SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB/A
Amendment
No. 1
Quarterly
Report Pursuant to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
For
the quarterly period ended: March 31, 2007
Commission
file number 0-26559
CIK
No. 0001082603
CHINA
MOBILITY SOLUTIONS, INC.
|
(Exact
name of registrant as specified in this charter)
|
|
|
Florida
|
|
330-751560
|
(State
of other jurisdiction
of
incorporation or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
#407-1270
Robson, Vancouver, B.C. Canada
|
|
V6E
3Z6
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
|
|
Registrant's
telephone number, including area code:
|
|
(604)
632-9638
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements
for
at least the past 90 days.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
[ ] No
[X]
As
of May
21, 2007, there were 61,650,295 shares of $0.001 par value common stock
outstanding.
CHINA
MOBILITY SOLUTIONS, INC.
INDEX
TO QUARTERLY REPORT
ON
FORM 10-QSB/A
March
31, 2007
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Page
No.
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PART
I
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3
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4
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5
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6
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7
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9-14
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15
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18
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PART
II
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19
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19
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21
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21
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21
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21
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22
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PART
1. FINANCIAL INFORMATION
The
financial statements have been adjusted with all adjustments, which, in the
opinion of management, are necessary in order to make the financial statements
not misleading.
For
financial information, please see the financial statements and the notes
thereto, attached hereto and incorporated herein by this reference.
The
financial statements have been prepared by China Mobility Solutions, Inc.
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, have been condensed or
omitted as allowed by such rules and regulations, and management believes
that
the disclosures are adequate to make the information presented not misleading.
These financial statements include all of the adjustments which, in the opinion
of management, are necessary to a fair presentation of financial position
and
results of operations. All such adjustments are of a normal and recurring
nature. These financial statements should be read in conjunction with the
audited financial statements at December 31, 2006, included in the
Company's and Form 10-KSB.
Forward
Looking Statements
Statements
contained in this Quarterly Report on Form 10-QSB/A 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 under Item 2 under
“Liquidation of Quicknet Subsidiary to Repay Debentures in
Default”,
|
· |
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.
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
(Expressed
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
2007
|
|
2006
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
and cash equivalents
|
$
|
181,942
|
$
|
288,149
|
Accounts
receivable
|
|
3,361
|
|
3,373
|
Prepaid
expenses and other current assets
|
|
2,283
|
|
4,615
|
Due
from related parties
|
|
39,549
|
|
25,973
|
Net
assets of subsidiaries in liquidation
|
|
1
|
|
1
|
Total
Current Assets
|
|
227,136
|
|
322,111
|
|
|
|
|
|
Property
and Equipment, net of accumulated depreciation of $52,070 and
51,442,
respectively
|
|
10,501
|
|
11,129
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
Deposit
paid in connection with contemplated acquisition of Beijing
Topbiz,
|
|
|
|
|
less
