PART
I
ITEM
1. DESCRIPTION OF BUSINESS
(a) General
Description and Development of Business.
PREVIOUS
HISTORY
On
September 6, 1996, the Company was incorporated under the laws of the
State
of
Florida under the name of Placer Technologies, Inc.
It conducted a small
public offering of 200,000 shares @ $0.25 per share to achieve $50,000 in
capital.
In December 1996 a Rule 15c2-11 filing resulted in trading approval on
the
OTCBB.
The
Company's initial primary service consisted of developing web home pages
for
small
businesses in USA. It generated minimal revenues in 1996.
On
April
2, 1997, the Company acquired 100% interest of Infornet Investment Limited
("Infornet"), a Hong Kong corporation. In August 1997 Infornet entered
into
a
joint venture agreement with Xin Hai Technology Development Ltd., ("Xin
Hai"),
Xin Hai was an experienced internet-related services provider, but the
business
suffered loses and was sold and discontinued in 2001.
On
June
11, 1997, the Company purchased 100% interest of Infornet Investment
Corp.,
a
British Columbia corporation. Infornet Investment Corp. is the subsidiary
which manages daily operations of the Company.
On
July
24, 1998, the Company changed its name from Placer Technologies, Inc.
to
Xin
Net Corp.
In
June
2004, the Company changes its name to China Mobility Solutions, Inc.
concurrent
with a one-for-three reverse split.
CORPORATE
OVERVIEW
China
Mobility Solutions, Inc. structure showing its subsidiaries is as follows,
with the jurisdiction of incorporation of each subsidiary included in
parentheses:
China
Mobility Solutions, Inc.
(Florida,
USA)
Infornet
Investment Corp.
(100%
Owned)
(BC.,
Canada)
|
Infornet
Investment
Ltd.
(100%
Owned)
(Hong
Kong)
|
Windsor
Education Academy Inc.
(100%
Owned)
(BC.,
Canada)
|
|
Xinbiz
Corp.
(British
Virgin Islands)
(100%
Owned)
(Dormant)
|
Xinbiz
Ltd.
(Hong
Kong)
(Xinbiz
Corp. 100%
owned)
(Dormant)
|
The
Company also incorporated Xinbiz Corp. (British Virgin Islands) on January
14, 2000 and its subsidiary Xinbiz Ltd. (Hong Kong) on March 10, 2000.
Both
of
these companies are wholly owned subsidiaries. Xinbiz Corp. and Xinbiz
Ltd.
do
not have any operations.
Through
our wholly owned subsidiary, Infornet Investment Ltd. (Hong Kong), the
Company formed a joint venture with Xin Hai Technology Development Ltd. for
upgrading
telecommunication technology and services in the PRC. This evolved into
an
internet-focused service provider and e-commerce solutions business,
which
was
subsequently sold in 2001.
The
Company decided in May 2001 to focus its business in China on domain
name registration and web-hosting services, and to discontinue Internet
access
provision services as soon as practicable. On June 22, 2001 the Company
entered
into an agreement to sell its ISP assets (Xin Hai). The price for the
sale
was
$700,000 (USD) payable to in Renminbi at the official exchange rate. As
of
December 31, 2003, $500,000 had been received for the transaction. A loss
provision
of $200,000 was made against the balance of the sales price as the
Company
has determined that the purchaser will not be able to pay the remaining
balance.
Since
the
Company started its Internet-related business in China, it has
seen
rapid growth in Internet use in China; but it has also seen an equal if
not
greater growth in companies entering this arena. As a result, the industry
experienced
severely reduced operating margins and continued losses. Although the
Company was considered an early leader in the Domain Name Registration
field,
due to the lack of adequate funding, future growth potential against many
competitiors
was limited at best. The Company had struggled for several years to
break
even and was hoping for some meaningful funding to grow, but the plan was
nullified
when the funding failed to materialize. As China becomes more and more
open
according to the terms of the WTO, the world's large well-funded companies
have
been
given access to the China market and seriously compromised the Company's
competitive position.
In
February, 2003, the Company signed an agreement to sell the Company's
China assets (Domain name registration) to a subsidiary of Sino-i.com
Limited,
a Hong Kong Stock Exchange listed company for a total consideration of
Rmb 20
million (approx. US$ 2.4 million). The Company has received all of the
purchase
price, and the divestiture was completed in 2004.
Education
Business
In
2002,
the Company redirected its resources to the education and training
field. In January 6, 2003, the Company announced the acquisition of
Windsor Education
Academy Inc., a Richmond, British Columbia based school specializing
in
English as a Second Language (ESL) courses to foreign students. Total
consideration
was C$ 200,000 (about US$ 128,000). Windsor Education Academy Inc., a
Richmond,
British Columbia based school offers English as a Second Language (ESL)
courses to foreign students. Windsor is government certified. The Company
will
help
Windsor to expand locally as well as internationally into China and Southeast
Asia. The Company will look for further companies in this market
area
with
the
goal of introducing foreign accredited programs into the China
market.
Education
and Training
Windsor
Academy has a campus in Richmond, British Columbia. They are equipped
with
personal computers and the standard classroom fixtures.
China
Mobility Solutions, Inc. currently maintains an office at: #900 -
789
West Pender Street, Vancouver, B.C. Canada V6C 1H2 (telephone number is
1-604-632-9638).
Quicknet
Acquisition in 2004
In
2004,
the Company entered into a Definitive Agreement to acquire 51% of a
SMS
provider in China, Beijing Quicknet Telecommunications Corp. Ltd. (Beijing
Quicknet),
from non-affiliates through its Hong Kong subsidiary Infornet Investment
LTD.
In order to comply with current Chinese law, the Company will acquire
49%
immediately upon closing and will retain the right to acquire the 2% as soon
as
it is
able to obtain Government approval or achieve a legal structure (under
Chinese
law) which allows control of the 2% thereby aggregating 51%).
The
Company acquired 49% of Beijing Quicknet for a price of U$3,060,000 (three
million and sixty thousand US dollars) in form of issuing 6,120,000 (six
million
one hundred and twenty thousand) common shares of the Company's stock at
a
deemed
price of US$0.50 per share. The remaining 2% will be conveyed for US$100
when either of the following is completed to the satisfaction of the
Company
(1) the appropriate government ministry in China approving the transfer
of
the
2%, or (2) an acceptable legal mechanism for the transfer of the 2%
ownership
is
arranged. Furthermore, the Company has the option to acquire the
remaining
49%
of Beijing Quicknet within 2 years from the Closing Date. If the Company
exercises the option to purchase the remaining 49% of Beijing Quicknet
within
first year from the Closing Date, the purchase price will be US$4,000,000
(four
million US dollars); if the Company exercises the option to purchase the
remaining
49% of Beijing Quicknet within the second year from the Closing Date,
the
purchase price will be US$5,000,000 (five million US dollars). The purchase
price
will be in the form of a combination of cash and the issuance of common
shares
of
the Company.
The
Company has the right to appoint all of the directors of Beijing
Quicknet.
Discontinued
Internet Services
Up
until
late 2002, the Company business was focused on domain name registration,
webhosting and web design services under the ChinaDNS banner. It operated
the
website www.chinadns.com, the first in the PRC to offer online site
registration.
In
October 1999, ChinaDNS was approved as an Official Agent of Network Solutions,
Inc.
Due
to
the continued loss on operations ($254,035 in 2002). In 2003, the Company
entered
into an Agreement to sell the domain name registration business to China
Enterprise
an ASP for about $2,400,000, which sale was completed in 2004. We are
treating
the DNS business as discontinued operations at this time, as China Enterprise
is in full control of the assets.
CURRENT
BUSINESS
Mobile
Solutions for Businesses in China
The
Company is focusing on providing mobile solutions to many diverse corporations
across China. With its rapidly growing client base, the Company hopes
to
become one of the largest providers of mobile business solutions in China.
The first product launched is mobile marketing solution for
enterprises.
Education
and Training
The
Company is currently offering English as a Second Language (ESL) and related
courses
through Windsor Education Academy in the Richmond campus. The Company
owns
100%
of Windsor, a B.C. company.
MARKETING
Windsor
Education Academy uses the printed media as well as recruitment agents
to
attract students. Word of mouth is also an important endorsement. Windsor
is
also a British Columbia Provincial Government endorsed ESL provider, receiving
students from government programs, where the fee is paid by the government.
Windsor is continuously working to improve its recognition for quality
and
service with the British Columbia Provincial Government.
News
Advertising Service
On
July
3, 2003, the Company acquired 51% of Dawa Business Group Inc. ("Dawa")
in
exchange for 49% of our subsidiary, Windsor Education Academy Inc. ("Windsor").
The Company closed its Dawa operations abandoned any interest in Dawa and
received back its 49% of Windsor Education Academy, Inc.
PRODUCTS,
SERVICES, MARKETS, METHODS OF DISTRIBUTION
Mobile
Solutions for Quicknet in China
(1) Products
and
services:
The
first
mobile solution launched by the Company is mobile marketing. Mobile
marketing is the use of the mobile medium as a communications and
entertainment channel between a brand and an end-user. Mobile marketing
is the only personal channel enabling spontaneous, direct, interactive
and/or targeted communications, any time, any place. Mobile marketing
can be used in a wide variety of ways:
o
For customer
acquisition
o
For customer
retention
o
For loyalty
building
o
As a sales
promotion tool
o
To support product
launches
o
To raise brand
awareness
o
For internal
communications
o
As a redemption
/coupon
tool
o
For direct
marketing
o
As an effective
business to business communications vehicle
o
As an additional
revenue stream
o
To be able to offer
time / location specific offers
o
As a channel for
delivering ring tones and logos
As
China
has over 334 million mobile phone subscribers by the end of 2004, and
management
believes there will be more demand from the enterprises to utilize mobile
phones as a new media for their marketing.
(2) Method
of
distribution and Marketing: Mobile Solutions
The
Company will use four outlets to approach the market for its mobile business
solutions:
agents, mobile carriers, in-house sales staffs and sales support branches.
Education
and Training
(1) Educational
Product and Service
Windsor
provides ESL (English as a Secondary Language) and related courses in
Canada.
In a recent study conducted by the OECD (Organization of Economic Cooperation
and Development) and the UNESCO (United Nations Educational Scientific
and
Cultural Organization) titled "Financing Education - Investments and
Returns",
attributed education as a key ingredient in a country's economic growth.
The study also examined sources of funding and found that 44% of
educational
expenditure for China came from private sources ompared to an OECD average
of 12%. Our first acquisition, Windsor is government certified. The Company
will help Windsor to expand locally as well as internationally into China
and
Southeast Asia. The Company will look for further companies that fit
this
profile with the goal of introducing foreign accredited programs into the
China
market. For the past several years, supplementary education had become a
multi-billion
dollar business in China, the most popular being Foreign Schools, English
Training, Data Processing, Accounting and a variety of other
programs.
Started
several years ago, this trend is still ascending and with the
integration
of
China into the world community as well as the growth in personal
disposable
income, we expect the growth to continue for a substantial period of
time.
(2) Method
of
Distribution and Marketing: Education
The
Company will use the printed media as well as recruitment agents to attract
students for its education business. Word of mouth is also an important
endorsement.
Windsor is also a British Columbia Provincial Government endorsed ESL
provider, receiving students from government programs, where the fee is paid
by
the
government. Windsor is continuously working to improve its recognition
for
quality and service with the British Columbia Provincial
Government.
EMPLOYEES
OF SUBSIDIARIES
At
the
end of December 31, 2004, QuickNet had approximately 83 employees.
About 27% are technical supports, 26% are sales and marketing, 17% are
R&D and the rest are administrative personnel. The actual number of
employees
changed during the year and will change according to the expansion of
the
Company in the future.
