002 -0- -0- -0- -0- -0- -0- -0-
President 2001 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
Philip Allen 2003 32,434 75,000 -0- -0- -0- -0- -0-
Former 2002 22,500 -0- -0- -0- -0- -0- -0-
CEO(2) 2001 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
Blake Ratcliff 2003 21,874 -0- -0- -0- -0- -0- -0-
Former 2002 52,500 -0- -0- -0- -0- -0- -0-
COO 2001 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
Peter Fisher 2003 150,000 -0- -0- -0- -0- -0- -0-
Former 2002 -0- -0- -0- -0- -0- -0- 150,000
Director(3) 2001 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
Tyler Fisher 2003 108,000 -0- -0- -0- -0- -0- -0-
Former 2002 -0- -0- -0- -0- -0- -0- -0-
Director(3) 2001 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
12
-----------------
(1) Mr. Woods became Chief Financial Officer on July 25, 2003 and became the
Interim President on August 15, 2003.
(2) Mr. Allen resigned as CEO and President effective from August 15, 2003.
(3) Peter Fisher and Tyler Fisher resigned as Officers effective March 23, 2003.
By resolution dated March 17, 2003, in conjunction with the Share Exchange
Agreement with SCP, our board of directors approved compensation of $150,000
and $108,000 to Peter Fisher and Tyler Fisher, respectively, retroactive to
December 31, 2002. Such compensation was paid by issuing 764,624 and 550,529
shares of ITI's common stock.
In March 2003, the Company granted 300,000 options to Mr. Woods and
50,000 options to Mr. Racelis with an exercise price of $0.35 per share. During
2003, the Company granted in total, (including the grants to Mr Woods and Mr.
Racelis) 550,000 options for its shares. None of these options had been
exercised at December 31, 2003.
There have been no grants stock appreciation rights, benefits under
long-term incentive plans or other forms of compensation involving our officers,
through December 31, 2003.
We reimburse our officers and directors for reasonable expenses
incurred during the course of their performance. We have not paid our outside
directors fees for their services. However, we propose to pay them in the
future.
Employment Agreements
On March 25, 2003, we entered into employment agreements with Phillip
Allen, our then president and chief executive officer, and Brad Woods, our chief
financial officer, secretary and treasurer. The agreements are identical. Each
is for an initial term of ten years and requires an annual salary of $120,000
for the first year, with a cumulative annual increase of 10% every year
commencing on the first anniversary of the agreement. If employment should
terminate due to death or a disability, the salary then in effect shall continue
for two years from the date of termination. If termination should occur without
cause, including a termination upon a change in control, within four years of
the expiration of the term of the agreement, we are obligated to pay Mr. Allen
or Mr. Woods, as the case may be, an amount equal to his salary in effect during
the last five years of the term of the agreement, within ten business days after
the termination. For the purposes of the agreement, a change of control shall be
deemed to occur upon the election of directors constituting a majority of the
board who have not been nominated or approved by Mr. Allen or Mr. Woods and are
not related to Mr. Allen or Mr. Woods. Each of Mr. Allen and Mr. Woods has
agreed that during the period of his employment and for a period of one year
following his employment, he shall not engage or have an ownership interest of
more than 25% in any business directly competitive with us, or take any action
that constitutes an interference with or a disruption of any of our business
activities.
On August 15, 2003, Mr. Allen resigned as an officer and director of
the Company. Effective August 31, 2003, Mr. Allen and the Company entered into a
Separation and Voting Trust Agreement (the "Separation Agreement"), whereby all
previous agreements with Mr. Allen were cancelled and the Company obtained the
voting rights for his stock, for a period of two years, from the date of the
Agreement. The Agreement required the Company to make $30,000 in payments to Mr.
Allen over a three month period. The Company made payments totaling $15,000 to
Mr. Allen. Further payments to Mr. Allen ceased as we believe he was in
non-compliance with the Separation Agreement.
13
Stock Plan
On January 31, 2003, our shareholders adopted the 2003 Stock Plan,
which provides for the granting of both incentive stock options and nonstatutory
stock options and stock purchase rights to officers, directors, employees, and
independent contractors. The total number of shares of common stock that may be
issued under this plan shall not exceed 15% of shares outstanding.
The board of directors or one or more committees designated by the
board administers this plan, and has the authority and discretion to do the
following:
o determine the fair market value;
o select the employees, directors, or consultants to whom options and
stock purchase rights may be granted;
o determine the number of shares of common stock to be covered by each
option and stock purchase right granted under the Plan;
o approve forms of agreement for use under the Plan;
o determine the terms and conditions of an option or stock purchase
right granted under the Plan;
o construe and interpret the terms of the Plan and awards granted under
the Plan;
o prescribe, amend, and rescind rules and regulations relating to the
Plan;
o modify or amend each option or stock purchase right;
o allow optionees to satisfy withholding tax obligations by electing to
have the company withhold from the shares to be issued upon exercise
of an option or stock purchase right that number of shares having a
fair market value equal to the minimum amount required to be withheld;
o authorize any person to execute on behalf of the company any
instrument required to effect the grant of an option or stock purchase
right; and
o make all other determinations deemed necessary or advisable for
administering the Plan.
We may grant incentive stock options with the exercise price being 100%
of the bid price on the date of grant, and nonstatutory stock options with the
exercise price being not less than 85% of the bid price on the date of grant.
The options are subject to any vesting, special forfeiture conditions, rights of
repurchase, rights of first refusal, and other transfer restrictions as may be
determined by the board or committee. Options granted cannot exceed a term of
ten years, except in the case of incentive stock options granted to holders of
10% of more of our total combined voting power of all classes of stock, which
cannot exceed a term of five years. The options terminate upon the earliest of
(1) the stated expiration date, (2) 30 days after the termination of the
optionee's service for any reason other than total and permanent disability, (3)
six months after the termination of the optionee's service by reason of total
and permanent disability, or (4) six months after the optionee's death.