allowance for doubtful recoverability
|
|
50,000
|
|
50,000
|
Investment
|
|
1
|
|
1
|
Goodwill
|
|
127,124
|
|
127,124
|
Other
assets
|
|
785
|
|
785
|
Total
Assets
|
$
|
415,547
|
$
|
511,150
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable and other accrued liabilities
|
$
|
297,515
|
$
|
537,200
|
Deferred
revenue
|
|
13,338
|
|
12,849
|
Convertible
debentures
|
|
1,650,000
|
|
3,325,000
|
Total
current liabilities
|
|
1,960,853
|
|
3,875,049
|
|
|
|
|
|
Commitments
and Contingencies
|
|
-
|
|
-
|
Stockholders'
Equity (Deficiency)
|
|
|
|
|
Common
stock, $0.001 par value; authorized 500,000,000 shares,
|
|
|
|
|
issued
and outstanding: 59,534,292 and 20,011,792 shares,
respectively
|
|
59,534
|
|
20,012
|
Additional
paid-in capital
|
|
20,429,429
|
|
18,492,826
|
Accumulated
deficit
|
|
-21,833,974
|
|
-21,683,854
|
Accumulated
other comprehensive income (loss)
|
|
-200,295
|
|
-192,883
|
Total
stockholders' equity (deficiency)
|
|
-1,545,306
|
|
-3,363,899
|
Total
Liabilities and Stockholders' Equity (Deficiency)
|
$
|
415,547
|
$
|
511,150
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
(Expressed
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Three
Months Ended March 31,
|
|
|
2007
|
|
2006
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenue
|
|
|
|
|
Tuition
fees
|
$
|
21,009
|
$
|
19,027
|
|
|
|
|
|
Cost
of Sales
|
|
|
|
|
Tuition
fees
|
|
154
|
|
4,632
|
Gross
Profit
|
|
20,855
|
|
14,395
|
|
|
|
|
|
Selling,
general, and administrative expenses
|
|
108,031
|
|
231,174
|
Income
(loss) from Operations
|
|
(87,176)
|
|
(216,779)
|
|
|
|
|
|
Other
income (Expense)
|
|
|
|
|
Interest
income
|
|
-
|
|
17,653
|
Interest
expense on convertible debentures
|
|
(64,647)
|
|
(54,312)
|
Costs
relating to convertible debentures:
|
|
|
|
|
Late
registration penalty fees
|
|
-
|
|
(201,000)
|
Other
income
|
|
1,703
|
|
-
|
Other
income (expense) - net
|
|
(62,944)
|
|
(237,659)
|
Income
(loss) before Income Taxes
|
|
(150,120)
|
|
(454,438)
|
|
|
|
|
|
Income
tax expense
|
|
-
|
|
-
|
Income
(loss) from continuing operations
|
|
(150,120)
|
|
(454,438)
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
-
|
|
396,839
|
Total
|
|
-
|
|
396,839
|
Net
income (loss)
|
$
|
(150,120)
|
$
|
(57,599)
|
|
|
|
|
|
Net
income (loss) per share
|
|
|
|
|
Continuing
operations
|
$
|
0
|
$
|
(0.02)
|
Discontinued
operations
|
|
|
|
0.02
|
Total
|
$
|
0
|
$
|
0
|
|
|
|
|
|
Weighted
average number of common shares used to compute net income
(loss) per
share
|
|
|
|
|
Basic
and Diluted
|
|
41,090,459
|
|
20,011,792
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders' Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other
|
|
|
|
Common
Stock, $0.001 par value
|
Additional
paid-in
|
|
Accumulated
|
|
comprehensive
|
|
|
|
Shares
|
|
Amount
|
|
capital
|
|
deficit
|
|
income
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
15,826,792
|
$
|
15,827
|
$
|
8,770,378
|
$
|
(4,640,956)
|
$
|
(183,532)
|
$
|
3,961,717
|
Issuance
of common stock for cash on
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options on February
|
|
|
|
|
|
|
|
|
|
|
|
24,
2005 at $0.30
|
495,000
|
|
495
|
|
148,005
|
|
-
|
|
-
|
|
148,500
|
Issuance
of common stock for services
|
|
|
|
|
|
|
|
|
|
|
-
|
rendered
|
600,000
|
|
600
|
|
350,700
|
|
-
|
|
-
|
|
351,300
|
Issuance
of common stock for cash on
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options on September
|
|
|
|
|
|
|
|
|
|
|
|
1,
2005 at $0.40
|
500,000
|
|
500
|
|
199,500
|
|
-
|
|
-
|
|
200,000
|
Issuance
of common stock for cash on
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options on September
|
|
|
|
|
|
|
|
|
|
|
|
1,
2005 at $0.35
|
2,590,000
|
|
2,590
|
|
903,910
|
|
-
|
|
-
|
|
906,500
|
Stock-based
compensation
|
-
|
|
-
|
|
126,000
|
|
-
|
|
-
|
|
126,000
|
Fair
value of new Series "A" warrants issued
|
-
|
|
-
|
|
3,254,305
|
|
-
|
|
|
|
3,254,305
|
Fair
value of new Series "B" warrants issued
|
-
|
|
-
|
|
3,637,165
|
|
-
|
|
-
|
|
3,637,165
|
Intrinsic
value of the conversion feature of the
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debenture
|
-
|
|
-
|
|
1,052,863
|
|
-
|
|
-
|
|
1,052,863
|
Net
