NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment, net consists of:
|
|
March
31,
|
|
December
31,
|
|
|
2007
|
|
2006
|
|
|
|
|
|
Equipment
|
$
|
36,913
|
$
|
36,913
|
Library
|
|
12,816
|
|
12,816
|
Furniture
|
|
12,842
|
|
12,842
|
Total
|
|
62,571
|
|
62,571
|
Less
: Accumlated depreciation
|
|
(52,070)
|
|
(51,442)
|
Net
book value
|
$
|
10,501
|
$
|
11,129
|
The
depreciation expense charged to continuing operations for the three
months ended
March 31, 2007 and 2006 were $628 and $602, respectively.
NOTE
4 - BEIJING TOPBIZ TECHNOLOGY DEVELOPMENT CORP., INC.
On
August
8, 2006, the Company subsidiary Infornet HK and Mr. Xin Wei, a citizen
and
resident of the PRC and President of a subsidiary of the Company (“Wei”)
(Infornet HK and Wei together being referred to as the “Purchasers”), QiFang Niu
and XiaoXia Chen, both citizens and residents of the PRC (together
being
referred to as the “Sellers”) and Beijing Topbiz Technology Development Corp.,
Ltd. (“Topbiz”), a company organized and existing under the laws of the PRC,
entered into a Share Purchase Agreement (the “Agreement”) providing for the
acquisition by the Purchasers of control of Topbiz from the Sellers.
Under
the
Agreement, Infornet HK was to directly acquire 49% of the capital stock
of
Topbiz, and indirectly acquire control through Mr. Wei of an additional
11% of
Topbiz, giving it effective control of 60% of Topbiz. Infornet HK was
to pay the
Sellers on a pro rata basis US$3,700,000 in cash ($950,000 on August
8, 2006,
$1,350,000 on November 8, 2006, and $1,400,000 on February 8, 2006)
and issue to
them on a pro rata basis 8,081,818 new investment shares in an offering
which is
intended to be exempt from registration pursuant to Regulation S under
the
Securities Act of 1933, as amended. This acquisition structure was
chosen to
comply with China's foreign ownership rules which permit the Company,
at this
point in time, to have a direct ownership stake in Topbiz of up to
49%. Mr. Wei
has agreed to execute and deliver to Infornet a Stock Option Agreement
in the
form and substance satisfactory to Infornet, which grants Infornet,
among other
things, the option to purchase his 11% ownership stake that he will
acquire
under the Agreement for an aggregate price of $100, upon the satisfaction
of
certain conditions precedent.
Infornet
HK paid a $950,000 deposit to the Sellers on August 8, 2006 in contemplation
of
closing of the acquisition. Infornet HK has not made any additional
payments to
the Sellers. Due to the matters described in Note 2, the Company presently
does
not have sufficient cash to make the remaining payments of $2,750,000
required
under the Agreement. Accordingly, the Company believes that the $950,000
may not
be recoverable and recorded an impairment charge of $900,000 at December
31,
2006 to reduce the carrying cost of the deposit from $950,000 to
$50,000.
Topbiz
develops and customizes short messaging system, or SMS, platforms for
banks in
China. The 8,081,818 shares issued in connection with the acquisition
were to be
subject to a one-year restriction on transfer to a U.S. person pursuant
to
Regulation S.
NOTE
5 - CONVERTIBLE DEBENTURES
On
August
15, 2005, the Company completed an offering of 134 units ("Units")
for
$3,350,000. Each Unit was sold for $25,000, consisting of $25,000 principal
amount of senior convertible debentures (the "Debentures"), and one
new Series
“A” Warrant and one new Series “B” Warrant. The Debentures were initially
convertible at $0.35 per share for 71,429 shares of common stock of
the Company;
maturing on August 15, 2006 and accruing interest at a rate of not
less than 6%
per annum equal to the sum of 2% per annum plus the one-month London
Inter-Bank
Offer Rate (“LIBOR”). The Debentures are subject to redemption at 125% of the
principal amount plus accrued interest commencing six months after
August 7,
2006.
Each
Unit
also included: (i) new Series “A” Warrants exercisable at $0.44 per share to
purchase 71,429 shares of Common Stock of the Company until February
15, 2008;
and (ii) new Series “B” Warrants exercisable at $0.52 per share to purchase
71,429 shares of Common Stock until February 15, 2009. The new Series
“A” and
new Series “B” Warrants are subject to redemption by the Company at $0.001 per
Warrant at any time commencing six months and twelve months, respectively,
from
August 7, 2006, provided the average closing bid price of the common
stock of
the Company equals or exceeds 175% of the respective exercise prices
for 20
consecutive trading days.