Unless earlier terminated by the board of directors, this plan will
terminate January 30, 2013.
The following table provides information as to individual grants of
stock options made during the fiscal year 2003 to each of the named executive
officers
-------------------------------------------------------------------------------------------------------
Name Number of Percent of Exercise price Market price Expiration date
securities total options ($/Sh) on the date of
underlying granted to grant ($/Sh)
options employees in
granted (#) fiscal year
-------------------------------------------------------------------------------------------------------
Brad Woods 300,000 54.55% 0.35 0.35 October 31, 2004
-------------------------------------------------------------------------------------------------------
Pete Racelis 50,000 9.09% 0.35 0.35 October 31, 2004
-------------------------------------------------------------------------------------------------------
14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of March 31, 2004:
---------------------------------------------------------------------------------------------------
Amount and Nature of
Name and Address of Beneficial Owner (1) Beneficial Ownership Percent of Class (2)
---------------------------------------------------------------------------------------------------
Brad Woods 1,425,000(3) 4.95%
1746 Cole Boulevard, Suite 225
Golden, Colorado 80401
---------------------------------------------------------------------------------------------------
Phillip Allen 1,964,100 6.78%
7280 Lagae Road Unit F, #130
Castle Rock, Colorado 80108
---------------------------------------------------------------------------------------------------
Henry Zaks 593,750 2.05%
11649 N. Port Washington Rd, Suite 224
Mequon, WI 53092
---------------------------------------------------------------------------------------------------
Dr. Allan Rabinoff 418,750 1.45%
11649 N. Port Washington Rd, Suite 224
Mequon, WI 53092
---------------------------------------------------------------------------------------------------
Pedro E. Racelis III 487,500(3) 1.68%
1746 Cole Boulevard, Suite 225
Golden, Colorado 80241
---------------------------------------------------------------------------------------------------
All officers and Directors as a Group
(Brad Woods, Henry Zaks, Pedro E. Racelis III, 2,925,000 10.10%
and Dr. Allan Rabinoff)
---------------------------------------------------------------------------------------------------
---------------
(1) To our knowledge, except as set forth in the footnotes to this table and
subject to applicable community property laws, each person named in the
table has sole voting and investment power with respect to the shares set
forth opposite such person's name.
(2) This table is based on 28,956,393 shares of Common Stock outstanding as of
March 31, 2004. If a person listed on this table has the right to obtain
additional shares of Common Stock within sixty (60) days from March 31,
2004, the additional shares are deemed to be outstanding for the purpose of
computing the percentage of class owned by such person, but are not deemed
to be outstanding for the purpose of computing the percentage of any other
person.
(3) Includes 300,000 and 50,000 shares issuable upon the exercise of stock
options, for Mr. Woods and Mr. Racelis, respectively.
15
Changes in Control
There are no agreements known to management that may result in a change
of control of our company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as disclosed below, none of our present directors, officers
or principal shareholders, nor any family member of the foregoing, nor, to the
best of our information and belief, any of our former directors, senior officers
or principal shareholders, nor any family member of such former directors,
officers or principal shareholders, has or had any material interest, direct or
indirect, in any transaction, or in any proposed transaction which has
materially affected or will materially affect us.
During the period ended December 31, 2003, we paid amounts to related
parties as follows::
--------------------------------------------------------------------------------
Name Relationship Amount Paid Nature of Payment (a)
--------------------------------------------------------------------------------
Henry Zaks (b) Director $14,600 Consulting fee
--------------------------------------------------------------------------------
Dr. Allan Rabinoff Director $28,290 Consulting fee
--------------------------------------------------------------------------------
(a) Each of the individuals listed in the table received the fees enumerated in
this table prior to each joining our board of directors.
(b) On June 27, 2003 and July 31, 2003, Henry Zaks loaned the Company Eighty
Thousand ($80,000) Dollars and the Company issued a promissory note in such
amount payable to Mr. Zaks in the amount of $80,000. Henry Zaks was
compensated prior to joining the Board as a consultant to review
administration and accounting.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
--------------------------------------------------------------------------------
Regulation
S-B Number Exhibit
--------------------------------------------------------------------------------
2.1 Share Exchange Agreement dated as of March 17, 2003 by and
between i-Track, Inc. and Strategic Communications Partners,
Inc. (1)
--------------------------------------------------------------------------------
3.1 Articles of Incorporation (2)
--------------------------------------------------------------------------------
3.2 Bylaws (2)
--------------------------------------------------------------------------------
3.3 Certificate of Amendment to Articles of Incorporation (3)
--------------------------------------------------------------------------------
10.1 Promissory Note, dated May 27, 2003 in the amount of
$79,600, payable to Buck Krieger
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
10.3 Promissory Note, dated July 31, 2003 in the amount of
20,000, payable to Robert Zappa
--------------------------------------------------------------------------------
10.4 2003 Stock Plan, as amended
--------------------------------------------------------------------------------
16
--------------------------------------------------------------------------------
Regulation
S-B Number Exhibit
--------------------------------------------------------------------------------
10.5 Investment Contract between Goldvision Technologies Ltd and
SCP dated December 18, 2003. This contract was previously
filed with form 10-K dated April 7, 2002.
--------------------------------------------------------------------------------
10.6 Extension Agreement to Investment Contract between
Goldvision Technologies Ltd. and the Company dated August 5,
2003.