loss for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
-
|
|
-
|
|
-
|
|
(9,163,453)
|
|
-
|
|
(9,163,453)
|
Foreign
currency translation adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
(17,829)
|
|
(17,829)
|
Balance
at December 31, 2005
|
20,011,792
|
|
20,012
|
|
18,442,826
|
|
(13,804,409)
|
|
(201,361)
|
|
4,457,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of 200,000 Series "C" warrants issued for
|
|
|
|
|
|
|
|
|
|
|
|
services
rendered
|
-
|
|
-
|
|
50,000
|
|
-
|
|
-
|
|
50,000
|
Net
loss for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
-
|
|
-
|
|
-
|
|
(7,879,445)
|
|
-
|
|
(7,879,445)
|
Foreign
currency translation adjustment
|
-
|
|
-
|
|
-
|
|
-
|
|
8,478
|
|
8,478
|
Balance
at December 31, 2006
|
20,011,792
|
|
20,012
|
|
18,492,826
|
|
(21,683,854)
|
|
(192,883)
|
|
(3,363,899)
|
Unaudited:
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible debentures to
|
|
|
|
|
|
|
|
|
|
|
|
common
stock at $0.05 per share
|
33,500,000
|
|
33,500
|
|
1,641,500
|
|
|
|
|
|
1,675,000
|
Issuance
of common stock in satisfaction of
|
|
|
|
|
|
|
|
|
|
|
|
unpaid
accrued interest and late regisration
|
|
|
|
|
|
|
|
|
|
|
|
penalty
fees relating to convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
at
$0.05 per share
|
6,022,500
|
|
6,022
|
|
295,103
|
|
|
|
|
|
301,125
|
Net
loss for the three months ended March 31, 2007
|
|
|
|
|
|
|
(150,120)
|
|
|
|
(150,120)
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
(7,412)
|
|
(7,412)
|
Balance
at March 31, 2007
|
59,534,292
|
$
|
59,534
|
$
|
20,429,429
|
$
|
(21,833,974)
|
$
|
(200,295)
|
$
|
(1,545,306)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
(Expressed
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
2007
|
|
2006
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
Net
loss
|
$
|
(150,120)
|
$
|
(57,599)
|
Adjustments
to reconcile net income (loss)
|
|
|
|
|
to
net cash provided by (used for) operating activities:
|
|
|
|
|
Depreciation
|
|
628
|
|
611
|
Foreign
currency translation adjustment
|
|
(7,412)
|
|
3,025
|
Changes
in operating assets and liabilities
|
|
|
|
|
Accounts
receivable
|
|
12
|
|
(965)
|
Prepaid
expenses and other current assets
|
|
2,332
|
|
122,034
|
Due
from related parties
|
|
(13,576)
|
|
(12,472)
|
Accounts
payable and other accrued liabilities
|
|
61,440
|
|
(25,278)
|
Deferred
revenue
|
|
489
|
|
(426,396)
|
Net
cash provided by (used for) operating activities
|
|
(106,207)
|
|
(397,040)
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
-
|
|
-
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
-
|
|
-
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
(106,207)
|
|
(397,040)
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
288,149
|
|
6,138,609
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
$
|
181,942
|
$
|
5,741,569
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
Interest
paid
|
$
|
-
|
$
|
53,600
|
Income
taxes paid
|
$
|
-
|
$
|
-
|
|
|
|
|
|
Schedule
of non-cash financing activities:
|
|
|
|
|
Conversion
of convertible debentures to
|
|
|
|
|
common
stock at $0.05 per share
|
$
|
1,675,000
|
$
|
-
|
Issuance
of common stock in satisfaction of unpaid
|
|
|
|
|
accrued
interest and late registration
|
|
|
|
|
penalty
fees relating to convertible debentures
|
$
|
301,125
|
$
|
-
|
|
|
|
|
|
See
notes to consolidated financial statements.
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
(Stated
in U.S. dollars)
(Unaudited)
NOTE
1
- BASIS OF PRESENTATION
The
accompanying unaudited financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America.
However, certain information and footnote disclosures normally included
in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”). In the opinion of management,
all adjustments of a normal recurring nature necessary for a fair presentation
have been included. The results for interim periods are not necessarily
indicative of results for the entire year. These condensed consolidated
financial statements and accompanying notes should be read in conjunction
with
the Company's annual consolidated financial statements and the notes thereto
for
the fiscal year ended December 31, 2006 included in its Annual Report on
Form
10-KSB.