At
the
end of December 31, 2004, Windsor had approximately eleven employees,
consisting of eight full and part time teachers and three administrative
personnel. The key to success is the ability to attract students either
publicly or privately funded. The number of employees will change as the
student
body changes and there is no collectively bargaining unit at the
academy.
DEPENDENCE
ON CLIENT BASE
For
the
mobile solutions business, we have sign contracts with a number of clients
for varying types of marketing. The Company is replying on its agents,
mobile
carriers, in house sales staffs and sales supporting branches as well as
media
and
other marketing channels to increase its client base.
For
the
Education Services, there are about 100 students. Windsor is relying
on the printed media, word of mouth, recruiting agents and other marketing
channels to increase the number of students.
Backlog
of Orders: None.
Government
Contracts: Windsor Education received a number of ESL students from
the
Provincial Government of British Columbia under government programs,
but
there
is no commitment beyond the individual student's referral and subsidiary.
All government programs involving Windsor ended March 31, 2005.
COMPETITIVE
CONDITIONS
Mobile
Solutions
The
Chinese economy has been among the fastest growing in the world for the past
several
years. China's economy withstood the effect of SARS and grew 9.1% in
2003.
Growth matches that level in 2004 as well. China has one of the largest
and
fastest-growing telecom markets in the world, with the mobile phone sector
in
particular having become the world's number one with more than 334 million
by
the
end
of 2004. Mobile solutions, which use mobile phone as a new media, has
created
a
large market in China. There are two types of markets in this field:
the
individual market and the corporate market. Competition on individual market
is
fiercer than the corporate market since the individual market is much
saturated
thus become less lucrative. Beijing an early bird in corporate market
and
possessed by nearly 500,000 corporate data base from previous operation,
the
Company
will have more growth potential than if the Company targeted the highly
competitive
consumer mobile market.
Education
Services
In
Windsor's business, the supplementary education and training market is
very
fragmented, there are very few large ones and numerous small schools,
established
mostly in larger cities worldwide. There are several keys to a school's
success, such as, quality of its curriculum and graduates, teachers and
facilities,
certifications and diplomas offered, location and
accessibility, marketing
and advertising, variety of programs offered, etc. The Company is striving
to improve on all fronts as well as expanding through acquisitions and
into
the
mainland China market.
CHINA
MOBILITY SPONSORED RESEARCH AND DEVELOPMENT
None.
COMPLIANCE
WITH RELATED LAWS AND REGULATIONS
In
China,
the Company relies on the advice of Chinese legal counsel to maintain
compliance with all laws, rules, and regulations in China. The telecom
industry
is subject to extensive government regulation, which regulations have
been
changing rapidly, and there is no assurance that the Company will not be
adversely
impacted by such regulations in the future.
On
the
Education Services side, 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.
(a) Local
regulations
The
Company cannot determine to what extent its future operations and earnings
may be affected by new legislation, new regulations or changes in existing
regulations on a local level in Canada.
(b) National
regulations
The
Company cannot determine to what extent its future operations and earnings
may be affected by new legislation, new regulations or changes in existing
regulations on a national level.
The
value
of the Company investments in PRC may be adversely affected by significant
political, economic and social uncertainties in the PRC. Any changes
in
the
policies by the government of the PRC could adversely affect the Company
by,
among
other factors, changes in laws, regulations or the interpretation thereof,
confiscatory taxation, restrictions on currency conversion, the expropriation
or nationalization of private enterprises, or political relationships
with other countries.
(c) Parents
and
Subsidiaries
Parent:
China
Mobility Solutions, Inc., a Florida corporation
Subsidiaries:
INFORNET
INVESTMENT CORP., a British Columbia corporation (100%)
INFORNET
INVESTMENT LTD., a Hong Kong corporation (100%)
XIN
BIZ
Corp (100% owned BVI Corp.) (Dormant)
XIN
BIZ
Limited (a Hong Kong Corp) (100% owned subsidiary of XIN BIZ Corp.) (Dormant)
WINDSOR
EDUCATION ACADEMY, INC. (100% owned British Columbia Corp.)
The
Company is a minority shareholder of THE LINK GROUP, INC. (formerly called
World Envirotech, Inc.) See Company 2003 Financial Statement, Note
6.
The
Company, through Infornet (Hong Kong) is the holder of 49% of Beijing
Quicknet.
BUSINESS
SEGMENTS
During
the year, the Company had revenues in two segments:
|
|
|
|
Mobile
marketing services |
|
$
|
1,871,960
|
|
Tuition
fees
|
|
|
298,806
|
|
The
cost of revenue in each segment was:
|
|
|
|
|
Mobile
marketing services
|
|
$
|
412,222
|
|
Tuition
fees
|
|
|
61,013
|
|
The
gross profit from each of the business segments
was:
|
|
|
|
|
Mobile
marketing services
|
|
$
|
1,459,738
|
|
Tuition
fees |
|
|
237,793
|
|
Total
|
|
$
|
1,697,531
|
|
The
Company also carries deferred revenue of $2,105,165 for its SMS business
in
China
and
$6,533 for its education and training business.
Note:
The
Company agreed to acquire 51% of a SMS provider in China, Beijing Quicknet
Telecommunications Corp. Ltd. (Beijing Quicknet), from non-affiliates.
In
order
to comply with current Chinese law, the Company acquired 49%
immediately
upon
closing and retains the right to acquire the 2% as soon as it is able to
obtain
Government approval or achieve a legal structure (under Chinese law)
which
allows control of the 2% (thereby aggregating 51%).
The
Company acquired 49% of Beijing Quicknet for a price of U$3,060,000 (three
million and sixty thousand US dollars) in form of issuing 6,120,000 (six
million
one hundred and twenty thousand) common shares of the Company's stock
at a
deemed
price of US$0.50 per share. The remaining 2% will be conveyed for US$100
when either of the following is completed to the satisfaction of the
Company
(1) the appropriate government ministry in China approving the transfer
of
the
2%, or (2) an acceptable legal mechanism for the transfer of the 2%
ownership
is
arranged. Furthermore, the Company has the option to acquire the
remaining
49%
of Beijing Quicknet within 2 years from the Closing Date. If the Company
exercises the option to purchase the remaining 49% of Beijing Quicknet
within
first year from the Closing Date, the purchase price will be US$4,000,000
(four
million US dollars); if the Company exercises the option to purchase the
remaining
49% of Beijing Quicknet within the second year from the Closing Date,
the
purchase price will be US$5,000,000 (five million US
dollars).
The
Company has the right to appoint all of the directors of Beijing Quicknet
per
an
agreement.
ITEM
2. DESCRIPTION OF PROPERTIES
China
Mobility Solutions, Inc. currently maintains a leased office at:
#900-
789
West Pender Street, Vancouver, B.C. Canada V6C 1H2 (telephone number is
1-604-632-9638).
It also has a leased an office, as part of the joint venture, in
Beijing at Room 1858, New Century Office Tower, No. 6, Southern Road Capital
Gym,
Beijing 100044, China. Windsor Academy currently rents spaces at 7900
Alderbridge
Way, Unit 100, Richmond, BC, Canada.
(a)
Real
Estate: None
(b)
Equipment, library, and furniture at December 31, 2004: $6,549
ITEM
3. LEGAL PROCEEDINGS
On
Feb.7,
2005, China Mobility Solutions, Inc. was sued by Sino-I Technology
Limited for $88,270 for breach of warranty and a claim under a
guarantee.
Our
lawyer has 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.
No
director, officer or affiliate of China Mobility Solutions, Inc., and no
owner
of
record or beneficial owner of more than 5.0% 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.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
following matters were submitted during the fiscal year covered by this
report
to
a vote of security holders of China Mobility Solutions, Inc., through
the
solicitation of proxies:
1.
To
change the Company's name to China Mobility Solutions, Inc.
2.
To
authorize a reverse split of the Company's common stock on a one
for
five
basis.
The
items
were approved by a majority of the shares issued and outstanding
as
of the
date of the proxy.
PART
II
ITEM
5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a)
The
Company common stock is traded on the Bulletin Board under the trading
symbol CHMS. The following table sets forth high and low bid prices of the
its
common stock for years ended December 31, 2003 and December 31, 2004 as
follows:
|
|
Bid
(U.S. $)
|
|
|
HIGH
|
LOW
|
2004
|
|
|
|
First
Quarter |
|
0.27
|
0.10
|
Second
Quarter |
|
1.01
|
0.09
|
Third
Quarter |
|
0.65
|
0.16
|
Fourth
Quarter |
|
0.68
|
0.18
|
|
|
|
|
2003
|
|
|
|
First
Quarter |
|
0.34
|
0.04
|
Second
Quarter |
|
0.29
|
0.04
|
Third
Quarter |
|
0.29
|
0.10
|
Fourth
Quarter |
|
0.20
|
0.09
|
The
Company shares trade on the Over the Counter Bulletin Board. Quotations,
if
made,
represent only prices between dealers and do not include retail markups,
markdowns or commissions and accordingly, may not represent actual transactions.
Because
of recent changes in the rules and regulations governing the trading
of
small
issuers securities, the Company's securities are presently classified
as
"Penny
Stock," which classification places significant restrictions upon broker-dealers
desiring to make a market in these securities. It has been difficult
for management to interest any broker-dealers in our securities and it
is
anticipated that these difficulties will continue until the Company is able
to
obtain
a listing on NASDAQ at which time market makers may trade its securities
without complying with the stringent requirements. The existence
of market
quotations should not be considered evidence of the "established public
trading
market." The public trading market is presently limited as to number of
market
markers in Company stock and the number of states within which its stock
is
permitted to be traded.
(b)
As of
December 31, 2004, China Mobility Solutions, Inc. had approximately
5,000 shareholders of record of the common stock.
(c)
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.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
information presented here should be read in conjunction with China Mobility
Solution's consolidated financial statements and related notes.
EXECUTIVE
SUMMARY
In
early
2004, the Company acquired 49% of a mobile solution provider in China,
Beijing Quicknet Telecommunications Corp. Ltd. (Beijing Quicknet), from
non-affiliates
and has options to acquire the other 51%. In 2004, the Company has
changed its name to China Mobility Solutions Inc. On June 30, 2004, the
Company
has entered into agreement to dispose its ownership in Dawa Business
Group
Inc. and regain 100% ownership of Windsor Education Academy Inc. The
Company
has shifted its focus from solely education to mobile solution industry
for
enterprises in China. China is the world fastest-growing telecom market.
China
is
the world's number one cellular market, with over 320 million mobile
phone
users already surpassing the U.S. subscriber base of less than 170 million,
as reported by the Cellular Telecommunications & Internet Association.
The
Chinese SMS market alone accounts for 1/3rd of the world's traffic. SMS
means
sending and receiving brief text messages via mobile phones. SMS can be
used
for
everything from promotional marketing to mobile banking. The Company's
mobile
marketing solution is targeted to enterprises to market through SMS to
mobile
phone users.
WORKING
CAPITAL NEEDS
On
the
Mobile Solution Services side, the working capital needs arise primarily
from: the need for capital to acquire the rest of the ownership of Quicknet
in; expanding existing capacity of Quicknet services, to open more offices
in other major cities, to launch new value-added services, to acquire
other
companies that will complement the services offered by us.
On
the
education services side, the Company will use the working capital to
explore
the local market, launch new courses, set up new market campaign, sign
up
with
Universities to offer courses in order to get University credits, 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. Acquisition of an interest
in
Beijing Quicknet gives the Company an opportunity to capitalize in this
rapidly
growing market, and it also gives the chance for Beijing Quicknet to
solicit
these corporate leads to attempt to generate more revenue. Quicknet plans
to
grow organically by launching more products, but may also grow by acquiring
other companies that will complement services offered by us.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company had cash capital of $5,380,622 at year-end 2004. 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
fiscal year-end it had $5,466,574 in current assets and current liabilities
of $2,452,522.