--------------------------------------------------------------------------------
10.7 Employment Agreement dated March 25, 2003 with Phillip Allen
--------------------------------------------------------------------------------
10.8 Employment Agreement dated March 25, 2003 with Brad A. Woods
--------------------------------------------------------------------------------
10.9 Separation & Voting Trust Agreement with Philip Allen
--------------------------------------------------------------------------------
10.10 Agreement between the Company and Bellador Advisory
Services, Ltd. dated October 22, 2003.
--------------------------------------------------------------------------------
10.11 Agreement between the Company and China Netcom Group Beijing
Company dated September 1, 2003
--------------------------------------------------------------------------------
10.12 Agreement between the Company and MCI International Ltd. Co.
dated August 14, 2003.
--------------------------------------------------------------------------------
16.2 Letter from Edwards, Melton, Ellis, Koshiw & Company, P.C.
dated January 20, 2003 (4)
--------------------------------------------------------------------------------
16.3 Letter from the Rehmann Group, dated February 19, 2003 (5)
--------------------------------------------------------------------------------
16.4 Letter from Moores Rowland, dated May 14, 2003. (6)
--------------------------------------------------------------------------------
21 Subsidiaries of the registrant
--------------------------------------------------------------------------------
31.1 Certification Pursuant to Rule 13A-14 or 15D-14 of the
Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
32.1 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.
(2) Incorporated by reference from the exhibits to the Registration Statement
on Form SB-1 filed on November 6, 2000, File No. 333-49388.
(3) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated March 22, 2003.
(4) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated January 20, 2003.
(5) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated February 19, 2003.
(6) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated May 14, 2003.
17
(b) Reports on Form 8-K:
We filed a report on Form 8-K dated October 10, 2003, reporting under
Item 5. No financial statements were required to be filed with the report.
We filed a report on Form 8-K,dated December 3, 2003 reporting under
Item 5. No financial statements were required to be filed with the report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Moores Rowland Mazars served as our principal accountant. We paid
Moores Rowland Mazars $29,560 in 2003, in connection with our annual audit and
to review our quarterly filings made on form 10-QSB during fiscal 2003. Moores
Rowland Mazars was not paid by us to perform any other services.
18
Audited Financial Statements
China Wireless Communications, Inc.
(A Development Stage Company)
Year ended December 31, 2003
Report of Independent Auditors
To the Board of Directors and Stockholders of
China Wireless Communications, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of China Wireless
Communications, Inc. (a development stage company) (the "Company") and
subsidiaries as of December 31, 2003 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
2003 and for the period from August 13, 2002 (inception) to December 31, 2002
and the amounts included in the consolidated cumulative period from August 13,
2002 (inception) through December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiaries as of December 31, 2003 and the results of their operations and
cash flows for the year ended December 31, 2003 and for the period from August
13, 2002 (inception) to December 31, 2002 and the amounts included in the
consolidated cumulative period from August 13, 2002 (inception) through December
31, 2003, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has suffered losses from operations and has a
negative working capital that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
described in note 2 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Moores Rowland Mazars
Chartered Accountants
Certified Public Accountants
Hong Kong
Date: April 13, 2004
F-1
China Wireless Communications, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
================================================================================
Period from Period from
August 13, August 13,
2002 2002
(inception) Year ended (inception) to
to December December December
31, 2003 31, 2003 31, 2002
Note US$ US$ US$
------------ ------------ ------------
Operating revenue
Service revenue 3(d) 35,372 35,372 --
Cost of services (24,938) (24,938) --
------------ ------------ ------------
Gross profit 10,434 10,434 --
------------ ------------ ------------
Operating expenses
Depreciation expenses 19,032 19,032 --
General and administrative expenses 4,526,282 3,510,800 1,015,482
------------ ------------ ------------
Total operating expenses 4,545,314 3,529,832 1,015,482
------------ ------------ ------------
Loss from operations (4,534,880) (3,519,398) (1,015,482)
Non-operating income (expenses)
Interest income 803 484 319
Other income 339 175 164
Interest expenses (17,328) (17,328) --
------------ ------------ ------------
Loss before income taxes (4,551,066) (3,536,067) (1,014,999)
Income taxes 4 -- -- --
------------ ------------ ------------
Net loss (4,551,066) (3,536,067) (1,014,999)
============ ============ ============
Net loss per share of common stock:
Basic (0.203) (0.156) (0.047)
============ ============ ============
Weighted average number of shares of
common stock outstanding
(in thousands) 22,388 22,732 21,500
============ ============ ============
The financial statements should be read in conjunction with the accompanying
notes
--------------------------------------------------------------------------------
F-2
China Wireless Communications, Inc.