The
unaudited condensed consolidated financial statements include China Mobility
Solutions, Inc. and its subsidiaries. All inter-company transactions and
accounts have been eliminated.
Certain
items have been reclassified to conform to the current period presentation.
There is no effect on total results of operations or stockholders'
equity.
NOTE
2 - DISCONTINUED OPERATIONS
On
August
15, 2006, a total of $3,350,000 of convertible debentures became due and
payable. In October 2006, the Company was notified by the PRC State
Administration of Foreign Exchange (“SAFE”) that its application to convert
certain cash held by the Company’s two subsidiaries organized under the laws of
the People’s Republic of China (the “PRC Subsidiaries”) into U.S. dollars and
repay the debentures was denied. Later, in the three months ended December
31,
2006, based upon advice of PRC counsel that the Beijing Rule of Liquidation
was
the sole means to repay the outstanding debentures, the PRC subsidiaries
submitted applications to a PRC regulatory authority to liquidate pursuant
to
the Beijing Rule of Liquidation. In connection therewith, 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 reduced the carrying value
of the
net assets of the PRC Subsidiaries to $1 at December 31, 2006 and reflected
operations of the PRC Subsidiaries to September 30, 2006 as discontinued
operations. In the event that the Company receives more that $1 from the
liquidations, it will recognize a gain in such future periods that the
proceeds
are realized.
Income
(loss) from discontinued operations consists of:
|
|
2007
|
|
2006
|
|
|
|
|
|
Revenue
from wireless communications services
|
$
|
-
|
$
|
1,440,917
|
Cost
of revenues
|
|
-
|
|
291,833
|
Gross
profit
|
|
-
|
|
1,149,084
|
Selling,
general, and administrative expenses
|
|
-
|
|
759,150
|
Income
(loss) from operations
|
|
-
|
|
389,934
|
Interest
income
|
|
-
|
|
6,905
|
Income
(loss) from discontinued operations
|
$
|
-
|
$
|
396,839
|
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.
Discontinued
Quicknet Operations
The
liquidation of Quicknet (the “Liquidation”) began in January 2007, at which time
the Beijing Bureau of Commerce approved the Liquidation of the Company’s
operating subsidiaries in China, and its operations are reflected as
discontinued operations. Management does not believe that the operations
of
Quicknet will be transferred to a new entity controlled by the Company following
the completion of the Liquidation. Quicknet was engaged in the development
of
software for mobile/wireless communication and for Short Message Services
("SMS").
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. For the quarter
ended
March 31, 2007, 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
continues to maintain that carrying value at March 31, 2007. Likewise, the
Company has reflected operations of the PRC Subsidiaries for the quarter
ended
March 31, 2007 as discontinued operations.
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 below under the
“Liquidation of Quicknet Subsidiary to Repay Debentures in
Default,”
|
· |
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.
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. An aggregate of $1,700,000
of Debentures were converted into Common Stock at $.05 per share during the
three months ended March 31, 2007. At December 31, 2006, the Company had
current
assets of $322,111 and
current liabilities of $3,875,049, consisting of $3,325,000 principal amount
of
Debentures which 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
Debentures have been converted at $.05 per share. The Debenture holders who
executed the Agreement released the Company from all claims.
As
a
result of the Liquidation described below, 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.
The
Company has limited 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 March 31, 2007, 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 $0.38 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 $0.45 each within three years
from the Effective Date but no later than February 15, 2009.
The
Windor Education business had total revenues of $21,009 for the period ending
March 31, 2007 and has 6 employees, consisting of three full and part time
teachers and three administrative personnel. The key to Windsor’s success is the
ability to attract students. The number of employees will change as the students
change. There is no collective bargaining unit at the academy. Windsor Education
Academy Inc. is governed by the Laws of the Province of British Columbia,
Canada. The Company is fully licensed to conduct its business in the Province.
The Company is unable to assess or predict at this time what effect the
regulations or legislation could have on its activities in the future.
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.
On
August
8, 2006, the Company and President of a subsidiary of the Company consummated
the acquisition of a 49% interest in Topbiz, pursuant to a share purchase
agreement (the “Topbiz Agreement”). As of September 30, 2006, $950,000 had been
paid by the Company. According to the Topbiz Agreement, the Company should
make
a payment of US$1,350,000 three months after closing date which was scheduled
to
be before the 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 March 31, 2007,
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.