The
cash
capital at the end of the period of $5,380,622 will be used to fund continuing
operations. The sale of the ChinaDNS assets have provided more than US$2
million in working capital, ande the continuing operations have provided
more
than
U$1.9 million in working capital in 2004.
The
Company has revenues from its mobile marketing services Beijing QuickNet
and
tuition
fees from: Windsor Education Academy ("Windsor") and at this time. However
capital from private placements, borrowing against assets and/or from
warrants
being exercised by warrant holders, may be required to fund future operations.
The Series "A" and Series "B" warrants of the Company expired on
March
31,
2005. There were 1,155,000 options outstanding at December 31, 2004 at
the
option price of $0.30 per share.
Changes
in Financial Condition:
At
December 31, 2004, the Company's assets were $6,447,030 compared to $6,320,612
at December 31, 2003. The current assets totaled $5,466,574 at 2004 year-end
compared to $5,869,782 at 2003 year-end. The sale of the China Internet
business
"ChinaDNS" has been completed; ChinaDNS' assets of $2,533,838 were disposed.
The current continuing operations had brought in $2,170,766 revenue by
December
31, 2004, compared to $280,723 in year 2003. There is deferred revenue
of
$2,111,698 at December 31, 2004 compared to $28,354 in 2003. Net cash
provided
by continuing operations was $1,924,019 at December 31, 2004. The Company
had $ 5,380,622 in cash by the year-end compared to $3,303,591 a
year
ago.
These changes were caused mainly by the acquisition of Beijing QuickNet,
a
mobile
solution provider in China in June 2004. Total liabilities at year-end
2004
were
$2,452,522 compared to $5,870,451 at 2003 year-end. Deferred revenue
has
been
increased because of the acquisition of QuickNet; disposition of ChinaDNS
and completion of the disposition of ISP business.
The
Company issued 6,120,000 common shares on June 23, 2004 to acquire QuickNet.
The
Company completed a reverse stock split of 3:1 on June 24, 2004. Total
outstanding
common shares as of December 31, 2004 were 15,826,670.
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 operations expenses.
If
future
revenue declines, or operations are unprofitable, it will be forced to
develop
another line of business, or to finance its operations through the sale
of
assets
it has, or enter into the sale of stock for additional capital, none
of
which
may be feasible when needed. The Company has no specific management ability,
nor financial resources or plans to enter any other business as of this
date.
From
the
aspect of whether it can continue toward the business goal of maintaining
and expanding the businesses in Canada and develop new business of internet
services in China, it may use all of its available capital.
The
effects of inflation have not had a material impact on its operation, nor
is
it
expected to in the immediate future.
Although
the Company is unaware of any major seasonal aspect that would have a
material
effect on the financial condition or results of operation, the first
quarter
of each fiscal year is always a financial concern. It is not uncommon
for
companies to shut down their operation or operate on a skeletal crew during
the
Chinese New Year holiday. Therefore in effect, the first quarter really has
only
two
months for generating revenue.
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.
RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 AS COMPARED TO THE
YEAR
ENDED DECEMBER 31, 2003.
Revenues.
The Company achieved revenues of $2,170,766 in 2004 in contrast to $280,723
in 2003 in the form of net sales of mobile marketing services and tuition
fee from its subsidiaries: QuickNet and Windsor. The Gross profit in
2004
is
$1,697,531 compared to $146,383 in 2003. A significant contributor to
the
increase in revenues and gross profit is the acquisition of QuickNet in June
2004.
Operating
Expenses. The Company incurred operating expenses of $1,939,747 in 2004
compared to operating expenses of $337,093 in 2003 due to the acquisition
of
QuickNet. Salaries and advertising accounts for over 65% of operating
expenses.
The Company has invested in the Link Group, Inc. on December 20, 2001
and
January 18, 2002. As of December 31, 2004, the Link Group, Inc.'s financial
statements
were not sufficiently timely for the Company to apply the equity method
and Link Group, Inc.'s shares were ceased trading over nine months.
Therefore,
the Company recorded an impairment of $172,250 on these shares.
Loss
from
continuing operations. Loss from continuing operations for 2004 was ($258,772)
compared to the 2003 operating loss of ($207,996). The Company recorded
an impairment on Link Group, Inc.'s shares for $172,250.
Net
Income. Net Income available to Common Stockholders is $3,018,672 in the
contrast
to a Net Loss of $314,277 in 2003. This is caused by extraordinary gain
on
disposal of internet-related operations of $3,319,098 (China
DNS).
Earnings
per share. Earnings per share is $0.20 in 2004 compared to a loss per
share
of
($0.02) in 2003. Positive earnings per share were attributable to the
extraordinary
gain. Operating earnings in 2004 were negative at ($.02) per share compared
to a loss of ($.01) per share in 2003.
Future
Trends:
In
the
Mobile Solution Service business, the Company cannot assure that any
profit
on
revenues can be maintained in the future, because it may have to continue,
through its joint venture business, to advertise and promote its services
and develop additional value-added services in order to preserve or increase
its market share. In spite of taking measures to control expenses, operating
losses may continue. If the Company acquires additional capital, for
example
through sale of stock in private placements or through investors
exercising
warrants, it may be able to advertise and promote its services more aggressively
and expand its business more rapidly.
On
the
Education Services side, we have operated for 2 years now; the competition
is very fierce in the market. The Canadian government has tightened its
budget on English training for new immigrants, which leads to reduced
government
funding for Windsor, this will have negative effects to the revenue of
Windsor Education Academy. Canadian government also adopted more strict
system
to
choose schools that can be funded by the government and every school
needs
to
re-register with the government. The Government supported ELSA courses
held
in
Windsor Education Academy ended by Mar. 31, 2005.
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 2. 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 are 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. Management is currently evaluating the effect that the adoption
of
FIN46
will have on its results of operations and financial condition. 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 to 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.
ITEM
7. FINANCIAL STATEMENTS
The
response to this item is included as a separate exhibit to this
report.
Please
see pages F-1 through F-16.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL
DISCLOSURE
On
December 22, 2004, the Board of Directors of China Mobility Solutions,
Inc.
("China Mobility") approved a change in auditors. The Board of Directors
approved
the dismissal of Clancy and Co., P.L.L.C. ("Clancy and Co., P.L.L.C.")
as
China
Mobility's independent public accountants and the selection of Moen and
Company
as their replacement.
Clancy
and Co., P.L.L.C.'s reports on the consolidated financial statements
of
China
Mobility and its subsidiaries for the two most recent fiscal years ended
December 31, 2003 and 2002 did not contain any adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit
scope, or accounting principles.
During
China Mobility's two most recent fiscal years ended December 31, 2003
and
2002 and the subsequent interim period through December 22, 2004, there
were
no
disagreements between China Mobility and Clancy and Co., P.L.L.C. on any
matter
of
accounting principles or practices, financial statement disclosure, or
auditing
scope or procedure, which disagreements, if not resolved to Clancy and
Co.,
P.L.L.C.'s satisfaction, would have caused them to make reference to the
subject
matter of the disagreement in connection with their reports on China
Mobility's
consolidated financial statements for such years; and there were no reportable
events as described in Item 304(a)(1)(iv) of Regulation S-K. China
Mobility
provided Clancy and Co., P.L.L.C. with a copy of the foregoing disclosures.
Attached as Exhibit 16 is a copy of Clancy and Co., P.L.L.C.'s letter,
dated January 4, 2005, stating its agreement with such statements.
In
addition, during China Mobility's two most recent fiscal years ended
December
31, 2003 and 2002 and the subsequent interim periods through December
22,
2004,
China Mobility did not consult with Moen and Company with respect to
the
application of accounting principles to a specified transaction, either
completed
or proposed, or the type of audit opinion that might be rendered on China
Mobility's financial statements, or any other matters or reportable events
as
set
forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
ITEM
8A. CONTROLS AND PROCEEDURES
The
management of the company has evaluated the effectiveness of the issuer's
disclosure controls and procedures as of December 31, 2004 (evaluation
date)
and
have concluded that the disclosure controls and procedures are adequate
and effective based upon their evaluation as of the evaluation
date.
There
were no significant changes in internal controls or in other factors
that
could significantly affect internal controls subsequent to the date of the
most
recent evaluation of such, including any corrective actions with regard to
significant
deficiencies and material weaknesses.
ITEM
8B. OTHER INFORMATION
None.
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS, AND CONTROL PERSONS;
COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) The
following
table furnishes the information concerning Company directors
and officers as of the date of this report. The directors of the Registrant
are elected every
year
and
serve until their
successors are elected and
qualify.
Name
|
Age
|
Title
|
Term
|
Xiao-qing
Du
|
34
|
President
and
Director
|
Annual |
Ernest
Cheung |
54
|
Director
and Secretary |
Annual |
The
following table sets forth the portion of their time the directors devote
to
the
Company:
Ernest
Cheung
|
20%
|
Angela
Du |
100% |
The
term
of office for each director is one (1) year, or until his/her successor
is elected at the Company annual meeting and is qualified. The term of
office
for each of the officers is at the pleasure of the Board of
Directors.
(b) Identification
of
Certain Significant Employees.
Strategic
matters and critical decisions are handled by Company directors and
executive officers: Xiao-qing Du and Ernest Cheung. Day-to-day management
is
delegated
to Xiao-qing (Angela) Du partly in China and partly in Canada and Xin
Wei
in
China. Wei is an employee of the wholly-owned subsidiary, Infornet Investment
Corp. Xin Wei occupies the position of President of the Chinese subsidiary
on strategies, planning, business development.
(c) Family
Relationships. Xiao-qing Du and Xin Wei are husband and wife.
(d) Business
Experience.
The
following is a brief account of the business experience during the past
five
years of each of the Company directors and executive officers, including
principal
occupations and employment during that period and the name and principal
business of any corporation or other organization in which such occupation
and employment were carried on.
Xiao-Qing
(Angela) Du, President and Director, age 34.
She
has
been President and Director of our company from 2003 to date. She received
a
Bachelor of
Science in International Finance in 1992 from East China Normal University.
She
received a Master of Science in Finance and Management Science in 1996 from
the
University of Saskatchewan Canada. She was Business Manager of China
Machinery
& Equipment I/E Corp. (CMEC) from 1992 to 1994. She is now President
of
Infornet Investment CORP., the Company's wholly owned subsidiary in Canada
since
1997. She was President of China Mobility from 1997 to 1999. She ran the
operations
in China of the DNS and web hosting business.
Ernest
Cheung, Secretary and Director, age 54.
He
has
been Secretary of the company
since May 1998. He received a B.A. in Math in 1973 from University of
Waterloo
Ontario. He received an MBA in Finance and Marketing from Queen's University,
Ontario in 1975. From 1991 to 1993 he was Vice President of Midland Walwyn
Capital, Inc. of Toronto, Canada, now known as Merrill Lynch Canada. From
1992
until 1995 he served as Vice President and Director of Tele Pacific International
Communications Corp. He has also served as President for Richco Investors,
Inc. since 1995. He has been a director of the Company since 1996. He
is
currently a Director of Agro International Holdings, Inc. since 1997, Spur
Ventures,
Inc. since 1997, Richco Investors, Inc. since 1995 and Drucker Industries,
Inc. since 1997. In 2000, he became President and a Director of China
NetTV Holdings, Inc. In 2002, he became a Director of The Link Group, Inc.
(Formerly
World Envirotech, Inc.).
Mr.