On
January 18, 2006, the Company received a letter (the “Default Notice”) from
the attorney for Southridge Partners, LP, (the “Lender”), the holder
of $500,000 principal amount of the Company's Senior Convertible
Debentures (the “Debenture”) stating that the Company was in default
of certain transaction agreements (the “Transaction Agreements”) issued in
connection with the Debenture by virtue of the Company's issuance of
registered
shares of stock to employees and consultants under a Form S-8 registration
statement and the filing of the Form S-8 prior to the date of effectiveness,
August 7, 2006, of the Company's SB-2 Registration Statement required
under the
Registration Rights Agreement (one of the Transaction
Agreements).
The
Company denied that it was in default of the Transaction Agreements.
However, in
order to avoid costly litigation, the parties entered into a waiver/settlement
agreement on May 4, 2006 (the “Waiver/Settlement Agreement”).
In
accordance with the terms of the Waiver/Settlement Agreement, the initial
conversion price of the Debenture was reduced from $.35 per share to
$.30 per
share, the new Series “A” Warrant exercise price was reduced from $.44 to $.38
per share and the new Series “B” Warrant exercise price was reduced from $.52 to
$.45 per share. In addition, the number of shares of the Company's
common stock
exercisable upon conversion of each $25,000 principal amount of Debenture
and
upon exercise of the new Series “A” and new Series “B” Warrants included in each
Unit was increased from 71,429 shares to 83,333 shares for each of
the
Debenture, Class A Warrants and Class B Warrants, or an aggregate of
250,000
shares per unit.
The
Lender waived the S-8 Default set forth in the Default Notice and the
Company
agreed not to file any additional S-8 Registration Statements prior
to 45 days
after August 7, 2006.
On
August
15, 2006, the Company did not repay the $3,350,000 of Debentures then
due. The
Company has paid all interest on the Debentures accrued through November
15,
2006. As discussed in Note 2, the Company had applied to the regulatory
authority in China to approve converting its subsidiaries' funds into
U.S.
dollars and repay the Debentures and was denied. The Company was advised
that
the Rule of Liquidation is the sole means of assuring repayment of
the
Debentures and subsequently submitted applications for such liquidations
to a
PRC regulatory authority. At May 18, 2007, these liquidations have
not been
completed.
The
holder of an aggregate of $300,000 of the Debentures has agreed to
extend the
due date to December 31, 2007 with an interest rate of 10% per annum
starting
from August 15, 2006 and the exercise price of the new Series “A” Warrants and
new Series “B” Warrants being reduced to $0.15 and $0.20 per share respectively.
Other terms remain the same.
The
Company received letters (the “Default Letters”) from the attorneys for two
holders of an aggregate $875,000 principal amount of Debentures stating
that the
Company was in default under the Debentures as a result of its failure
to pay
principal plus interest thereon. On September 18, 2006, one of the
debenture
holders commenced a lawsuit against the Company in the Supreme Court
of the
State of New York, New York County (No. 603266). The action is a motion
for
summary judgment in lieu of complaint based on the Company's Debentures
in the
amount of $500,000 in favor of Plaintiff which was due on August 15,
2006, with
interest at 12% per annum. On January 19, 2007, this motion was granted
and a
judgment in the amount of $545,440 was awarded the Plaintiff.
The
Company entered into conversion/settlement agreements (the “Conversion
Agreements”) dated February 2, 2007, which provided that the conversion price
(the “Conversion Price”) of the Debentures, as set forth in paragraph 7(d) of
the Debentures shall be reduced to $.05 per share of Common Stock (“Underlying
Common Stock") issuable upon conversion (the “Conversion”), provided that at
least fifty (50%) percent in principal amount (or $1,675,000) of the
initial
$3,350,000 of Debentures (the “Minimum Conversion”) agree to the Conversion. The
closing of the Conversion (the “Closing”) occurred on February 12, 2007. Those
Debenture holders who agree to the Conversion shall also agree to convert
all
accrued but unpaid penalties and interest owed by the Company into
Common Stock
at $.05 per share. Pursuant to the terms of the May 4, 2006 Waiver/Settlement
Agreement entered into between the Company and Debenture holders the
Conversion
Price of the Debentures was reduced to its current price of $.30 per
share. A
total of 39,522,500 shares of common stock were issued to 29 Debenture
holders
under Conversion Agreements in satisfaction of $1,675,000 total principal
amount
of Debentures and $301,125 unpaid accrued interest and late registration
penalty
fees.