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 to 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 quarter ended March 31, 2007 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.
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,
2006.
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 for the quarter ended 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 continuing operations for the period
ended
March 31, 2007, unchanged from the same period in 2006.
Cash
Capital. The cash capital at the end of the period was $181,942 and the Company
had a decrease in cash of $106,207 for this quarter, mainly for general and
administrative expenses. The cash capital at December 31, 2006 was $288,149
with
a decrease in cash on hand of $397,040.
The
Company has received no cash from investing activities in this quarter.
Future
Trends:
On
the
Education Services side, we have operated for the past three years and
competition is very fierce in the market. The Canadian government has tightened
its budget on English training for new immigrants, which lead to the termination
of government funding for Windsor, and this change had negative effects on
the
revenue of Windsor Education Academy. The Government-supported ELSA courses
held at Windsor Education Academy ended by March 31, 2005.
Off-Balance
Sheet Arrangements
None.
Recent
Accounting Pronouncements:
Principles
of Consolidation. The accompanying consolidated financial statements include
the
accounts of the Company and its wholly owned and majority-owned subsidiaries
as
outlined in Note 1 to the Company’s Consolidated Financial Statements. All
significant inter-company transactions and balances have been eliminated
on
consolidation.
On
October 2002, the FASB issued SFAS No. 147 - "Acquisitions of Certain Financial
Institutions, an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which applies to the acquisition of all or part of
a financial institution, except for a transaction between two or more
mutual enterprises. SFAS No. 147 removes the requirement in SFAS No. 72 and
Interpretation 9 thereto, to recognize and amortize any excess of the fair
value
of liabilities assumed over the fair value of tangible and identifiable
intangible assets acquired as an unidentifiable intangible asset. This statement
requires that those transactions be accounted for in accordance with SFAS
No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." In addition, this statement amends SFAS No. 144, "Accounting for
the
Impairment or Disposal of Long-Lived Assets," to include certain financial
institution-related intangible assets. This statement is effective for
acquisitions for which the date of acquisition is on or after October 1,
2002,
and is not applicable to the Company.
In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". This statement amends Statement No. 123 to
provide alternative methods of transition for an entity that voluntarily
changes
to the fair value-based method of accounting for stock-based employee
compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial
Reporting" to require disclosure about those effects in interim financial
information. The Company will adopt the disclosure provisions and the amendment
to APB No. 28 to be effective for interim periods beginning after December
15,
2002.
In
November 2002, the Emerging Issues Task Force ("EITF") reached a consensus
on
Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables". EITF No.
00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and rights to use
assets.
The provisions of EITF No. 00-21 will apply to revenue arrangements entered
into
in the fiscal periods beginning after June 15, 2003. The Company is currently
evaluating the impact EITF No. 00-21 will have on its financial position
and
results of operations.
In
January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of
Variable Interest Entities, an Interpretation of ARB No. 51". FIN46 requires
certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN46 is effective
for all new interest entities created or acquired after January 31, 2003.
For
variable interest entities created or acquired prior to February 1, 2003,
the
provisions of FIN46 must be applied for the first interim or annual period
beginning after June 15, 2003. Adequate disclosure has been made for all
off
balance sheet arrangements that it is reasonably possible to consolidate
under FIN46.
The
American Institute of Certified Public Accountants has issued an exposure
draft
SOP "Accounting for Certain Costs and Activities Related to Property, Plant
and
Equipment ("PP&E")". This proposed SOP applies to all non-government
entities that acquire, construct or replace tangible property, plant and
equipment including lessors and lessees. A significant element of the SOP
requires that entities use component accounting retroactively for all PP&E
assets to the extent future component replacement will be capitalized. At
adoption, entities would have the option to apply component accounting
retroactively for all PP&E assets, to the extent applicable, or to apply
component accounting as an entity incurs capitalizable costs that replace
all or
a portion of PP&E. The Company cannot evaluate the ultimate impact of this
exposure draft until it becomes final.
Quarterly
Evaluation of Controls
CONTROLS
AND PROCEDURES
As
of the
end of the period covered by this Quarterly Report on Form 10-QSB/A, 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.