Cheung is or has been an officer or director in the following public
companies:
Name
of
Issuer |
Symbol
|
Market
|
Position
|
From
|
To
|
Business |
Agro
International Holdings Inc. |
AOH
|
CDNX
|
President |
Jan-97
|
Current
|
Agriculture |
China
NetTV Holdings Inc.* |
CTVH |
OTCBB
|
President
|
May-00
|
2003 |
Set-Top
Box Technology |
Drucker,
Inc.* |
DKIN
|
OTCBB
|
Secretary
|
Apr-97
|
2003
|
Oil
& Gas |
ITI
World Investment Group Inc. |
IWI.A
|
CDNX
|
|
Jun-98
|
Current
|
Beverage
Distribution |
NetNation
Communications Inc. |
NNCI
|
Nasdaq
Small Cap. |
|
Apr-99
|
Current
|
Domain
Name Registration |
Richco
Investors Inc. |
YRU.A
|
CDNX
|
President
|
May-95
|
Current
|
Financial,
Management, Capital Market Services |
Spur
Ventures Inc. |
SVU
|
CDNX
|
|
Mar-97
|
Current
|
Fertilizer |
The
Link Group Inc.* |
LNKG
|
OTCBB
|
Secretary
|
Dec-01
|
Current
|
Internet
Surveillance |
China
Mobility Solutions, Inc.* |
CHMS
|
OTCBB
|
Secretary
|
Mar-97
|
Current
|
China
Internet |
*
Reporting Companies in US
He
has
held a Canadian Securities license but is currently inactive. He has
been
a Director and Secretary of Registrant since January 1997.
(e) Committees
of
the Board of Directors
The
Board
of Directors does not have a nominating committee. Therefore, the selection
of persons or election to the Board of Directors was neither independently
made nor negotiated at arm's length.
Compensation
Committee. The Company established a Compensation Committee on October
5, 1999, which consists of two directors, Angela Du and Ernest Cheung.
The
Compensation Committee will be responsible for reviewing general policy
matters
relating to compensation and benefits of directors and officers, determining
the total compensation of its officers and directors.
Audit
Committee. On August 31, 1999, the Board of Directors established an
Audit
Committee, which consists of two directors, Angela Du and Ernest Cheung.
The
Audit
Committee will be charged with recommending the engagement of independent
accountants to audit Company financial statements, discussing the scope
and
results of the audit with the independent accountants, reviewing the
functions
of Company management and independent accountants pertaining to its financial
statements and performing other related duties and functions as are deemed
appropriate by the Audit Committee and the Board of Directors.
Qualified
Financial Expert. Ernest Cheung is a qualified financial expert
as
a chartered accountant and an MBA with twenty years' experience in public
companies.
(f) Resolution
of
conflicts of interest
As
mentioned earlier, some officers and directors will not devote more than
a
portion
of their time to the affairs of the Company. There will be occasions
when
the
time requirements of Company business conflict with the demands of their
other business and investment activities. Such conflict may require that
the
Company attempt to employ additional personnel. There is no assurance that
the
services of such persons will be available or that they can be obtained upon
terms
favorable to the Company.
There
is
no procedure in place which would allow Company officers or directors
to resolve potential conflicts in an arms-length fashion. Accordingly,
they
will
be required to use their discretion to resolve them in a manner which
they
consider appropriate.
Code
of
Ethics. The Company has not adopted a Code of Ethics.
ITEM
10. EXECUTIVE COMPENSATION
(a) Officers'
Compensation
Compensation
paid by the Company for all services provided up to December 31, 2004,
(1)
to each of the executive officers and (2) to all officers as a
group.
SUMMARY
COMPENSATION TABLE OF EXECUTIVES
|
|
Cash
Compensation
|
|
Security
Grants
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Annual
Compensation
|
|
Restricted
Stock Options
|
|
Securities,
Underlying Options/SARs (#) (SHARES)
|
|
Long
Term Compensation / Options
|
|
LTIP
Payments
|
|
All
other Compensation
|
|
Xiao-qing
Du,
|
|
|
2001
|
|
|
32,084
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
President
of |
|
|
2002
|
|
|
4,809
(CDN
|
)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Infornet
Subsidiary |
|
|
2003
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
2004
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
330,000(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ernest
Cheung, |
|
|
2001
|
|
|
0
|
|
|
0
|
|
|
24,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Secretary |
|
|
2002
|
|
|
0
|
|
|
0
|
|
|
24,000
(CAD
|
)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
2003
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
2004
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
165,000(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
as a group |
|
|
2001
|
|
|
32,084
|
|
|
0
|
|
|
24,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
2002
|
|
|
4,809
(CAD
|
)
|
|
0
|
|
|
24,000
(CAD
|
)
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
|
|
2003
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
0
|
|
|
|
|
2004
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
495,000
|
|
(1)
Ernest Cheung received 16,667 options to buy 16,667 shares at $3.90 per
share,
plus Richco Investors, Inc. of which Mr. Cheung is an officer and director,
and Mr. Tsakok is an officer and director, received 128,333 units for
services
in structuring the private placement. Mr. Tsakok has resigned as an oficer
and Director of the Company.
(2)
Options at $.30 per share expiring August 1, 2007.
There
have been no Option/SAR grants or exercises in the last fiscal year reportable
under Reg. S-B, 402(c) or (d).
(b)
Directors' Compensation
Directors
who are also officers of China Mobility Solutions, Inc. receive no
cash
compensation for services as a director. However, the directors will be
reimbursed
for out-of-pocket expenses incurred in connection with attendance at
board
and
committee meetings. The Company has granted options to directors under
its
Stock
Incentive Plan subsequently adopted.
SUMMARY
COMPENSATION TABLE OF DIRECTORS
(To
December 31, 2003)
|
Cash
Compensation
|
Security
Grants
|
Name
and Principal Position
|
Year
|
Annual
Retainer Fees ($)
|
Meeting
Fees ($)
|
Consulting
Fees/Other Fees ($)
|
Number
of Shares
|
Securities,
Underlying Options/SARs (#) (SHARES)
|
LTIP
Payments
|
All
other Compensation
|
Xiao-qing
Du,
|
2001
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Director |
2002
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
Ernest
Cheung, |
2001
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Director |
2002
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
Maurice
Tsakok |
2001
|
0
|
0
|
24,000
(CAD)
|
0
|
0
|
0
|
0
|
Director
(1) |
2002
|
0
|
0
|
24,000
(CAD)
|
|
0
|
0
|
0
|
(Resigned
2004) |
2003
|
0
|
0
|
0
|
0
|
0
|
|
0
|
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
Directors
as a group |
2001
|
|
|
84,000(CAD)
|
|
|
|
|
|
2002
|
|
|
54,000(CAD)
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
(1)
On
July 15, 2004, Maurice Tsakok resigned as the director of the
Company.
*
See
Executive Compensation Table.
There
have been no Option/SAR grants or exercises in the last fiscal year reportable
under Reg. S-B, 402(c) or (d).
Termination
of Employment and Change of Control Arrangements:
None.
Stock
purchase options: (Note all of these options are subject to the 1 for 3
reverse
split effectuated in 2004. This would reduce the options by a factor of
3
and
increase the exercise price by a factor of 3.)
On
November 12, 1999 the Company granted options to purchase shares at $1.30
per
share to entities/persons who contributed to the Company in 1999, which
are
unexpired, as follows:
(a) 262,000
options to Gemsco Management Ltd., beneficially Maurice Tsakok,
for designing and implementing the Company's corporate website,
advising on technological matters, researching the technology sector
and for services as a director;
(b) 262,000
options to Farmind Link Corp. for their role as advisor on strategic
issues, technology market trends, and financial and capital market
issues;
(c) 262,000
options to Sinhoy Management Ltd., beneficially Marc Hung, for their
contributions to the general management of our company, investor relations,
technological matters and for services as a director;
(d) 212,000
options to Lancaster Pacific Investment, Ltd. for their contributions
in the areas of regulatory matters, Chinese market conditions
and strategies aimed at penetrating that market;
(e) 50,000
options to Ernest Cheung for services rendered as secretary and director;
and
(f) 20,000
options to Yonderiche International Consultants Ltd. for services
rendered in matters regarding Chinese government policies and regulations.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires
the Company's officers and directors, and persons who own more than ten
percent
of a registered class of the Company's equity securities, file reports
of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors, and greater than ten percent stockholders are required
by regulation to furnish to the Company copies of all Section 16 forms
they
file. Disclosure is not contained herein regarding Section 16
filings.
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED
STOCKHOLDER MATTERS
Section
13(d) of the Securities Exchange Act of 1934, as amended (The "Exchange
Act"), requires persons who own more than 5% of a registered class of
the
its
equity securities, to file Schedules of ownership and changes
in ownership
of Company equity securities with the Securities and Exchange Commission.
(a) Beneficial
owners of five percent (5%) or greater, of Company common stock:
The following sets forth information with respect to ownership by holders
of
more
than five percent (5%) of its common stock known by the Company based
upon
15,826,670 shares outstanding at December 31, 2004, and in the event of
exercise
of all options for our stock.
Title
of
Class |
Name
and
Address of Beneficial Owner |
Amount
of Beneficial Interest |
Percent
of Class |
If options
exercised* |
|
|
|
|
|
Common
Stock |
Xiao-qing
Du
Ste.
900-789 West
Pender St. Vancouver, BC V6C 1H2
|
1,250,000
(2)(9)
|
7.9%
|
7.6% |
Common
Stock |
Richco
Investors,
Inc.
Ste.
830-789 West
Pender St. Vancouver, BC V6C 1H2
|
1,137,999
(1)(3)(4)(7)
|
7.2%
|
6.9% |
Common
Stock |
Ernest
Cheung
Ste.
830-789 West
Pender St.
Vancouver,
BC V6C 1H2
|
1,446,333
(1)(3)(6)(7)(9)
|
9.1%
|
8.8% |
Common
Stock |
Maurice
Tsakok
Ste.
830-789 West
Pender St. Vancouver,
BC V6C 1H2
|
1,225,333
(1)(3)(5)
|
7.7%
|
7.4% |
Common
Stock |
QuickNet
Partners
#1859
New Century Office Tower
Beijing
China
|
2,040,000
|
12.9%
|
12.4% |
Includes
options exercisable within 30 days.
(b)
The
following sets forth information with respect to the Company common stock
beneficially owned by each Officer and Director, and by all Directors and
Officers
as a group, at December 31, 2004, and in the event of exercise of all
options
for our stock held by such listed holders and their affiliates or
beneficial
owners.
Title
of Class
|
Name
and
Address of Beneficial Owner |
Amount
of Beneficial Interest |
Percent
of Class |
All
warrants
exercised** |
|
|
|
|
|
Common
Stock |
Xiao-qing
Du
(Director)
Ste. 900-789
West Pender St.
Vancouver, B.C. V6C 1H2
|
1,250,000
(2)(8)
|
7.9% |
7.6% |
Common
Stock |
Ernest
Cheung
(Secretary &
Director)
(Including Richco
Investors)
|
1,446,333
(1)(3)(4)(5)(6)(8)
|
9.1%
|
7.3% |
Common
Stock |
Maurice
Tsakok (Including Richco
Investors)
|
1,225,333
(1)(3)(4)(5)(6)(8)
|
7.7% |
6.2% |
Total
for
officers and directors as a
group
|
|
2,696,333 |
16.4
|
13.3 |
(1)
Richco Investors, Inc., owns 1,137,999 shares after the reverse split.
Messrs. Cheung and Tsakok are officers, directors and beneficial owners
of
Richco Investors Inc. For purposes of this table, the shares owned
by
Richco are deemed owned by Mr.Cheung and Mr. Tsakok, beneficially
and individually. Mr. Cheung received 165,000 options in
2004.