The
Conversion Agreements provided for the Debenture holders who signed
such
agreements to: (i) terminate any and all pending litigation with the
Company to
which they are a party, without prejudice to reinstatement if and only
if the
Minimum Conversion is not completed, and/or the Company defaults in
its
obligations under the Conversion Agreement; (ii) in any vote of shareholders
not
vote against any nominee to the Board of Directors of the Company and
any
proposal designated by current management of the Company which does
not effect
the Conversion, and (iii) release and hold harmless the Company and
its
officers, directors, employees, representatives and affiliates following
the
Closing.
The
Company agreed to make whatever filings are necessary with the SEC,
whether by
way of supplement or post-effective amendment to this registration
statement
concerning the Underlying Common Stock, to permit the issuance of common
stock
at the reduced Conversion Price of $.05 per share. Notwithstanding
the
foregoing, only the original 214,287 shares of Common Stock issuable
underlying
each $25,000 Unit, including 71,429 Shares of Common Stock underlying
each
Debenture, are registered on this Registration Statement. Accordingly,
at the
reduced Conversion Price of $.05 per share an aggregate of 500,000
shares of
Common Stock would be issuable upon conversion of the Debentures and
an
additional 166,666 shares of Common Stock issuable upon exercise of
warrants
included in the Units. All additional shares of Common Stock not included
in
this Registration Statement, as well as those issuable in exchange
for any
interest and penalties due under the Debentures at the time of the
Closing, have
been included in a second registration statement filed by the Company
on
February 12, 2007.
The
Company shall also provide the Debenture holders with “most favored nation”
status and reduce the Conversion Price to the per share price of any
equity
offering made by the Company within 18 months of the Closing Date.
The Company
shall issue such number of additional shares to the Debenture holders
to reduce
their Conversion Price to that of such subsequent offering.
At
March
31, 2007, accounts payable and accrued liabilities include interest
payable of
$121,676 and unpaid late registration penalty fees payable of
$129,277.
NOTE
6 - BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic
earnings (loss) per share are computed by dividing net earnings (loss)
available
to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed
by
dividing net earnings available to common stockholders by the weighted-average
number of common shares outstanding during the period increased to
include the
number of additional common shares that would have been outstanding
if
potentially dilutive common shares had been issued.
The
following table sets forth the computations of shares and net loss
used in the
calculation of basic and diluted loss per share for the three months
ended March
31, 2007 and 2006:
|
|
2007
|
|
2006
|
|
|
|
|
|
Net
loss for the period
|
|
(150,120)
|
|
(57,599)
|
|
|
|
|
|
Weighted-average
number of shares outstanding
|
|
41,090,459
|
|
20,011,792
|
|
|
|
|
|
Effective
of dilutive securities :
|
|
|
|
|
Dilutive
options - $0.30
|
|
-
|
|
-
|
Dilutive
warrants new Series "A" - $0.15
|
|
-
|
|
-
|
Dilutive
warrants new Series "A" - $0.38
|
|
-
|
|
-
|
Dilutive
warrants new Series "B" - $0.20
|
|
-
|
|
-
|
Dilutive
warrants new Series "B" - $0.45
|
|
-
|
|
-
|
Dilutive
warrants Series "C" - $0.45
|
|
-
|
|
-
|
Dilutive
potential common shares
|
|
-
|
|
-
|
|
|
|
|
|
Adjusted
weighted-average shares and
|
|
41,090,459
|
|
20,011,792
|
assumed
conversions
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per share attributable to
|
|
|
|
|
common
shareholders
|
$
|
0
|
$
|
0
|
|
|
|
|
|
Diluted
income (loss) per share attributable to
|
|
|
|
|
common
shareholders
|
$
|
0
|
$
|
0
|
The
effect of outstanding options and warrants was not included as the
effect would
be anti-dilutive.
NOTE
7 - SHARE PURCHASE WARRANTS
During
the three months ended March 31, 2007, no share purchase warrants were
issued,
exercised or cancelled.
As
of
March 31, 2007, 122 new Series “A” warrants were outstanding which entitle the
holders to purchase 83,333 common shares of the Company at $0.38 until
February
15, 2008. 122 new Series “B” warrants were outstanding which entitle the holders
to purchase 83,333 common shares of the Company at $0.45 until February
15,
2009. 12 amended new Series “A” warrants were outstanding which entitle the
holders to purchase 83,333 common shares of the Company at $0.15 each
until
February 15, 2008. 12 amended new Series “B” warrants were outstanding which
entitle the holders to purchase 83,333 common shares of the Company
at $0.20
until February 15, 2009. 200,000 Series “C” warrants were outstanding which
entitle the holders to purchase 200,000 common shares of the Company
at $0.45
each expiring on May 5, 2010.