There
have been no changes in the Company's internal controls over financial reporting
identified in connection with the Evaluation that occurred during the Company's
last fiscal quarter that has materially affected, or is reasonably likely
to
materially affect the Company's internal controls over our financial
reports.
PART
II
OTHER
INFORMATION
In
the
ordinary course of business, the Company may be involved in legal proceedings
from time to time. During the period covered by this report, the legal
proceedings that commenced or had material developments are as
follows:
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. During the quarter
ended March
31, 2007, the Plaintiff took steps to execute its default judgment.
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.
Index
The
Company entered into the Conversion/Settlement Agreements dated February
2, 2007
and February 12, 2007, respectively. 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 of a Conversion/Settlement Agreement
dated February 2, 2007. This transaction was completed in February 2007 and
approximately 58 % of the Debentures have been converted at $.05 per share
or an
aggregate of 33,500,000 shares of Common Stock were issued upon conversion
during the quarter plus an additional 6,022,500 shares in satisfaction of
unpaid
accrued interest and late registration fees. The Debentureholders who executed
the Agreement released the Company from all claims.
The
Conversion/Settlement Agreements provided for an increase in the number of
shares of Common Stock issuable upon conversion of the Debentures and exercise
of the Warrants as a result of the reduction in the initial conversion price.
Thus, there are now more shares issuable than were contemplated during the
original offer. The Company believed that the offer (there was no issuance)
of
such additional shares was exempt from registration under the Securities
Act and
under applicable state securities laws pursuant to Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
The offer was made some 18 months after the original sale to the same investors.
The Company did not offer securities to any new investors, nor was it receiving
proceeds from the issuance of additional shares. The offer was not made
voluntarily, but solely in response to threatened litigation.
The Company has not received any proceeds as a result of the registration
statement that went effective on August 7, 2006, registering a portion of
the
additional shares issuable upon conversion of Debentures and exercise of
the
Class A and Class B Warrants, under the Settlement Agreement and the
Conversion/Settlement Agreement, as the case may be, as well as placement
agent
warrants and warrants received as compensation for services
provided.
Since the Company entered into the May 2006 Settlement Agreement and the
February 2007 Conversion/Settlement Agreement, it has not been threatened
by any
of its investors or shareholders with respect to rescission rights. Furthermore,
notwithstanding the fact that shares of common stock have been removed from
the
initial Registration Statement which was declared effective by the SEC on
August
7, 2006, the SEC is not foreclosed from taking any enforcement action with
respect to the filing and the Company may not assert the declaration of
effectiveness as a defense in any proceeding initiated by the SEC.
No
dividends on outstanding common stock have ever been paid. The Company does
presently have any plans regarding payment of dividends in the foreseeable
future.
The
Company disclosed in a Current Report on Form 8-K for August 31, 2006, that
it
had not repaid $3,350,000 of Senior Convertible Debentures due August 15,
2006
(the “Debentures”). The Company stated that it had sufficient cash on hand to
repay the Debentures and any accrued interest. The Company also 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.
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 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. This debenture
holder, Southridge Partners, LP, took steps to execute on its judgment in
excess
of $545,440 plus interest during this quarter. The second debenture holder,
Iroquois Management Fund LTD., commenced a lawsuit on November 25, 2006 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.
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-B:
(a)
|
Filed
a Form 8-K on February 23, 2007 to announce the appointment of
John Gaetz
as Director of the Company.
|
Number Description
|
10.1
|
The
Conversion/Settlement Agreements, dated February 2, 2007, between
Debenture Holders and the Company. (1)
|
|
|
|
|
10.2
|
2007
Equity Incentive Plan of China Mobility Solutions, Inc.
(2)
|
|
|
|
|
10.3
|
The
Conversion/Settlement Agreement, dated February 12, 2007, between
Alpha
Capital AG and
the Company. (3)
|
|
|
|
|
*31.1
|
|
*
Filed
Herewith
(1)
Incorporated
by reference from Exhibit 10.11 of Form SB-2, filed with the Commission on
February 13, 2007.
(2)
Incorporated by reference from Exhibit 10.1 of Form S-8, filed with the
Commission on March 5, 2007.
(3) Incorporated
by reference from Exhibit 10.11 of Form 10-KSB, filed with the Commission
on May
17, 2007.