(A Development Stage Company)
Consolidated Balance Sheet
================================================================================
As of
December
31, 2003
ASSETS Note US$
------------
Current assets
Cash and cash equivalents 3,806
Pledged deposits 22,197
Prepayments and other receivables 5 201,631
------------
Total current assets 227,634
Property, plant and equipment, net 6 400,239
------------
Total assets 627,873
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft 6,609
Trade and other payables 7 325,783
Loans 8 367,921
Notes payable 9 179,600
Convertible debts 10 41,000
------------
Total liabilities 920,913
------------
Commitments and contingencies
Stockholders' deficit
Preferred stock, par value US$0.01 each
1,000,000 shares of stock authorized, none issued
and outstanding
Common stock, par value US$0.001 each,
50,000,000 shares of stock authorized,
26,213,953 shares of stock issued and outstanding 26,214
Additional paid-in capital 4,231,812
Accumulated deficit (4,551,066)
------------
Total stockholders' deficit (293,040)
------------
Total liabilities and stockholders' deficit 627,873
============
The financial statements should be read in conjunction with the accompanying
notes
--------------------------------------------------------------------------------
F-3
China Wireless Communications, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
================================================================================
Common stock Additional
--------------------------- paid-in Accumulated
Number Amount capital deficit Total
US$ US$ US$ US$
------------ ------------ ------------ ------------ ------------
As of August 13, 2002 -
inception (Note) 21,500,000 21,500 2,353,850 -- 2,375,350
Net loss for the period -- -- -- (1,014,999) (1,014,999)
------------ ------------ ------------ ------------ ------------
As of December 31, 2002 21,500,000 21,500 2,353,850 (1,014,999) 1,360,351
Common stock issued for
services at prices ranging
from $0.25 to $0.72 per
share 3,293,751 3,294 1,456,878 -- 1,460,172
Common stock issued for cash
at prices ranging from $0.50
to $0.80 per share, net of
issuance costs of $491,949 1,420,202 1,420 421,084 -- 422,504
Net loss for the year -- -- -- (3,536,067) (3,536,067)
------------ ------------ ------------ ------------ ------------
Balance as of December
31, 2003 26,213,953 26,214 4,231,812 (4,551,066) (293,040)
============ ============ ============ ============ ============
Note: The common stock issued and outstanding at inception represents shares
in issue immediately after the reverse acquisition of Strategic
Communications Partners, Inc. ("SCP") on March 22, 2003, assuming that
the capital structure had already been in existence since August 13,
2002. Details of the reverse acquisition are set out in note 1 to the
financial statements.
The financial statements should be read in conjunction with the accompanying
notes
--------------------------------------------------------------------------------
F-4
China Wireless Communications, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
================================================================================
Period from Period from
August 13, August 13,
2002 2002
(inception) to Year ended (inception) to
December 31, December 31, December 31,
2003 2003 2002
US$ US$ US$
------------ ------------ ------------
Cash flows from operating activities
Net loss (4,551,066) (3,536,067) (1,014,999)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 19,032 19,032 --
Common stocks issued for compensation 3,134,954 2,325,604 809,350
Changes in working capital:
Prepayments and other receivables (201,631) (201,631) --
Trade and other payables 325,783 255,008 70,775
------------ ------------ ------------
Net cash used in operating activities (1,272,928) (1,138,054) (134,874)
------------ ------------ ------------
Cash flows from investing activities
Acquisition of property, plant and equipment (419,271) (419,271) --
Increase in pledged deposits (22,197) (22,197) --
Repayment from (Advance to) a related party -- 60,000 (60,000)
------------ ------------ ------------
Net cash used in investing activities (441,468) (381,468) (60,000)
------------ ------------ ------------
Net cash provided by financing activities
Net proceeds from issuance of common stock 1,123,072 755,122 367,950
Inception of loans 367,921 367,921 --
Proceeds from issuance of notes payable 322,000 275,000 47,000
Repayment of notes payable (142,400) (119,900) (22,500)
Proceeds from issuance of convertible notes 41,000 41,000 --
------------ ------------ ------------
Net cash provided by financing activities 1,711,593 1,319,143 392,450
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (2,803) (200,379) 197,576
Cash and cash equivalents, as of beginning
of the period / year -- 197,576 --
------------ ------------ ------------
Cash and cash equivalents, as of end of the period / year (2,803) (2,803) 197,576
============ ============ ============
Analysis of balances of cash and cash equivalents
Bank balances 3,806 3,806 197,576
Bank overdraft (6,609) (6,609) --
------------ ------------ ------------
(2,803) (2,803) 197,576
============ ============ ============
Supplemental disclosure of cash flow information
Interest paid 17,328 17,328 --
============ ============ ============
Non-cash operating, investing and financing activities
Common stocks issued for compensation by SCP (Note 12) 1,674,782 865,432 809,350
Common stocks issued for compensation
by the Company (Note 12) 1,460,172 1,460,172 --
------------ ------------ ------------
3,134,954 2,325,604 809,350
============ ============ ============
The financial statements should be read in conjunction with the accompanying
notes
--------------------------------------------------------------------------------
F-5
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
i-Track., Inc. (the "Company") was incorporated under the laws of the
State of Nevada on March 8, 1999. On March 21, 2003, the Company
entered into an "Assignment and Assumption Agreement" with a related
entity whereby the Company distributed to the related entity all its
assets and the related entity assumed all liabilities of the Company.
Accordingly, as of March 21, 2003, the Company entirely ceased its
prior business operations.
As of December 31, 2002, the condensed financial statements of i-Track,
Inc. were:
Condensed Balance Sheet Condensed Statement of Operations
------------------------------------------- -------------------------------------------
As of Year ended
December December
31, 2002 31, 2002
US$ US$
---------- ----------
Cash 778 Sales 301,750
----------
Cost of sales (250,635)
----------
Total assets 778
==========
Gross profit 51,115
Administrative and selling
expenses (84,697)
Management and other
Current liabilities 294,812 fees to stockholders (258,000)
----------
Common stock 1,185
Additional paid-in capital 1,367,610 Net loss (291,582)
==========
Accumulated deficit (1,661,484)
Weighted average number
Due from related companies (1,345) of shares 1,184,847
---------- ==========
Total liabilities and Net loss per common
stockholders' deficit 778 share (0.25)
========== ==========
Pursuant to a share exchange agreement effective on March 22, 2003, the
Company acquired SCP, a Wyoming corporation incorporated on August 13,
2002, by issuance of 19,000,000 restricted shares of the Company's
common stock to the shareholders of SCP, resulting in the SCP
shareholders as a group owning approximately 88.4% of the outstanding
shares of common stock of the Company. As a result, SCP became a
wholly-owned subsidiary of the Company.