NOTE
8 - STOCK OPTIONS
The
Company filed Form S-8 for its 2006 non-qualified Stock Option Plan
with the
Securities and Exchange Commission on November 3, 2005. The total number
of
shares of the Company available for grants of stock options and common
stock
under the Plan shall be 4,000,000 common shares. Stock options may
be granted to
non-employees and directors of the Company or other persons who are
performing
or who have been engaged to perform services of special importance
to the
management, operation or development of the Company. All stock options
granted
hereunder must be granted within ten years from the earlier of the
date of this
Plan is adopted or approved by the Company's shareholders. No stock
option
granted to any employee or 10% shareholder shall be exercisable after
the
expiration of ten years from the date such non qualifying stock option
(“NQSO”)
is granted. The Company, in its discretion, may provide that an option
shall be
exercisable during such ten year period or during any lesser period
of time. At
the discretion of the Company, through the delivery of fully paid and
non-assessable common shares, with an aggregate fair market value on
the date
the NQSO is exercised equal to the option price, provided such tendered
shares
have been owned by the Optionee for at least one year prior to such
exercise.
No
options were granted, exercised, canceled or forfeited during the three
months
ended March 31, 2007. The weighted average remaining contractual life
is 0.31
years.
Options
outstanding at March 31, 2007 were 660,000 with an option exercise
price of
$0.30 per share.
NOTE
9 - RELATED PARTY TRANSACTIONS
During
the three months ended March 31, 2007, the Company paid $14,248 (2006:
$14,738)
to a director and an officer as wages and benefits.
As
of
March 31, 2007, the Company has a receivable of $21,684 due from a company
with a common ex-director without interest or specific terms of
repayment.
As
of
March 31, 2007, the Company has an advance receivable of $17,865 from
a director
of the Company, which is to be used for future Company expenses.
Critical
Accounting Policies
Our
discussion and analysis is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported
amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to revenue recognition, accounts receivable and
allowance for doubtful accounts, intangible and long-lived assets, and
income
taxes. We base our estimates on historical experience and on various
other
assumptions that are believed to be reasonable under the circumstances,
the
results of which form the basis for making judgments about the carrying
values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions
or
conditions.
An
accounting policy is deemed to be critical if it requires an accounting
estimate
to be made based on assumptions about matters that are highly uncertain
at the
time the estimate is made, and if different estimates that reasonably
could have
been used or changes in the accounting estimate that are reasonably
likely to occur could materially change the financial statements. We
believe the
following critical accounting policies reflect our more significant estimates
and assumptions in the preparation of our consolidated financial
statements:
Contingencies
- We may be subject to certain asserted and unasserted claims encountered
in the
normal course of business. It is our belief that the resolution of these
matters
will not have a material adverse effect on our financial position or
results of
operations, however, we cannot provide assurance that damages that result
in a
material adverse effect on our financial position or results of operations
will
not be imposed in these matters. We account for contingent liabilities
when it
is probable that future expenditures will be made and such expenditures
can be
reasonably estimated.
Income
Taxes
- We record a valuation allowance to reduce our deferred tax assets to
the
amount that is more likely than not to be realized. We have considered
future
market growth, forecasted earnings, future taxable income, and prudent
and
feasible tax planning strategies in determining the need for a valuation
allowance. We currently have recorded a full valuation allowance against
net
deferred tax assets as we currently believe it is more likely than not
that the
deferred tax assets will not be realized.
Valuation
Of
Long-Lived Assets - We review property, plant and equipment and other
assets for
impairment whenever events or changes in circumstances indicate the carrying
value of an asset may not be recoverable. Our asset impairment review
assesses
the fair value of the assets based on the future cash flows the assets
are
expected to generate. An impairment loss is recognized when estimated
undiscounted future cash flows expected to result from the use of the
asset plus
net proceeds expected from disposition of the asset (if any) are less
than the
carrying value of the asset. When an impairment is identified, the carrying
amount of the asset is reduced to its estimated fair value. Deterioration
of our
business in a geographic region could lead to impairment adjustments
when
identified. The accounting effect of an impairment loss would be a charge
to
income, thereby reducing our net profit.