(2)
As an
officer Ms. Du received 330,000 options in 2004.
(3)
Ernest Cheung has 16,667 options (after the reverse split) to purchase
shares
at
$3.90 and 165,000 options at $.30.
(4)
Maurice Tsakok has 87,333 options after the reverse split to purchase
shares
at
$3.90.
(5)
Ernest Cheung is President of Development Fund II of Nova Scotia, Inc.
which
owns 63,333 common shares after the reverse split.
(6)
Includes all shares of Richco Investors, Inc., Ernest Cheung, Maurice
Tsakok,
and Development Fund II of Nova Scotia since there is common control.
(7)
Assumes exercise of all warrants and options within 60 days pursuant to
Rule
13(d)3(d)(i).
(8)
QuickNet Partners owns 2,040,000 common shares after the reverse split
for
the
acquisition.
(9)
XiaoQing Du owns 330,000 post reverse split options at the exercise price
of
$0.30; Ernest Cheung owns 165,000 post reverse split options at the
exercise price of $0.30.
*If
all
warrants for units are exercised. **If all warrants and options for shares
are exercised.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Options:
In 2004, the Company's directors were granted 495,000 options to purchase
shares at $0.30. All of the options are outstanding as of December 31,
2004.
Angela Du received 330,000 options and Ernest Cheung received 165,000
options.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
General.
Clancy & Co., PLLC. ("C&C") is the Company's principal auditing
accountant firm. The Company's Board of Directors has considered whether
the provisions of audit services is compatible with maintaining C&C's
independence.
Audit
Fees. C&C billed the Company for the following professional services:
audit of the annual financial statement of the Company for the fiscal
year
ended December 31, 2002 and quarterly review $31,230. C&C billed the
Company
$23,053 for the 2004 audit and 2004 quarterly reviews.
There
were no audit related fees in 2003 or 2004. There were no tax fees in
2003
or 2004.
The
Company's Board acts as the audit committee and had no "pre-approval
policies and procedures" in effect for the auditors' engagement for
the
audit year 2003 and 2002.
All
audit
work was performed by the auditors' full time employees.
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
DATE:
May 10, 2006 |
CHINA
MOBILITY
SOLUTIONS, INC.
|
by:
|
/s/ Xiao-qing
Du
|
|
Xiao-qing
Du, President |
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons
on
behalf
of the Registrant and in the capacities and on the dates indicated.
/s/
Xiao-qing Du |
President,
Director and
Principal Accounting Officer |
May
10, 2006 |
Xiao-qing
Du |
|
|
|
|
|
/s/
Ernest Cheung |
Secretary,
Director and
Principal Financial Officer |
May
10, 2006 |
Ernest
Cheung |
|
|
CHARTERED
ACCOUNTANTS
Member:
|
Securities
Commission Building |
Canadian
Institute of Chartered Accountants |
PO
Box 10129, Pacific Centre |
Institute
of Chartered Accountants of British Columbia |
Suite
1400 - 701 West Georgia Street |
Institute
of Management
Accountants (USA) (From 1965) |
|
|
Vancouver,
British Columbia |
Registered
with: |
Canada
V7Y 1C6 |
Public
Company Accounting Oversight Board (USA) (PCAOB) |
|
Canadian
Public Accountability Board (CPAB) |
Telephone:
(604) 662-8899 |
Canada
- British Columbia Public Practice Licence |
Fax:
(604) 662-8809 |
|
Email:
[email protected] |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Shareholders
China
Mobility Solutions, Inc.
We
have
audited the accompanying consolidated balance sheet of China Mobility Solutions,
Inc. as of December 31, 2004, and the related consolidated statements of
operations, cash flows and stockholders’ equity for the year ended December 31,
2004. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated financial statements of
China
Mobility Solutions, Inc. as of December 31, 2003 were audited by other
auditors
whose report, dated April 23, 2004, expressed an unqualified opinion on
those
consolidated financial statements, except for an additional paragraph concerning
going concern disclosure.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of China
Mobility
Solutions, Inc. as of December 31, 2004, and the consolidated results of
its
operations and its cash flows for the year then ended in conformity with
U.S.
generally accepted accounting principles.
/s/
“Moen and Company LLP” |
“Moen
and Company LLP” |
Vancouver,
British Columbia, Canada
Chartered
Accountants
April
6, 2005, except for
Notes
4, 8, 9, 11 as to which the date is March 30,
2006
|
CHINA
MOBILITY SOLUTIONS, INC.
|
(formerly
Xin Net Corp.)
|
CONSOLIDATED
BALANCE SHEETS
|
DECEMBER
31, 2004 AND 2003
|
Stated
in U.S. dollars
|
|
|
|
2004
|
|
2003
|
|
|
|
(Audited)
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
5,380,622
|
|
$
|
3,303,591
|
|
Accounts
receivable, net of allowance of $nil (2003: $58,678)
|
|
|
34,560
|
|
|
1,107
|
|
Prepaid
Expenses and Other Current Assets
|
|
|
33,070
|
|
|
31,246
|
|
Amount
due from related parties
|
|
|
18,322
|
|
|
-
|
|
Assets
to be disposed of
|
|
|
-
|
|
|
2,533,838
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
5,466,574
|
|
|
5,869,782
|
|
|
|
|
|
|
|
|
|
Investment
(Note 4)
|
|
|
1
|
|
|
253,524
|
|
Property
and Equipment, Net (Note 5)
|
|
|
6,549
|
|
|
9,870
|
|
Goodwill
|
|
|
973,906
|
|
|
187,436
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
6,447,030
|
|
$
|
6,320,612
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
Payable and Other Accrued Liabilities
|
|
$
|
340,824
|
|
$
|
141,542
|
|
Deferred
Revenue
|
|
|
2,111,698
|
|
|
28,354
|
|
Liabilities
to be disposed of
|
|
|
-
|
|
|
3,284,355
|
|
Security
deposit from Sino-i.com Ltd.
|
|
|
-
|
|
|
2,416,200
|
|
Total
Current Liabilities
|
|
|
2,452,522
|
|
|
5,870,451
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
32,791
|
|
|
38,147
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
Stock : $0.001 Par Value
|
|
|
|
|
|
|
|
Authorized
: 50,000,000 common shares
|
|
|
|
|
|
|
|
Issued
and Outstanding : 15,826,670 common shares (2003:
13,786,670)
|
|
|
|
|
|
|
|
Par
Value
|
|
|
15,827
|
|
|
13,787
|
|
Additional
Paid In Capital
|
|
|
8,770,378
|
|
|
8,221,618
|
|
Accumulated
Deficit
|
|
|
(4,640,956
|
)
|
|
(7,659,628
|
)
|
Accumulated
Other Comprehensive Loss
|
|
|
(183,532
|
)
|
|
(163,763
|
)
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
3,961,717
|
|
|
412,014
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
6,447,030
|
|
$
|
6,320,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(The
accompanying notes are an integral part of these financial
statements)
|
CHINA
MOBILITY SOLUTIONS, INC.
|
(formerly
Xin Net Corp.)
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
|
Stated
in U.S. dollars
|
|
|
|
2004
|
|
2003
|
|
|
|
(Audited)
|
|
(Audited)
|
|
Revenue
|
|
|
|
|
|
Mobile
marketing services
|
|
$
|
1,871,960
|
|
$
|
-
|
|
Tuition
fee
|
|
|
298,806
|
|
|
280,723
|
|
Total
Revenue
|
|
|
2,170,766
|
|
|
280,723
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
Mobile
marketing services
|
|
|
412,222
|
|
|
-
|
|
Tuition
fees
|
|
|
61,013
|
|
|
134,340
|
|
|
|
|
473,235
|
|
|
134,340
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,697,531
|
|
|
146,383
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Advertising
and promotion
|
|
|
541,142
|
|
|
16,048
|
|
Consulting
and professional
|
|
|
116,784
|
|
|
118,052
|
|
Depreciation
|
|
|
2,071
|
|
|
7,394
|
|
Foreign
exchange loss (gain)
|
|
|
(24,029
|
)
|
|
(14,032
|
)
|
General
and administrative
|
|
|
110,116
|
|
|
58,219
|
|
Rent
|
|
|
296,920
|
|
|
68,966
|
|
Salaries,
wages and sub-contract
|
|
|
724,493
|
|
|
82,446
|
|
Impairment
on marketable securities
|
|
|
172,250
|
|
|
-
|
|
Total
Expenses
|
|
|
1,939,747
|
|
|
337,093
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(242,216
|
)
|
|
(190,710
|
)
|
|
|
|
|
|
|
|
|
Other
Income and Expenses
|
|
|
|
|
|
|
|
Interest
income
|
|
|
82,602
|
|
|
15,066
|
|
Other
income
|
|
|
10,272
|
|
|
7,678
|
|
Equity
loss in undistributed earnings of investee company
|
|
|
(81,273
|
)
|
|
(66,076
|
)
|
|
|
|
11,601
|
|
|
(43,332
|
)
|
Loss
before minority interest and
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
(230,615
|
)
|
|
(234,042
|
)
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
(28,157
|
)
|
|
26,046
|
|
|
|
|
|
|
|
|
|
Loss
from Continuing Operations
|
|
|
(258,772
|
)
|
|
(207,996
|
)
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
Loss
from Assets held for sale
|
|
|
-
|
|
|
(322,987
|
)
|
Gain
on disposal of ISP operations
|
|
|
-
|
|
|
206,653
|
|
Gain
on disposal of internet-related operations (Note 6)
|
|
|
3,319,098
|
|
|
-
|
|
Loss
on disposal of business press operations (Note 7)
|
|
|
(41,292
|
)
|
|
-
|
|
Income
(loss) from discontinued operations (Note 7)
|
|
|
(362
|
)
|
|
10,053
|
|
|
|
|
3,277,444
|
|
|
(106,281
|
)
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Available to Common Stockholders
|
|
$
|
3,018,672
|
|
$
|
(314,277
|
)
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share attributable to common
stockholders:
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations
|
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
Earnings
(loss) from discontinued operations
|
|
|
0.22
|
|
|
(0.01
|
)
|
Total
basic and diluted
|
|
$
|
0.20
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
14,856,834
|
|
|
13,786,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(The
accompanying notes are an integral part of these financial
statements)
|
CHINA
MOBILITY SOLUTIONS, INC.
|
(formerly
Xin Net Corp.)
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
|
|
|
|
|
|
Stated
in U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common
|
|
|
|
Paid
In
|
|
|
|
Accumulated
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Par
Value
|
|
Capital
|
|
Total
|
|
Deficit
|
|
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2002
|
|
|
41,360,010
|
|
$
|
41,360
|
|
$
|
8,194,045
|
|
$
|
8,235,405
|
|
$
|
(7,345,351
|
)
|
$
|
(148,659
|
)
|
$
|
741,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(314,277
|
)
|
|
|
|
|
(314,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,104
|
)
|
|
(15,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
41,360,010
|
|
$
|
41,360
|
|
$
|
8,194,045
|
|
$
|
8,235,405
|
|
$
|
(7,659,628
|
)
|
$
|
(163,763
|
)
|
$
|
412,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
of Quicknet on June 23, 2004
|
|
|
6,120,000
|
|
|
6,120
|
|
|
544,680
|
|
|
550,800
|
|
|
|
|
|
|
|
|
550,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse
stock split 3:1 on June 24, 2004
|
|
|
(31,653,340
|
)
|
|
(31,653
|
)
|
|
31,653
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,018,672
|
|
|
|
|
|
3,018,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,769
|
)
|
|
(19,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
15,826,670
|
|
$
|
15,827
|
|
$
|
8,770,378
|
|
$
|
8,786,205
|
|
$
|
(4,640,956
|
)
|
$
|
(183,532
|
)
|
$
|
3,961,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(The
accompanying notes are an integral part of these financial
statements)
|
CHINA
MOBILITY SOLUTIONS, INC.
|
(formerly
Xin Net Corp.)