The financial statements should be read in conjunction with the accompanying
notes
--------------------------------------------------------------------------------
F-6
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
For financial reporting purposes, the acquisition of SCP by the Company
has been treated as a reverse acquisition whereby SCP is considered as
the acquirer, i.e. the surviving entity, for financial reporting
purposes. On this basis, the historical financial statements prior to
March 22, 2003 represent the financial statements of SCP. The
historical shareholders' equity accounts of the Company have been
retroactively restated to reflect the issuance of 19,000,000 shares of
common stock since inception of SCP plus the original 2,500,000 shares
of common stock of the Company just before the reverse acquisition,
with corresponding adjustments to additional paid-in capital.
On March 24, 2003, the Company's name was changed to China Wireless
Communications, Inc. Its principal activities are to manage and
administrate its subsidiaries. The details of its subsidiaries and
their principal activities are listed out in the following paragraph.
The Company is in the development stage and has not yet generated
significant revenue from the planned principal operations.
Date of Equity interest
acquisition / Place of owned by the Principal
Name of company formation incorporation Company activities
Direct Indirect
SCP August 13, Wyoming, the 100% -- Investment holding
2002 United States
Strategic December 9, Hong Kong -- 100% Investment holding
Communications 2002
Partners Limited
Beijing In-Touch March 4, People's Republic -- 100% Telecommunica-
Information System Co. 2003 of China ("PRC") tion
Ltd. ("In-Touch") services
--------------------------------------------------------------------------------
F-7
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
2. BASIS OF PRESENTATION
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America ("USGAAP").
The Company is in the development stage and has incurred losses of
US$4,551,066 since inception. In addition, the Company had a negative
working capital of US$693,279 as of December 31, 2003. These conditions
raise substantial doubt about the Company's ability to continue as a
going concern. The Company plans to expand its network infrastructure
in Beijing, the PRC. The Beijing network will begin generating cash
flow in the second calendar quarter of 2004. The Company also plans to
initiate the design and installation phases of a similar network in at
least one other city in the PRC in 2004. The Company will emphasize its
high-speed wireless broad-band services, alongside its value added
products and services. The Company is working with several funding
sources, both in the United States and in Asia, to assist it in raising
sufficient capital to execute its business plan this year. The Company
is looking to acquire more capital through a variety of instruments,
including convertible preferred stock, convertible notes and private
equity investments. 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 is no
assurance that the Company will be able to raise the capital required
for its operations or to execute its business strategy. The inability
of the Company to raise the required capital or implement its business
strategy successfully could adversely impact the Company's business and
prospects.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of accounting
The financial statements have been prepared under the
historical cost convention. Cost in relation to assets
represents the cash paid or the fair value of the assets, as
appropriate.
(b) Principles of consolidation
The consolidated financial statements include the financial
information of the Company and its subsidiaries. The results
of subsidiaries acquired or disposed of during the period are
consolidated from or to their effective dates of acquisition
or disposal respectively.
All material intercompany balances and transactions have been
eliminated on consolidation.
(c) Subsidiary
A subsidiary is an affiliate controlled by the Company
directly, or indirectly through one or more intermediaries.
The term control (including the terms controlling, controlled
by and under common control with) means the possession, direct
or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting shares, by contract, or otherwise.
--------------------------------------------------------------------------------
F-8
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) 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 basis.
Service revenue is recognized in the period when services are
rendered.
(e) Income taxes
Provision for income and other related taxes have been
provided in accordance with the tax rates and lows in effect
in various countries of operations.
Deferred taxes are provided using the liability method for all
significant temporary differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases and net operating loss carry
forwards. The tax consequences of those differences are
classified as current or non-current based on the
classification of the related assets or liabilities in the
financial statements.
(f) Operating leases
Leases where substantially all of the rewards and risks of
ownership of assets remain with the leasing company are
accounted for as operating leases. Rentals payable under
operating leases are recorded in the statement of operations
on a straight-line basis over the lease term.
(g) Earnings (Loss) per share
Basic earnings (loss) per common share are computed by
dividing earnings (loss) available to common stockholders by
the weighted average number of common shares outstanding for
the periods.
The calculation of diluted earnings (loss) per share is based
on earnings (loss) available to common shareholders and on the
weighted average number of common shares outstanding adjusted
to reflect potentially dilutive securities. As of December 31,
2003, 2,379,000 shares in total could be issued pursuant to
the convertible debts, stock warrants and stock options of the
Company. No diluted loss per share is presented because their
effects would be anti-dilutive.
(h) Related parties
Parties are considered to be related if one party has the
ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making
financial and operating decisions. Parties are also considered
to be related if they are subject to common control or common
significant influence.
--------------------------------------------------------------------------------
F-9
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Foreign currencies
Transactions in currencies other than functional currencies
during the period are translated into the respective
functional currencies at the applicable rates of exchange
prevailing at the time of the transactions. Monetary assets
and liabilities denominated in currencies other than
functional currencies are translated into respective
functional currencies at the applicable rates of exchange in
effect at the balance sheet date. Exchange gains and losses
are dealt with in the statement of operations.
On consolidation, assets and liabilities of subsidiaries
denominated in respective functional currencies are translated
into United States Dollars at the exchange rate as of the
balance sheet date. The share capital and retained earnings
are translated at exchange rates prevailing at the time of the
transactions. Revenues, costs and expenses denominated in
respective functional currencies are translated into United
States Dollars at the weighted average exchange rate for the
period. The effects of foreign currencies translation
adjustments are included as a separate component of
accumulated other comprehensive income.
(j) Use of estimates
The preparation of financial statements in conformity with
USGAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Such
estimates include but not limited to depreciation, taxes and
contingencies. Actual results could differ from those
estimates.