Forward-looking
statements
Statements
contained in this report include "forward-looking statements" within
the meaning
of such term in Section 27A of the Securities Act of 1933, as amended
(the
"Securities Act") and Section 21E of the Exchange Act. Forward-looking
statements involve known and unknown risks, uncertainties and other factors
which could cause actual financial or operating results, performances
or
achievements expressed or implied by the forward-looking statements not
to occur
or be realized. Forward-looking statements generally are based on our
best
estimates of future results, performances or achievements, based upon
current
conditions and the most recent results of the companies involved and
their
respective industries. Forward-looking statements may be identified by
the use
of forward-looking terminology such as "may," "will," "could," "project,"
"expect," "believe," "estimate," "anticipate," "intend," "continue,"
"potential," "opportunity" or similar terms, variations of those terms
or the
negative of those terms or other variations of those terms or comparable
words
or expressions.
Potential
risks and uncertainties include, among other things, such factors
as:
|
·
|
the
Liquidation of our PRC Subsidiaries as set forth in Item
1,
|
|
·
|
our
business strategies and future plans of
operations,
|
|
·
|
general
economic conditions in the United States and elsewhere, as
well as the
economic conditions affecting the industries in which we
operate,
|
|
·
|
the
market acceptance and amount of sales of our products and
services,
|
|
·
|
the
competitive environment within the industries in which we
compete,
|
|
·
|
our
ability to raise additional capital, currently needed for expansion,
the
other factors and information discussed in other sections of
this report
and in the documents incorporated by reference in this
report.
|
Persons
reading this report should carefully consider such risks, uncertainties
and
other information, disclosures and discussions which contain cautionary
statements identifying important factors that could cause actual results
to
differ materially from those provided in the forward-looking statements.
We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Working
Capital Needs
For
the
education services, the Company will use the working capital to explore
the
local market, launch new courses, set up new market campaign, sign up
with more
agents, both domestic and international agents and provide some marketing
materials and financial support to those agents.
Future
Strategy
The
Company accumulated nearly 500,000 corporate leads from its previous
domain name
registration and web hosting services in China.
In
January 2007, the Beijing Bureau of Commerce approved the Liquidation
of the
Company’s operating subsidiaries in China. In connection with the Liquidation,
the accounting responsibilities for the operations of the PRC subsidiaries
were
transferred from the Company to a PRC accounting firm approved by the
PRC
regulatory authority. The Company has been unable to obtain reports from
this
accounting firm and has not received a definitive opinion regarding the
ultimate
outcome of these liquidations; accordingly, the Company has reduced the
carrying
value of the net assets of the PRC subsidiaries to $1 at December 31,
2006 and
has reflected operations of the PRC Subsidiaries for the years ended
December
31, 2006 (which only includes these operations to September 30, 2006)
and 2005
as discontinued operations.
In
view
of the foregoing, as a result of the Liquidation, the Company’s sole operations
are those of Windsor Education Academy Inc., a British Columbia based
school
specializing in English as a Second Language courses for foreign students.
This
business had total revenues of $21,009 for the period ends at March 31,
2007.
Accordingly, we intend to seek to expand our business through acquisitions
or
mergers with other entities. Any decision to make an acquisition or merge
will
be based upon a variety of factors, including, among others, the purchase
price
and other financial terms of the transaction, the business prospects
of the
target company and the extent to which any acquisition/merger would enhance
our
prospects. We will continue to try to complete the acquisition of Topbiz,
as
described below. While we have had discussions with various potential
acquisitions targets, we presently have no agreements, understandings
or
arrangements for any other acquisitions or mergers. As part of the Liquidation,
it is necessary to appoint an auditor to do the appraisal of an evaluation
of
the assets of the Company and to submit such appraisal to the BOMOC for
its
approval.
At
such
time as the Company is able to convert the Debentures and/or repay the
remainder
though the Liquidation process it will need to seek additional funds
in order to
implement its business plan. No commitments to provide additional funds
have
been made by management or other stockholders. Accordingly, there can
be no
assurance that any additional funds will be available to the Company
when it is
needed.
Liquidation
of Quicknet Subsidiary to Repay Debentures in Default
On
August
15, 2006, the Company’s Debentures in the principal amount of $3,350,000
matured. While the Company had sufficient cash on hand to repay the Debentures
in their entirety with accrued interest, the Company's operating subsidiary
in
China, Quicknet was denied the ability to withdraw funds from China,
as
described below. The Company received letters from the attorneys for
two holders
of an aggregate $875,000 principal amount of Debentures stating that
the Company
was in default under the Debentures as a result of its failure to pay
principal
plus interest thereon. One of such debenture holders obtained a default
judgment
against the Company for $500,000 principal amount of Debenture plus interest
and
expenses. The Company had paid all interest on the Debentures accrued
through
August 15, 2006. Interest accrued on the Debentures though maturity,
at the rate
of not less than 6% per annum equal to the sum of 2% per annum plus the
one
month LIBOR rate. From the maturity date of August 15, 2006, interest
on
outstanding principal amount of Debentures
and
unpaid accrued interest accrues at the rate of 12% per annum.