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003
|
Stated
in U.S. dollars
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
|
|
(Audited)
|
|
(Audited)
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,018,672
|
|
$
|
(314,277
|
)
|
Less:
loss from assets held for sale
|
|
|
-
|
|
|
322,987
|
|
Less:
loss from discontinued operations
|
|
|
362
|
|
|
(10,053
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
Provided
by (Used in) operating activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,071
|
|
|
7,394
|
|
Foreign
Currency Translation adjustments
|
|
|
(19,769
|
)
|
|
(15,104
|
)
|
Minority
interest
|
|
|
28,157
|
|
|
(26,046
|
)
|
Impairment
on marketable securities
|
|
|
172,250
|
|
|
-
|
|
Gain
on disposal of ISP operations
|
|
|
-
|
|
|
(206,653
|
)
|
Gain
on disposal of internet-related operations
|
|
|
(3,319,098
|
)
|
|
-
|
|
Loss
on disposal of business press operations
|
|
|
41,292
|
|
|
-
|
|
Equity
loss of The Link Group, Inc.
|
|
|
81,273
|
|
|
66,076
|
|
|
|
|
|
|
|
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
(Increase)
Decrease in accounts receivable
|
|
|
57,107
|
|
|
(1,107
|
)
|
(Increase)
Decrease in prepaid expenses and other current assets
|
|
|
9,174
|
|
|
(8,824
|
)
|
Increase
in amount due from related parties
|
|
|
(18,322
|
)
|
|
-
|
|
Increase
(Decrease) in accounts payable
|
|
|
(75,848
|
)
|
|
32,498
|
|
Increase
(Decrease) in deferred revenue
|
|
|
468,649
|
|
|
(9,371
|
)
|
Increase
in security deposits
|
|
|
-
|
|
|
2,416,200
|
|
Net
cash provided by operating activities
|
|
|
445,970
|
|
|
2,253,720
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
-
|
|
|
(10,661
|
)
|
Reduction
in investment
|
|
|
-
|
|
|
1,266
|
|
Cash
acquired from acquisition of Quicknet
|
|
|
1,477,355
|
|
|
-
|
|
Net
cash flows provided by (used in) investing activities
|
|
|
1,477,355
|
|
|
(9,395
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
694
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash provided by continuing operations
|
|
|
1,924,019
|
|
|
2,244,325
|
|
Net
cash provided by assets held for sale
|
|
|
152,381
|
|
|
98,751
|
|
Net
cash provided by discontinued operations
|
|
|
631
|
|
|
3,382
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
2,077,031
|
|
|
2,346,458
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of year
|
|
|
3,303,591
|
|
|
957,133
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of year
|
|
$
|
5,380,622
|
|
$
|
3,303,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Information :
|
|
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
|
|
Interest
|
|
$
|
69
|
|
$
|
6,565
|
|
Income
taxes
|
|
|
-
|
|
|
10,978
|
|
|
|
|
|
|
|
|
|
Non-cash
investment :
|
|
|
|
|
|
|
|
Issuance
of 6,120,000 common shares for the acquisition of Quicknet
|
|
$
|
550,800
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(The
accompanying notes are an integral part of these financial
statements)
|
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
NOTE
1 -
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of
Business
China
Mobility Solutions, Inc. ("the Company"), previously known as Xin Net
Corp.,
was incorporated under the laws of the State of Florida on September 12,
1996,
with an authorized capital of 50,000,000 shares of $0.001 par value common
stock.
The Company's principal business activities include providing mobile/wireless
communication; in particular, Short Message Services ("SMS") and education
and training courses for foreign students.
Prior
to
June 2003, the Company provided internet-related services, including
domain
name registration, web-hosting and other value-added services, such as
e-commerce
and advertising in several major cities in the Peoples Republic of China
("PRC"). Due to the lack of funding and high competition in the market,
the
Company signed an agreement to sell its internet-related services in the
PRC
(see
Note
6 for details).
Summary
of Significant Accounting Policies
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 2. All significant inter-company transactions and
balances have been eliminated on consolidation.
Accounting
method - The Company's financial statements are prepared using the accrual
method of accounting.
Use
of
estimates - The preparation of financial statements in conformity with
generally
accepted accounting principles requires management to make estimates
and
assumptions that affect the reported amounts of assets and liabilities and
disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Concentration
of credit risk - The Company maintains Renminbi cash balances in banks
of
the People's Republic of China and U.S. Dollar cash balances in Canadian
and Hong Kong banks, that are not insured. Revenues were derived in geographic
locations outside the United States. The ELSA program of Windsor accounts
for 53% of the total tuition fees and 7.3% of the total revenue of
the Company.
The SMS of Quicknet accounts for 86.2% of the total revenue of the Company.
Cash
and
cash equivalents - Cash equivalents consists of time deposits with original
maturities of three months or less.
Investments
- The Company determines the appropriate classification of marketable
debt and equity securities at the time of purchase and reevaluates
such
designation as of each balance sheet date. All marketable debt securities
are
classified as held-to-maturity and are carried at amortized cost, which
approximates
fair value.
Accounts
receivable and allowance for doubtful accounts - Accounts receivable
are
recorded net of allowances for doubtful accounts and reserves for returns.
In
the
normal course of business, the Company extends credit to customers that
satisfy
predefined credit criteria. The Company is required to estimate the collectability
of its receivables. Reserves for returns are based on historical return
rates and sales patterns. Allowances for doubtful accounts are established
through the evaluation of accounts receivable agings and prior collection
experience to estimate the ultimate realization of these receivables.
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
Property
and equipment - Property and equipment, stated at cost, is depreciated
under
the
straight-line method over their estimated useful lives, ranging from
three
to
seven years.
Goodwill
- Goodwill is the excess of the acquisition cost of businesses over the
fair
value of the identifiable net assets (tangible and intangible) acquired.
Goodwill
acquired has to be evaluated for impairment at the beginning of year
2002
and
on an annual basis going forward according to Statement of Financial
Accounting
Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets". The
standard requires a two-step process to be performed to analyze whether or
not
goodwill has been impaired. Step one requires that the fair value
be
compared
to book value. If the fair value is higher than the book value, no impairment
is indicated and there is no need to perform the second step of the process.
If the fair value is lower than the book value, step two must be evaluated.
Step two requires a hypothetical purchase price allocation analysis to
be
done to reflect a current book value of goodwill. The current value is
then
compared to the carrying value of goodwill. If the current fair value is
lower
than the carrying value, an impairment must be recorded. Annually,
the
goodwill
is tested for impairment in the fourth quarter.
Long-lived
assets - The Company records impairment losses on long-lived assets used
in
operation when indicators of impairment are present and the undiscounted
cash
flows estimated to be generated by those assets are less than the assets'
carrying
amount.
Revenue
recognition - The Company's revenues for 2004 consisted of revenues from
SMS,
education and training services. "All the mobile communication service is
provided
on a subscription basis. All the customers have to pay in advance a deposit
for a one-year service to be provided. Revenue has been allocated over
the
service period." The accounting treatment is in accordance with S.E.C. Staff
Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements." The
Company
recognizes revenue when the following criteria are met: persuasive evidence
that an arrangement exists; delivery has occurred or services have been
rendered;
the price to the customer is fixed or determinable; and
collectability
is
reasonably assured. If all of the above criteria have been met, revenues
are
principally
recognized upon shipment of products or when services have been rendered.
Revenues derived from SMS, education and training is recognized as the
services
are performed. Amounts received from customers in advance of revenue
recognition
are deferred and classified on the balance sheet as "deferred revenue."
The
Company's revenues for 2003, which are included in discontinued operations,
consisted
of revenues from commercial printing. Revenues derived from commercial
printing
are recognized when the job has been completed and is delivered to the
customer.
Cost
recognition - Cost of service includes direct costs to produce products and
provide
services.
Deferred
revenue and deferred cost - Deferred revenue for 2004 consists primarily
of SMS ($2,105,165), education and training ($6,533) revenue received
prior
to
the services being performed.
Deferred
revenue for 2003, which is included as a component of "Liabilities to
be
disposed of" consists of prepaid domain name registration fees. End users
receive
certain elements of the Company's revenues over a period of time. As a
result,
the Company's revenue recognized represents the fair value of these elements
over the product's life cycle. Deferred cost for 2003, which is included
as a component of "Assets to be disposed of" consists of amounts paid
to
various registrars for domain name registration fees and are deferred on
the
same
basis as revenue.
Capitalized
software costs - The Company accounts for the development cost of software
intended for sale in accordance with Statement of Financial Accounting
Standards
("SFAS") No. 86, "Accounting for Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." SFAS No. 86 requires product development
costs
to
be charged to expense as incurred until technological feasibility is
attained.
Technological feasibility is attained when the Company's software has
completed
system testing and has been determined viable for its intended use.
Accordingly,
the Company did not capitalize any development costs during the period.
Total costs expensed during the periods presented were approximately
$55,577
for 2004 and $250,000 for 2003.
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
Advertising
costs - Advertising costs are expensed as incurred. Total advertising
costs charged to operations amounted to $538,949 for 2004 and $16,822
for 2003. Total advertising costs included in discontinued operations
amounted
to $2,193 for 2004 and $155,075 for 2003.
Income
taxes - The Company accounts for income taxes under the provisions of
SFAS
No.
109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income
tax
assets and liabilities are computed for differences between the financial
statements
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future, based on enacted tax laws and rates
applicable
to the periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary, to
reduce
deferred
income tax assets to the amount expected to be realized.
Foreign
currency translations - The assets and liabilities of the Company's foreign
operations are generally translated into U.S. dollars at current exchange
rates, and revenues and expenses are translated at average exchange rates
for
the year. Resulting foreign currency translation adjustments are reflected
as a separate component of stockholders' equity. Transaction gains and
losses
that arise from exchange rate fluctuations on transactions denominated in
a
currency other than the functional currency, except those transactions
which
operate
as a hedge of an identifiable foreign currency commitment or as a hedge
of
a
foreign currency investment position, are included in the results of
operations
as incurred.
Fair
value of financial instruments - For certain of the Company's financial
instruments,
including cash and cash equivalents, prepaid expenses and other current
assets, accounts payable and other accrued liabilities, and deferred
revenues,
the carrying amounts approximate fair value due to their short maturities.
Business
segment information - The Company discloses information about its reportable
segments in accordance with SFAS No. 131, "Disclosures about Segments
of
an
Enterprise and Related Information." The Company's reportable segments are
geographic
areas. The accounting policies of the operating segments are the same
as
those
for the Company.
Earnings
per share - Basic earnings or loss per share are based on the weighted
average
number of common shares outstanding. Diluted earnings or loss per share
is
based
on the weighted average number of common shares outstanding and dilutive
common stock equivalents. Basic earnings/loss per share is computed by
dividing
income/loss (numerator) applicable to common stockholders by the weighted
average number of common shares outstanding (denominator) for the period.
All earnings or loss per share amounts in the financial statements are
basic
earnings or loss per share, as defined by SFAS No. 128, "Earnings Per
Share."
Diluted earnings or loss per share does not differ materially from
basic
earnings
or loss per share for all periods presented. Convertible securities that
could potentially dilute basic earnings per share in the future such as
options
and warrants are not included in the computation of diluted earnings per
share
because to do so would be antidilutive. All per share and per share information
are adjusted retroactively to reflect stock splits and changes in par
value.