(k) Fair value of financial instruments
The estimated fair values for financial instruments under SFAS
No. 107, "Disclosures about Fair Value of Financial
Instruments", are determined at discrete points in time based
on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The
estimated fair values of the Company's financial instruments,
which include cash, accounts payable, loans, notes payable and
convertible debts, approximate their carrying values in the
financial statements.
(l) Cash and cash equivalents
Cash equivalents include all highly liquid investments,
generally with original maturities of three months or less
that are readily convertible to known amount of cash and which
are subject to an insignificant risk of changes in value.
--------------------------------------------------------------------------------
F-10
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) Property, plant and equipment and depreciation
Property, plant and equipment are recorded at cost less
accumulated depreciation and impairment. Repairs and
maintenance expenditures, which are not considered
improvements and do not extend the useful life of property,
plant and equipment, are expensed as incurred. The cost and
related accumulated depreciation applicable to property, plant
and equipment sold or no longer in service are eliminated from
the accounts and any gain or loss is included in statement of
operations.
When assets are sold or retired, their costs and accumulated
depreciation are eliminated from the accounts and any gain or
loss resulting from their disposal is included in the
statement of operations.
Depreciation is calculated to write off the cost of property,
plant and equipment over their estimated useful lives from the
date on which they become fully operational and after taking
into account of their estimated residual values, using the
straight-line method, at the following rates per annum:
Leasehold improvement 20%
Telecommunication equipment 20%
Furniture and fixture 20%
Office equipment 20% - 33.33%
No depreciation is provided in respect of construction in
progress until it is completed and put into commercial
operation.
The Company recognizes an impairment loss on property, plant
and equipment when evidence, such as the sum of expected
future cash flows (undiscounted and without interest charges),
indicates that future operations will not produce sufficient
revenue to cover the related future costs, including
depreciation, and when the carrying amount of asset cannot be
realized through sale. Measurement of the impairment loss is
based on the fair value of the assets.
(n) Stock-based compensation
The Company records compensation expense for stock-based
employee compensation plans using the intrinsic value method
in which compensation expense, if any, is measured as the
excess of the market price of the stock over the exercise
price of the award on the measurement date.
On March 22, 2003, the Company granted options to subscribe
for shares of the Company to its directors and officers
("Options I"). The option period commenced on the effective
date of grant and will expire on October 31, 2004. The options
were granted at an exercise price of US$0.35 per share, which
is the market price on the grant date. As of December 31,
2003, 450,000 options were outstanding and no option has been
exercised during the year ended December 31, 2003.
--------------------------------------------------------------------------------
F-11
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Stock-based compensation (Continued)
On July 7, 2003, the Company granted options to subscribe for
shares of the Company to its employees ("Options II"). The
option period commenced on October 1, 2004 and will expire
three years after such date. The options were granted at an
exercise price of US$0.41 per share, which approximates the
market price on the grant date. As of December 31, 2003,
100,000 options were outstanding and no option has been
exercised during the year ended December 31, 2003.
As the exercise prices of the Company's stock options are
either the same as or approximate to the market prices of the
underlying stock on the grant dates, no compensation expense
has been recognized for stock options pursuant to APB Opinion
No. 25.
Had compensation expenses for the same stock options been
determined based on their fair values at the dates of grant
and been amortized over the period from the date of grant to
the date that the award is vested, consistent with the
provisions of SFAS No. 123, the Company's net loss and loss
per share would have been reported as follows:
Period from Period from
August 13, August 13,
2002 2002
(inception) to Year ended (inception) to
December 31, December 31, December 31,
2003 2003 2002
------------ ------------ ------------
Net loss
As reported (4,551,066) (3,536,067) (1,014,999)
Total stock-based compensation
expenses (55,437) (55,437) --
------------ ------------ ------------
Pro forma (4,606,503) (3,591,504) (1,014,999)
============ ============ ============
Basic net loss per share
As reported (0.203) (0.156) (0.047)
============ ============ ============
Pro forma (0.206) (0.158) (0.047)
============ ============ ============
--------------------------------------------------------------------------------
F-12
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Stock-based compensation (Continued)
Options I and Options II have fair values of US$0.1041 and
US$0.2148 respectively. The estimated fair value of Options II
has been amortized to expenses over the options' vesting
period. Because the determination of the fair value of all
options granted includes an expected volatility factor, the
above pro forma disclosures are not representative of pro
forma effects for future years. The fair values of the options
have been calculated using the Black-Scholes option pricing
model with the following assumptions:
Options I Options II
------------ ------------
Expected volatility 58% 58%
Risk-free interest rate 1.80% 1.76%
Contractual life 1.61 years 3.24 years
============ ============
(o) New accounting pronouncements
There are no new accounting pronouncements for which adoption
is expected to have a material effect on the Company's
financial statements.
4. INCOME TAXES
The Company is subject to income taxes on an entity basis on income
arising in or derived from the tax jurisdiction in which it is
domiciled and operates. As the Company is in the development stage and
has incurred losses since inception, there is no current provision for
income taxes.
A reconciliation of the Company's effective tax rate to the statutory
rate in the United States is as follows:
Period from
August 13, 2002
Year Ended (inception) to
December 31, December 31,
2003 2002
---------- ---------------
United States statutory rate 34.0% 34.0%
State taxes, net of Federal benefits 3.3% 3.3%
---------- ----------
Statutory rate 37.3% 37.3%
Effect of different tax rates of companies
operating in other jurisdiction (1.0%) --
Non-deductible expenses (0.2%) --
Valuation allowance for deferred tax assets
(Note (a)) (31.0%) (37.3%)
Effect of tax holidays (Note (b)) (5.1%) --
---------- ----------
-- --
========== ==========
--------------------------------------------------------------------------------
F-13
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
4. INCOME TAXES (CONTINUED)
(a) The Company's and SCP's operating losses carry forwards amounted
to a total of US$323,000 (2002: HK$43,000) will expire after
twenty years from the year of the losses were incurred unless
utilized. Additionally, the ability to recognize the benefit
from the net operating loss carry forwards of the Company and
SCP could be limited under Section 382 of the Internal Revenue
Code if ownership of the Company changes by more than 50%, as
defined. As a result, the income tax benefit of the net
operating loss carry forwards has not been recognized.