The
Company disclosed in a Current Report on Form 8-K for August 31, 2006,
that it
had applied to the banking authorities (State Administration of Foreign
Exchange
(“SAFE”)) in China to convert its subsidiaries' funds into U.S. dollars and
repay the Debentures. The Company's operating subsidiary in China has
advised
the Company that its application to SAFE to withdraw the funds from China
had
been denied. On October 25, 2006, the Company retained the law firm of
Wyatt
& Wang in Beijing to assist it comply with the Beijing Rule of Liquidation
of companies with foreign investment (the “Rule of Liquidation”). The Company
has been advised by PRC Counsel that the Rule of Liquidation is the sole
means
of assuring repayment of the Debentures. The Company began the process
to submit
an application for such liquidation to the Bureau of Ministry of Commerce
(“BOMOC”). On January 16, 2007, the Beijing Bureau of Commerce approved the
Liquidation. As part of the Liquidation, the PRC Subsidiaries were ordered
to
discontinue operations and set up a liquidation committee. Their accounting
responsibilities were transferred from the Company to a PRC accounting
firm
approved by the PRC regulatory authority. As reflected in the financial
statements included in this Report, the operations of the PRC Subsidiaries
for
the years ended December 31, 2006 (which only includes these operations
to
September 30, 2006) and 2005 are reflected as discontinued
operations.
Upon
the
Liquidation of the PRC Subsidiaries and the repayment of outstanding
Debentures,
the Company does not know whether the PRC subsidiaries will continue
to operate
as subsidiaries of the Company in new entities, although it is not currently
expected they will.
Liquidity
And Capital Resources
The
Company had cash capital of $181,942 at March 31, 2007. The Company has
no other
capital resources other than the ability to use its common stock to achieve
additional capital raising. Other than cash capital, its other assets
would be
illiquid.
At
the
end of March, 2007, the Company had $227,136 in current assets and current
liabilities of $1,960,853, consisting primarily of $1,650,000 of Debentures
which matured on August 15, 2006 and were in default. At March 31, 2005,
the
Company had current liabilities of $3,875,049, consisting of the $3,350,000
principal amount of Debentures which were matured on August 15,
2006.
The
cash
capital at the end of the period of $181,942 will be used to fund continuing
operations. The Company had a decrease in cash of $106,207 for this quarter,
mainly for general and administrative expenses. The Company has received
no cash
from investing activities in this quarter.
On
August
15, 2006, $3.35 million principal amount of Debentures matured. The
Company offered to lower the conversion price of the Debentures to $.05
per
share conditioned upon at least 50% in principal amount of Debentures
agreeing
to convert all of their Debentures in accordance with the terms and conditions
for a Conversion/Settlement Agreement dated as of February 2, 2007. This
transaction was completed in February 2007 and approximately 58 % of
the
Debenture has been converted at $.05 per share. The Debenture holder
who
executed the Agreement relieved the company from all claims.
The
Company has tuition fees from Windsor Education Academy ("Windsor").
However,
capital from additional private placements, borrowing against assets
and/or from
warrants being exercised by warrant holders, may be required to fund
future
operations. As of December 31, 2006, 134 new Series “A” warrants issued in the
August 2005 Offering were outstanding which entitle the holders to purchase
71,429 common shares of the Company at $0.44 each within two years from
the
Effective Date, but no later than February 15, 2008. 134 new Series “B” warrants
were outstanding issued in the August 2005 offering which entitle the
holders to
purchase 71,429 common shares of the Company at $0.52 each within three
years
from the Effective Date but no later than February 15, 2009.
On
August
8, 2006, and as referenced in Item 1(a) above, the Company and President
of a
subsidiary of the Company consummated the acquisition of a 49% interest
in
Topbiz, pursuant to the Share Purchase Agreement referenced in Exhibit
10.8
hereto. As of September 30, 2006, $950,000 had been paid by the Company.