Stock-based
compensation - The Company accounts for stock-based compensation using
the
intrinsic value method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation
cost
for
stock options, if any, is measured as the excess of the quoted market
price
of
the Company's stock at the date of grant over the amount an employee
must
pay
to acquire the stock. SFAS No.123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans.
The Company has elected to remain on its current method of accounting as
described
above, and has adopted the disclosure requirements of SFAS No. 123. 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 adopts the disclosure provisions and the amendment to APB
No.
28 effective for interim periods beginning after December 15, 2002.
Had
compensation expense for the Company's stock-based compensation plans been
determined
under FAS No. 123, based on the fair market value at the grant dates,
the Company's pro forma net loss and pro forma net loss per share would
have
been
reflected as follows at December 31:
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
|
|
2004
|
|
2003
|
|
Net
income
(loss) |
|
|
|
|
|
As
reported |
|
$
|
3,018,672
|
|
$
|
(314,277
|
)
|
Stock-based
employee compensation cost, net tax
|
|
|
(267,300
|
)
|
|
(122,758
|
)
|
Pro-forma
|
|
$
|
2,751,372
|
|
$
|
(437,035
|
)
|
Loss
per
share |
|
|
|
|
|
|
|
As
reported |
|
$
|
0.20
|
|
$
|
(0.02
|
)
|
Pro-forma
|
|
$
|
0.19
|
|
$
|
(0.03
|
)
|
The
fair
value of each option granted is estimated on the date of grant using
the
Black-Scholes option pricing model with weighted average assumptions for
grants
as
follows:
Risk
free interest rate |
3.65% |
Expected
life of options in years |
1
to 3 years |
Expected
volatility |
184% |
Dividend
per share |
$0.00 |
Comprehensive
income - The Company has adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. The Company includes
items of other comprehensive loss by their nature, such as foreign currency
translation adjustments, in a financial statement and displays the accumulated
balance of other comprehensive loss separately from accumulated deficit
in the equity section of the balance sheet. The Company discloses total
comprehensive
loss, its components and accumulated balances on its statement of stockholders'
equity.
Capital
structure - The Company discloses its capital structure in accordance
with
SFAS
No. 129, "Disclosure of Information about Capital Structure," which established
standards for disclosing information about an entity's capital structure.
Related
party transactions - A related party is generally defined as (i) any
person
that holds 10% or more of the Company's securities and their immediate
families,
(ii) the Company's management, (iii) someone that directly or indirectly
controls, is controlled by or is under common control with the Company,
or (iv) anyone who can significantly influence the financial and operating
decisions of the Company. A transaction is considered to be a related
party
transaction when there is a transfer of resources or obligations
between
related
parties. (See Note 12)
Fair
value of financial instruments - For certain of the Company's financial
instruments,
including cash and cash equivalents, accounts receivable, prepaid expenses,
amount due from related parties, accounts payable and accrued liabilities,
and deferred revenue, the carrying amounts approximate fair value due
to
their short maturities.
Reclassification
of Prior Period - Certain prior period amounts have been reclassified
to conform to the current year presentation. These changes had no effect
on
previously reported results of operations or total stockholders' equity.
Recent
Accounting Pronouncements - The Financial Accounting Standards issued the
following
pronouncements during 2004, none of which are expected to have a significant
affect on the financial statements:
In
March
2004, the EITF reached final consensus on EITF 03-6 which provides additional
guidance to determine whether a security is a participating security
and
therefore subject to the two-class method under SFAS 128. The guidance in
EITF
03-6
clarifies the notion of what constitutes a participating security, and
is
effective for fiscal periods (interim or annual) beginning after March 31,
2004.
EITF 03-06 provides guidance in applying the two-class method of calculating
earnings per share for companies that have issued securities other
than
common stock that contractually entitle the holder to participate in any
dividends
declared and earnings of the company. The opinion defines what constitutes
a participating security and how to apply the two-class method of calculating
earnings per share to those securities. In addition, the consensus in
EITF
03-6 nullifies the guidance in EITF Topic No. D-95, "Effect of Participating
Convertible Securities on the Computation of Basic Earnings Per Share",
and requires the use of the two-class method to compute basic EPS
by
companies
with participating convertible securities. The adoption did not have
an
impact
on our calculation of earnings per share.
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
In
April
2004, the EITF reached consensus on EITF Issue No. 03-6, "Participating
Securities
and the Two Class Method under FASB Statement No. 128" ("EITF 03-6").
EITF
03-6
addresses a number of questions regarding the computation of earnings
per
share
by companies that have issued securities other than common stock that
contractually
entitle the holder to participate in the dividends and earnings of the
company when, and if, it declares dividends on its common stock. EITF 03-6
also
provides further guidance in applying the two-class method of calculating
earnings
per share, clarifying what constitutes a participating security and how
to
apply
the two-class method of computing earnings per share once it is determined
that a security is participating, including how to allocate undistributed
earnings to such a security. EITF 03-6 is effective for fiscal periods
beginning after March 31, 2004 and requires retroactive restatement of
prior
earning per share amounts. This statement does not affect the
Company.
In
June
2004, the FASB issued EITF Issue No. 02-14, "Whether an Investor Should
Apply
the
Equity Method of Accounting to Investments Other Than Common Stock."
EITF
Issue No. 02-14 addresses whether the equity method of accounting applies
when
an
investor does not have an investment in voting common stock of an investee
but exercises significant influence through other means. EITF Issue No.
02-14
states that an investor should only apply the equity method of accounting
when
it
has investments in either common stock or in-substance common stock of a
corporation,
provided that the investor has the ability to exercise significant influence
over the operating and financial policies of the investee. The
accounting
provisions of EITF Issue No. 02-14 are effective for the reporting period
beginning after September 15, 2004. The Company is in the process of
determining
the effect, if any, of the adoption of EITF Issue No. 02-14 will have
on
the Company's financial position, results of operations, or cash flows.
In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of
ARB
No. 43, Chapter 4." The amendments made by SFAS No. 151 clarify that
abnormal
amounts of idle facility expense, freight, handling costs, and wasted
materials
(spoilage) should be recognized as current-period charges and require
the
allocation of fixed production overheads to inventory based on the normal
capacity
of the production facilities. The guidance is effective for inventory
costs
incurred during fiscal years beginning after November 23, 2004. The
Company
does not believe the adoption of SFAS No. 151 will have a material impact
on
our financial position, results of operations or cash flows.
In
December 2004, the FASB issued a revision of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123R).
SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees,"
and its related implementation guidance. SFAS 123R establishes standards
for the accounting for transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of
the
entity's equity instruments or that may be settled by the issuance of
those
equity instruments. SFAS 123R does not change the accounting guidance for
share-based
payment transactions with parties other than employees provided in
SFAS
123
as originally issued and EITF Issue No. 96-18, "Accounting for Equity
Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services." SFAS 123R is effective for interim
reporting
period that begins after June 15, 2005. The Company is in the process
of
determining the effect of the adoption of SFAS 123R will have on its
financial
position, results of operations, or cash flows.
In
December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing
Transactions - an amendment of FASB Statements No. 66 and 67," which
discusses the accounting and reporting of real estate time-sharing transactions.
This Statement is effective for financial statements for fiscal years
beginning after June 15, 2005, and restatement of previously issued financial
statements is not permitted. This statement does not affect the Company.
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
The
Company completed the evaluation of EITF 00-21 "Revenue Arrangements with
Multiple
Deliverables" in year 2004. Implementation of EITF 00-21 does not have
any
impact on the financial position and results of operations of the
Company.
The
Company also completed the evaluation of FIN46 "Consolidation of Variable
Interest
Entities" in year 2004. Implementation of FIN46 does not have any impact
on
the financial position and results of operations of the Company.
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
-
an
amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
"Accounting
for Nonmonetary Transactions," is based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value of the
assets exchanged and provided an exception to the basic measurement principle
(fair value) for exchanges of similar productive assets. That exception
required that some nonmonetary exchanges, although commercially
substantive,
be recorded on a carryover basis. This Statement eliminates the exception
to fair value for exchanges of similar productive assets and replaces
it
with a
general exception for exchange transactions that do not have commercial
substance--that is, transactions that are not expected to result in significant
changes in the cash flows of the reporting entity. The provisions of
this
Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods
beginning after June 15, 2005, applied prospectively. This
statement
does
not
affect the Company.
NOTE
2 -
SUBSIDIARIES
The
Company's wholly-owned subsidiaries are as follows:
(1)
Infornet Investment Limited (a Hong Kong corporation) ("Infornet HK")
is a
telecommunication and management network company providing
financial resources and expertise in telecommunication projects.
This subsidiary was originally incorporated as Micro Express
Limited and was acquired at no cost. The name was changed to
Infornet Investment Limited on July 18, 1997.
(2)
Infornet Investment Corp., (a Canadian corporation) ("Infornet Canada")
is engaged in a similar line of business as that of the Company.
The Company issued 5,000,000 shares of common stock to acquire
this subsidiary for a total value of $65, representing organizational
costs and filing fees.
(3)
Xinbiz (HK) Limited (a Hong Kong corporation) ("Xinbiz Ltd.") and Xinbiz
Corp. (a British Virgin Islands corporation) ("Xinbiz Corp.").
Both subsidiaries were inactive during 2004 and 2003.
(4)
Windsor Education Academy Inc., (a Canadian Corporation) ("Windsor")
is engaged in providing English as a secondary language
("ESL") training program to foreign students.
NOTE
3 -
ACQUISITION OF QUICKNET
On
June
23, 2004, the Company completed the acquisition of a 49% equity interest
from
the shareholders of Beijing Quicknet Technology Development Corp. ("Quicknet"),
located in Beijing, China. Quicknet is engaged in the development of software
for mobile/wireless communication, in particular, that for Short Message
Services ("SMS"). The 49% equity interest was made through the issuance of
6,120,000 shares of common stock of the Company at a deemed price of $0.50
per
share (2,040,000 post-reverse split at a market price of $0.27 per share
for a
total of $550,800). Due to the restrictions on foreign ownership of
telecommunication companies in China, an additional 2% of the equity interest
of
Quicknet is held by a local China company(“Chinaco”) owned by two senior
officers of the Company who have Chinese citizenship. This 2% interest will
be
transferred to the Company through a purchase agreement signed with Chinaco
in
August 2005 (the “Purchase Agreement”) for a nominal amount of consideration at
such time as Chinese law permits and Chinaco has granted an unconditional,
irrevocable proxy without time limit to the Company. Through this arrangement,
the Company directly and indirectly owns and controls 51% equity interest
in
QuickNet. Under the August 2005 Purchase Agreement, the Company has an option
to
acquire the remaining 49% equity interest in Quicknet within the first year
from
the closing date for $4,000,000. The Company has another option to acquire
this
remaining 49% equity interest in Quicknet within the second year from the
closing date for $5,000,000. As a general rule, the Company can pay these
amounts by 50% in shares of the common stock of the Company and 50% in cash.
The
final percentage of shares versus cash can be negotiated between both
parties.
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
Quicknet's
financial information is incorporated into the consolidation of the Company
effective June 30, 2004, as the transactions that occurred between the
period
from June 23, 2004 to June 30, 2004 were immaterial.
The
value
assigned to assets and liabilities acquired can be summarized as follows:
Cash
and short term investments |
|
$
|
1,477,355
|
|
Accounts
receivables |
|
|
90,560
|
|
Prepaid
expenses |
|
|
10,998
|
|
Fixed
assets, net |
|
|
846,782
|
|
Goodwill |
|
|
(275,130
|
)
|
Accounts
payables and accrued liabilities |
|
|
(1,614,695
|
)
|
Fair
value of consideration |
|
|
-
2,040,000
|
|
common
shares @ $0.27 per share |
|
$
|
550,800
|
|
The
following pro forma information is based on the assumption that the acquisition
took place as of beginning of the period (January 1, 2004), with comparative
information for the immediately preceding period as though the acquisition
had been completed at the beginning of that period:
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
3,191,010
|
|
$
|
502,035
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,258,277
|
|
$
|
(594,293
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share
|
|
$
|
0.22
|
|
$
|
(0.04
|
)
|
NOTE
4 -
INVESTMENT IN THE LINK GROUP, INC. ("LINK")
Pursuant
to a Share Exchange Agreement dated December 20, 2001, the Company paid
$200,000
cash for 3,882,700 shares of The Link Group, Inc. ("Link").