(b) At present, all of the Company's income is generated in the PRC
by In-Touch. In-Touch, being a hi-tech enterprise, is exempted
from the PRC enterprise income tax from 2003 to 2005, followed
by a 50% reduction for the next three years. Under current PRC
tax laws, In-Touch's losses of US$545,000 (2002: US$-) will
expire after five years.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The significant components of the Company's deferred tax
assets are as follows:
2003
US$
-----------
Net operating loss carry forward 120,000
Start-up and costs capitalized for tax purposes 1,351,000
-----------
Total deferred tax assets 1,471,000
Valuation allowance for deferred tax assets (1,471,000)
-----------
Net deferred taxes --
===========
5. PREPAYMENTS AND OTHER RECEIVABLES
2003
US$
-----------
Prepaid expenses 9,160
Deposits 43,049
Advances to employees 977
Advances to related parties (Note 11(c)) 75,274
Other receivables 73,171
-----------
201,631
===========
--------------------------------------------------------------------------------
F-14
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of:
2003
US$
-----------
Leasehold improvement 66,119
Telecommunication equipment 45,652
Furniture and fixture 17,154
Office equipment 70,943
Construction in progress 219,403
-----------
Cost 419,271
Less: Accumulated depreciation (19,032)
-----------
Property, plant and equipment, net 400,239
===========
7. TRADE AND OTHER PAYABLES
2003
US$
-----------
Trade payables 180
Accrued expenses 198,943
Other payables 126,660
-----------
325,783
===========
8. LOANS
The loans are advanced by a shareholder, Peter Fisher, and his related
companies, which are unsecured, interest-free and have no fixed
repayment terms.
--------------------------------------------------------------------------------
F-15
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
9. NOTES PAYABLE
The notes payable are unsecured and bear interest at 9% per annum.
Other details are set out below.
Amount as
of
Original December
Holder Issue date Maturity date amount Repayment 31, 2003
US$ US$ US$
Buck Krieger September 17, February 28,
2002 2003 50,000
January 21, February 28,
2003 2003 50,000
May 21, 2003 August 30, 2003 40,000
May 21, 2003 August 30, 2003 35,000
-----------
175,000 (95,400) 79,600
===========
Gerdz Inv. RLLLP July 31, 2003 September 30, -- 20,000
2003 20,000
-----------
Henry Zaks * June 27, 2003 September 30,
2003 50,000
July 31, 2003 September 30,
2003 30,000
-----------
80,000 -- 80,000
----------- ----------- -----------
275,000 (95,400) 179,600
=========== =========== ===========
The Company is in default on all of its notes payable. The Company is
working with the noteholders to satisfy these outstanding obligations.
It is exploring the conversion of the amounts due with interests into
common stock of the Company, where possible.
* Henry Zaks is a director of the Company.
--------------------------------------------------------------------------------
F-16
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
10. CONVERTIBLE DEBTS
The convertible debts are unsecured and bear interest at 8% per annum.
The conversions are at the option of the Company and the conversion
prices approximate the market values of the Company's shares at the
issue dates. Other details are set out below.
Holder Issue date Maturity date Convertible price Amount
US$ US$
Thomas Vickers April 23, 2003 April 23, 2004 Principal at US$0.40, 11,000
interest at US$0.55
Robert Johnson June 11, 2003 June 11, 2004 Principal and interest 30,000
at US$0.25
--------
41,000
========
11. RELATED PARTY TRANSACTIONS
In addition to the transactions / information disclosed elsewhere in
these financial statements, the Company had the following transactions
with related parties.
(a) Name and relationship of related parties
Name Existing relationships with the Company
---- ---------------------------------------
Brad Woods Shareholder, Chairman of the Board of
Directors, Interim President & Chief
Executive Officer, Chief Financial
Controller
Kent Lam Shareholder of the Company and
President of In-Touch
Train Top Investment &
Trading Ltd. ("Train Top") A company beneficially owned and
controlled by Kent Lam
Dr. Allan Rabinoff Shareholder and director of the Company
Henry Zaks Shareholder and director of the Company
Pete Racelis Shareholder and Vice President of the
Company
Blake Ratcliff Shareholder of the Company and former
Chief Operating Officer of SCP
Phillip Allen Shareholder of the Company and former
Chief Executive Officer of SCP
--------------------------------------------------------------------------------
F-17
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
11. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Summary of related party transactions
Period from
August 13, 2002
Year Ended (inception) to
December 31, December 31,
2003 2002
US$ US$
------------ ------------
Renumeration and consulting fees paid to:
Brad Woods 169,055 12,500
Train Top 198,112 --
Dr. Allan Rabinoff 28,290 --
Henry Zaks 14,600 --
Pete Racelis 75,870 --
Blake Ratcliff 21,874 52,500
Phillip Allen 107,434 22,500
============ ============
(c) Advances to related parties
2003
US$
------------
Advances to Brad Woods 295
Advances to Train Top 74,979
------------
75,274
============
12. STOCK-BASED COMPENSATION
During the year and before the reverse acquisition as detailed in note
1 to the financial statements, SCP gave 1,840,600 shares of its common
stock as compensation in lieu of cash. The amount of US$865,432 (2002:
US$809,350) has been included in "General and administrative expenses"
in the consolidated statements of operations.