According to the Share Purchase Agreement, the Company should make a
payment of
US$1,350,000 three months after closing date which is before end of November,
2006. However, since the Company had started the liquidation process
by then, it
could not make such payment on time. The Company and Topbiz stopped the
ownership transferring process. As of December 31, 2006, the Company
and Topbiz
had not reached an amended agreement on the payment schedule. Furthermore,
the
Company has not issued any stock under Regulation S under the Securities
Act in
connection with this transaction
Need
for Additional Financing:
The
Company believes it has sufficient capital to meet its short-term
cash needs, including the costs of compliance with the continuing reporting
requirements of the Securities Exchange Act of 1934, but it will have
to seek
loans or equity placements to cover longer term cash needs to continue
operations and expansion.
No
commitments to provide additional funds have been made by management
or other
stockholders. Accordingly, there can be no assurance that any additional
funds
will be available to the Company to allow it to cover operation
expenses.
If
future
revenue declines or operations are unprofitable, the Company will be
forced to
develop another line of business, or to finance its operations through
the sale
of its assets, or enter into the sale of stock for additional capital,
none of
which may be feasible when needed. The Company has neither specific management
ability, nor financial resources or plans to enter any other business
as of this
date.
The
effect of inflation has not had a material impact on its operation, nor
is it
expected to in the immediate future.
Market
Risk:
The
Company does not hold any derivatives or investments that are subject
to market
risk. The carrying values of any financial instruments, approximate fair
value
as of those dates because of the relatively short-term maturity of these
instruments which eliminates any potential market risk associated with
such
instruments.
Material
Changes in Results of Operations For the Three Months Ended March 31,
2007 As
Compared to the Three Months Ended March 31, 2006.
Revenues.
The Company has revenues of $21,009 from tuition fees for the three months
ended
March 31, 2007, compared to $19,027 for the same period in 2006 from
its
subsidiary: Windsor Education Academy. The gross profit in 2007 was $20,855
compared to $14,395 in 2006 for the three months ended March
31.
Operating
Expenses. The Company incurred operating expenses of $87,176 in this
quarter,
compared to operating expenses of $216,779 for the same period in
2006.
Loss
from
Continuing Operations. Loss from continuing operations for this quarter
was
($150,120) compared to the same period in 2006 of ($454,438). This was
caused
largely by the cost relating to convertible debentures’ late registration
penalty fees in 2006.
Net
Loss.
Net Loss to Common Stockholders as of March 31, 2007 was ($150,120))
in contrast
to a Net Loss of ($57,599) in 2006. This was caused largely by the income
from
discontinued operations of $396,839 in 2006.
Loss
per
Share. Loss per share was Nil for the period ended March 31, 2007, unchanged
from the same period in 2006.
Quarterly
Evaluation of Controls
CONTROLS
AND PROCEDURES
As
of the
end of the period covered by this Quarterly Report on Form 10-QSB, we
evaluated
the effectiveness of the design and operation of our disclosure controls
and
procedures ("Disclosure Controls") as defined in Rules 13a -15(e) or
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
evaluation ("Evaluation") was performed by our Chief Executive Officer
and
Principal Accounting Officer, XiaoQing Du, ("CEO") and Ernest Cheung,
our
Principal Financial Officer ("CFO"). In this section, we present the
conclusions
of our CEO and CFO based on and as of the date of the Evaluation, with
respect
to the effectiveness of our Disclosure Controls and Procedures.
Based
upon the Evaluation, our CEO and CFO determined that our disclosure controls
and
procedures are effective to ensure same that information required to
be
disclosed by the issuer in the reports that it files or submits under
the
Exchange Act is recorded, processed, summarized and reported, within
time
periods specified in the Commission’s rules and forms. Our CEO and CFO have
concluded that our disclosure controls and procedures are effective to
ensure
that information required to be disclosed by an issuer in the reports
it files
or submits under the Exchange Act is accumulated and communicated to
the
issuer’s management including the CEO and CFO, to allow timely decisions
regarding required disclosure.
As
a
non-accelerated issuer, the Company is not required to provide management’s
assessment and report on the Company’s internal control over financial
reporting. However, in our Form 10-QSB for the period ended March 31,
2005, we
determined that there were material weaknesses in our internal controls
in our
operations in China, that needed to be addressed by management.
The
changes which we were in the process of implementing during the fourth
quarter
to our internal controls over financial reporting could materially affect
or are
reasonably likely to materially affect those controls. These changes
were
completed during the fourth quarter. Management does not believe such
material
weakness in our internal controls did, in fact, affect our disclosure
controls
and procedures.
The
Company has implemented document control procedures for its subsidiary
QuickNet
in its manual. These include:
A. Expenditure
controls/approvals and documentation by Board Committee for the subsidiary
in
China, Beijing QuickNet; and
B. Subscription
accounting and tracking for its subsidiary in China, Beijing
QuickNet.
The
Company has completed the implementation of such changes to our internal
controls and procedures based on the model framework created by the Committee
of
Sponsoring Organizations of the Treadway Commission (or “COSO”).
There
were changes in the Company’s document control procedures as stated above for
its subsidiary Quick Net that were completed during the Company’s fourth fiscal
quarter in 2005. However, no other changes in the Company’s internal controls
over financial reporting identified in connection with the Evaluation
occurred
during the Company’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect the Company’s internal controls over our
financial reports.
PART
II
OTHER
INFORMATION
In
the
ordinary course of business, the Company may be involved in legal proceedings
from time to time. As of the date of this report, the only legal proceedings
to
report were that:
On
September 18, 2006, Southridge Partners, L.P. (“Plaintiff”) commenced a lawsuit
against the Company in the Supreme Court of the State of New York, New
York
County (No. 603266) for an alleged default on repayment of its Senior
Convertible Debentures due August 15, 2006 (the “Debentures”). The motion for
summary judgment in lieu of complaint was granted based on the Company’s
Debentures in the amount of $500,000 in favor of Plaintiff which was
due on
August 15, 2006, with interest at 12% per annum. The Plaintiff is taking
steps
to execute its default judgment.
On
November 25, 2006, Iroquois Management Fund LTD (“Plaintiff”) commenced a
lawsuit against the Company in the Supreme Court of the State of New
York, New
York County (No. 6604397/06). The action is a motion for summary judgment
in
lieu of complaint based on the Company’s Debentures in the amount of $375,000 in
favor of Plaintiff which was due on August 15, 2006, with interest at
6% per
annum from June 30, 2005 to August 15, 2006, and with interest at 12%
per annum
from August 15, 2006 to the date of entry of judgment, plus costs and
disbursements.
On
February 7, 2005, the Company was sued by Sino-I Technology Limited for
$88,270
for an alleged breach of warranty and a claim under a guarantee. The
Company has retained separate counsel to represent it in the action.
Counsel for
the Company submitted a Notice of Motion to the plaintiff’s lawyer on March 7,
2005 and is seeking an extension of response date. The Company intends
to
vigorously defend the suit.
On February 22, 2007, Microsoft Corporation commenced a lawsuit against
the
Company and others in the King County Superior Court of the State of
Washington
(No.06-2-18596-0 SEA). Microsoft alleges claims for trespass to chattels,
conversion, and violations of the Washington Commercial Electronic
Mail Act,
Washington Consumer Protection Act, the Controlling the Assault of
Non-Solicited
Pornography and Marketing Act (“CAN-SPAM”), and the Lanham Act. The Company has
retained counsel to evaluate and defend the suit.
No
director, officer or affiliate of China Mobility Solutions, Inc., and
no owner
of record or beneficial owner of more than 5% of the securities of the
Company,
or any associate of any such director, officer or security holder is
a party
adverse to the Company or has a material interest adverse to it in reference
to
pending litigation.
None
The
Company disclosed in a Current Report on Form 8-K for August 31, 2006,
that it
had applied to the banking authorities (State Administration of Foreign
Exchange
(“SAFE”)) in China to convert its subsidiaries' funds into U.S. dollars and
repay the Debentures. The Company's operating subsidiary in China has
advised
the Company that its application to SAFE to withdraw the funds from China
had
been denied. On October 25, 2006, the Company retained the law firm of
Wyatt
& Wang in Beijing to assist it comply with the Beijing Rule of Liquidation
of companies with foreign investment (the “Rule of Liquidation”). The Company
has been advised by PRC Counsel that the Rule of Liquidation is the sole
means
of assuring repayment of the Debentures. The Company began the process
to submit
an application for such liquidation to the Bureau of Ministry of Commerce
(“BOMOC”). On January 16, 2007, the Beijing Bureau of Commerce approved the
Liquidation.
None
None
The
following are filed as Exhibits to this Quarterly Report. The numbers
refer to
the Exhibit Table of Item 601 of Regulation S-K:
Number Description
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf of the undersigned
thereunto
duly authorized.
Dated:
May 21, 2007
CHINA
MOBILITY SOLUTIONS, INC.
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CHINA
MOBILITY SOLUTIONS, INC.
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/s/ Angela
Du
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/s/ Ernest
Cheung
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Angela
Du |
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Ernest
Cheung |
Name:
Angela Du
Title:
Chief Executive Officer
More
Title: Principal Accounting Officer
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Name:
Ernest Cheung
Title:
Principal Financial Officer
More
Title
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