After the reverse acquisition, the Company issued 3,293,751 shares of
its common stock as compensation in lieu of cash. The amount of
US$1,460,172 has been included in "General and administrative expenses"
in the consolidated statements of operations.
--------------------------------------------------------------------------------
F-18
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
13. COMMITMENTS AND CONTINGENCIES
The Company leases certain staff quarters and offices premises under
non-cancellable operating leases. Rental expenses under operating
leases was US$121,406 for the year ended December 31, 2003 (2002:
US$-).
Future minimum rental payments under non-cancellable operating leases
are approximately as follows:
2003
US$
------------
Year ending December 31,
2004 123,808
2005 36,808
2006 6,135
------------
Total future minimum lease payments 166,751
============
14. EMPLOYEE RETIREMENT BENEFIT PLANS
As stipulated by the rules and regulations in the PRC, the Company is
required to contribute to a state-sponsored social insurance plan for
all of its employees who are residents of PRC at a rate of 20% on an
agreed amount with each of its employee, subject to limits set out by
the PRC government. The Company has no further obligations for the
actual pension payments or post-retirement benefits beyond the annual
contributions. The state sponsored retirement plan is responsible for
the entire pension obligations payable to all employees.
The pension expense for the year ended December 31, 2003 was US$13,981
(2002: US$-).
15. REPORT ON SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", in respect of its operating
segments. The Company's income is substantially derived from the
operation in a single business segment which is the provision of
broadband data, video and voice communications services. In addition,
the Company's services are only provided to customers in the PRC.
Therefore, no geographical segment information is presented.
--------------------------------------------------------------------------------
F-19
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
16. OPERATING RISKS
(a) Country risks
The Company may be exposed to the risks as a result of its
operations being carried out in the PRC. These include risks
associated with, among others, the political, economic and legal
environmental and foreign currency exchange. The Company's
results may be adversely affected by change in the political and
social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things. The Company's
management does not believe these risks to be significant. There
can be no assurance, however, those changes in political and
other conditions will not result in any adverse impact.
(b) Cash balances
The Company maintains its cash balances with various banks and
trust companies located in the PRC. In common with local
practice, such amounts are not insured or otherwise protected
should the amounts placed with the banks and trust companies be
non-recoverable. There has been no history of credit losses in
these regards and there are neither material commitment fees nor
compensating balance requirements for all outstanding loans of
the Company.
(c) Concentration of credit risk
For the year ended December 31, 2003, 5 customers accounted for
30.1%, 14.9%, 11.7%, 10.6% and 10.2% of total operating revenue
of the Company respectively. No other customer accounted for
more than 10% of total operating revenue of the Company for the
year ended December 31, 2003. The Company had no accounts
receivable as of December 31, 2003.
Credit risk represents the accounting loss that would be
recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit
risk (whether on or off balance sheet) that arise from financial
instruments exist for groups of customers or counterparties when
there are similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions. The major
concentration of credit risk arises from the Company's
receivables. Even though the Company does have major customers,
it does not consider itself be exposed to significant credit
risk with regards to collection of the related receivables.
--------------------------------------------------------------------------------
F-20
China Wireless Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
Year ended December 31, 2003
================================================================================
17. STOCK WARRANTS
During the period ended December 31, 2002, SCP issued 670,000 warrants
to non-employees and none of the warrants has been exercised. Upon the
reverse acquisition as detailed in note 1 to the financial statements,
those warrants were converted into warrants of the Company at a ratio
of 1 to 2.5. As a result, the non-employee warrants of the Company
outstanding as of December 31, 2003 were 1,675,000. These warrants are
exercisable until and prior to August 15, 2005. Each warrant entitles
its holder to purchase one share of the Company's common stock, as
follows: the purchase price of one share of common stock shall be equal
to: US$1 if exercised on or before 5:00 p.m. Colorado time on August
15, 2003; US$2 if exercised on or before 5:00 p.m. Colorado time on
August 15, 2004; and US$3 if exercised on or before 5:00 p.m. Colorado
time on August 15, 2005.
18. POST BALANCE SHEET EVENTS
On January 1, 2004, the Company signed a contract with China Satellite
Communication Corporation Beijing Branch ("China Satellite"). According
to this agreement, the Company will provide broadband access service
and technical support to China Satellite.
The Board of Directors of the Company appointed Dr. Allan Rabinoff as a
board member effective from February 24, 2004.
On February 25, 2004, the Company signed a cooperative agreement with
Datang Gohigh Networks Technology Corporation ("Datang Gohigh"). Under
this agreement, Datang Gohigh will provide network system design,
integration, installation, and technical support to the Company for the
Company's construction of Metropolitan Broadband Access Network in
Beijing City. Datang Gohigh will also provide lease financing for the
Company's capital expenditures on its wireless broadband network. On
March 19, 2004, the Company completed its first equipment lease
arrangement for an amount of $344,867 for its network system.
--------------------------------------------------------------------------------
F-21
SIGNATURES
In accordance with Section 13 or 15(d) 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.
Date: April 14, 2004 By: /s/ BRAD WOODS
-------------------------------------------------
Brad Woods
Interim President (Principal Executive Officer)
and Chief Financial Officer (Principal Financial
and Accounting Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ BRAD WOODS Interim President (Principal April 14, 2004
----------------------- Executive Officer) and Chief
Brad Woods Financial Officer (Principal
Financial and Accounting Officer)
/s/ HENRY ZAKS Director April 14, 2004
-----------------------
Henry Zaks
/s/ ALLAN RABINOFF Director April 14, 2004
-----------------------
Allan Rabinoff