Pursuant
to a Subscription Agreement dated January 18, 2002, the Company paid
$600,300
in a private placement of Link for 14,500,000 (pre-reverse one for four
split)
common shares at $0.0414 per share, as well as 10,875,000 special warrants
convertible into 10,875,000 post-reverse one for four split common shares
on
or before January 31, 2004 at no additional consideration. The Company
exercised
the 10,875,000 special warrants on March 12, 2002. An option to purchase
an additional 7,500,000 post-reverse one for four split common
shares
at
$0.04
per share, or $300,000, until February 15, 2002, was also granted to
the
Company, which was not exercised.
By
an
agreement dated January 21, 2002, Link agreed to purchase all of the
outstanding
shares of Protectserve Pacific Ltd. ("PSP") through the issuance of 37,500,000
(post-reverse one for four split) common shares. Link has the right to
buy
back its shares at $0.001 per share from these individuals if PSP's after
tax
profit is less than Hong Kong $9 million dollars ("HKD") for the twelve
months
ending December 31, 2002. The buy back formula is for every HKD $333,333
that
PSP
falls short of the HKD $9 million after tax profit, Link can buy
back
one
million (post-reverse one for four split) common shares from these individuals.
On
February 18, 2002, the shareholders of Link approved the reverse split of
the
issued
and outstanding common shares of Link at the ratio of one for four, thereby
making the Company's total Link shares held equal to 15,370,675 shares,
representing
28.8% of the total issued and outstanding shares of Link. On October
14, 2002, Link cancelled 8,300,000 outstanding common shares as part of
the
consideration of the disposition of its subsidiary company and thereafter
the
Company's holding in Link correspondingly increases to 34.1%. On March 28,
2003,
Link issued 3,000,000 common shares and cancelled 14,000,000 common shares
and
thereafter the Company's holding in Link correspondingly changed to
24.8%.
On
August
5, 2003, Link cancelled 22,200,000 shares pursuant to a repurchase agreement
and thereafter the Company's holding in Link correspondingly increased
to
38.6%.
On October 17, 2003, Link issued 36,000,000 shares for the acquisition
of
New
Unicorn Holdings Ltd. and thereafter the Company's holding in Link correspondingly
decreased to 20.26%.
The
Company accounts for its investment in Link on the equity basis, which is
carried
at cost, adjusted for the Company's proportionate share of their undistributed
earnings or losses. As of December 31, 2004, the investee company's
financial statements were not sufficiently timely for the Company to
apply
the
equity method currently and Link's shares were ceased trading over nine
months. Therefore, the Management of the Company recorded an impairment of
$172,250
on these shares and left a nominal value of $1 for this investment to
Link.
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Original
cost of 15,370,675 shares of The
Link Group, Inc.
|
|
$
|
800,300
|
|
$
|
800,300
|
|
Equity
in
undistributed earnings of investee company |
|
|
(628,049
|
)
|
|
(628,049
|
)
|
Investment
-
at equity |
|
|
172,251
|
|
$
|
172,251
|
|
|
|
|
|
|
|
|
|
Impairment
on marketable securities |
|
$
|
1
|
|
|
|
|
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
NOTE
5 -
PROPERTY AND EQUIPMENT
|
|
December
31,
|
|
|
|
2004
|
|
2003
|
|
Equipment
|
|
$
|
24,832
|
|
$
|
24,832
|
|
Library
|
|
|
9,554
|
|
|
9,554
|
|
Furniture |
|
|
9,975
|
|
|
9,975
|
|
Total
|
|
$
|
44,361
|
|
$
|
44,361
|
|
Less:
Accumlated depreciation |
|
|
(37,812
|
)
|
|
(34,491
|
)
|
Net
book
value |
|
$
|
6,549
|
|
$
|
9,870
|
|
Depreciation
charged to continuing operations amounted to $2,071 for 2004 and $7,394
for 2003. Depreciation included in discontinued operations amounted to
$397
for
2003 and $746 for 2003.
NOTE
6 -
DISCONTINUED OPERATIONS - INTERNET-RELATED SERVICES
On
February 26, 2003, the Company entered into an agreement to sell the
internet-related
services provided in China to a subsidiary company of Sino-i.com
Ltd., the latter a company listed on the Hong Kong Stock Exchange, for
total
consideration of RMB 20 million (approximately US$2,415,800). The transaction
is subject to shareholders approval. Pursuant to Florida law, the Company
was required to obtain shareholder approval for the sale of all or substantially
all of the assets for a Florida corporation. However, if the assets
do
not represent all or substantially all of the business, the Board of
directors
can approve it without shareholder approval, which it did by written
consent.
Because there has been no operations or cash flows consolidated in the
financial
statements since 2001, the Company has eliminated this component from
its
ongoing operations and it does not have any significant continuing involvement
in the operations of the component.
The
gain
on disposal of the internet-related business, together with the related
assets
and liabilities disposed of, is as follows:
Sales
proceeds |
|
$ |
2,415,800 |
|
Less:
Current assets |
|
|
(1,992,665 |
) |
Capital
asets |
|
|
(442,820 |
) |
Current
liabilities |
|
|
3,338,783 |
|
Gain
on disposal of internet-related business |
|
$ |
3,319,098 |
|
The
results of the discontinued internet-related services for year 2004 and 2003
are
as
follows:
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Revenue |
|
$
|
-
|
|
$
|
2,372,554
|
|
Operating
costs |
|
|
-
|
|
|
(2,695,541
|
)
|
Net
profit (loss)
|
|
$
|
-
|
|
$
|
(322,987
|
)
|
NOTE
7 -
DISPOSAL OF DAWA BUSINESS GROUP INC. ("DAWA")
On
June
30, 2004, the Company entered into a Share Exchange Agreement (the "2004
Share
Exchange Agreement") with Windsor Education Academy Inc. ("Windsor"),
Dawa
Business
Group Inc. ("Dawa") and 1041571 B.C. Ltd. ("1041571") whereby the Company
exchanged 102 shares, or 51%, of the issued and outstanding common stock
of
Dawa
to 1041571 in consideration for 98 shares, or 49%, of the issued and
outstanding
common stock of Windsor.
The
Company first acquired the 102 shares of common stock of D wa pursuant to
a
prior
Share Exchange Agreement, dated July 3, 2003, (the "2003 Share Exchange
Agreement")
between the Company, Windsor, Dawa and 1041571 whereby the Company exchanged
98 shares, or 49%, of the issued and outstanding common stock of Windsor
to 1041571 in consideration for 102 shares, or 51%, of the issued and
outstanding
common stock of Dawa. Prior to the 2003 Share Exchange Agreement, Windsor
was a wholly owned subsidiary of the Company.
At
the
close of the 2004 Share Exchange Agreement, the Company became the beneficial
owner of all of the issued and outstanding stock of Windsor and the Company
ceased to own any of the common stock of Dawa. The 2004 Share Exchange
Agreement
did not involve any cash consideration.
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
The
loss
on disposal of Dawa, together with the related assets and liabilities
disposed
of, is as follows:
Sales
proceeds |
|
$
|
26,862
|
|
Less:
Current assets |
|
|
(61,987
|
)
|
Fixed
assets |
|
|
(1,617
|
)
|
Goodwill
|
|
|
(60,312
|
)
|
Other
assets |
|
|
(145
|
)
|
Current
liabilities |
|
|
55,907
|
|
Loss
on disposal of Dawa |
|
$
|
(41,292
|
)
|
The
result of Dawa operations for the six months ended June 30, 2004 and the
pro
forma
results of operations for the six months ended June 30, 2003, which are
shown
for
comparison purposes assuming the Company acquired Dawa as of January
1,
2003,
are as follows:
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Revenue |
|
$
|
213,205
|
|
$
|
149,338
|
|
Operating
costs |
|
|
(213,567
|
)
|
|
(145,149
|
)
|
Net
profit (loss) |
|
$
|
(362
|
)
|
$
|
3,189
|
|
NOTE
8 -
INCOME TAXES
There
are
no current or deferred tax expenses for the years ended December 31,
2004
and
2003, due to the Company's loss position. The Company has fully reserved
for any benefits of these losses. The deferred tax consequences of temporary
differences in reporting items for financial statement and income tax
purposes
are recognized, as appropriate. Realization of the future tax benefits
related
to the deferred tax assets is dependent on many factors, including the
Company's
ability to generate taxable income within the net operating loss carryforward
period. Management has considered these factors in reaching its conclusion
as to the valuation allowance for financial reporting purposes. The income
tax effect of temporary differences comprising the deferred tax assets
and
deferred tax liabilities on the accompanying consolidated balance sheets
is
a
result
of the following:
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Deferred
tax assets |
|
$
|
512,349
|
|
$
|
424,366
|
|
Valuation
allowance |
|
$
|
(512,349
|
)
|
|
(424,366
|
)
|
Net
deferred tax assets |
|
$
|
-
|
|
$
|
-
|
|
The
net
change in the valuation allowance are principally the result of net operating
loss carryforwards. The Company has available net operating loss carryforwards
of approximately $1,506,909 for tax purposes to offset future taxable
income, which expire through 2024. All of the net operating loss carryforwards
were generated by the parent company. The Company does not file a consolidated
tax return because all of its subsidiaries are foreign corporations.
Pursuant to the Tax Reform Act of 1986, annual utilization of the Company's
net operating loss carryforwards may be limited if a cumulative change
in
ownership of more than 50% is deemed to occur within any three-year period.
A
reconciliation between the statutory federal income tax rate and the effective
income
rate of income tax expense for the years ended December 31, 2004 and 2003
is
as
follows:
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Statutory
federal income tax rate |
|
|
-34.0
|
%
|
|
-34.0
|
%
|
Valuation
allowance |
|
|
34.0
|
%
|
|
34.0
|
%
|
Effective
income tax rate |
|
|
0.0
|
%
|
|
0.0
|
%
|
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
NOTE
9 -
SEGMENTS AND GEOGRAPHIC DATA
The
Company's reportable segments are geographic areas and two operating
segments,
the latter comprised of mobile communication and ESL education. Summarized
financial information concerning the Company's reportable segments is
shown
in
the following table. The "Other" column includes corporate related items,
and, as it relates to segment profit (loss), income and expense not allocated
to reportable segments.
A.
By geographic areas
|
|
China
|
|
Canada
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
For
the year
ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from
continuing operations
|
|
$
|
1,871,960
|
|
$
|
298,806
|
|
$
|
-
|
|
$
|
2,170,766
|
|
Operating
profit (loss) |
|
|
55,906
|
|
|
(22,060
|
)
|
|
(276,062
|
)
|
|
(242,216
|
)
|
Total
assets
|
|
|
6,362,416
|
|
|
75,925
|
|
|
8,689
|
|
|
6,447,030
|
|
Depreciation
|
|
|
-
|
|
|
1,906
|
|
|
165
|
|
|
2,071
|
|
Interest
income |
|
|
82,588
|
|
|
14
|
|
|
-
|
|
|
82,602
|
|
Gain
from
discontinued operations |
|
|
3,277,444
|
|
|
-
|
|
|
-
|
|
|
3,277,444
|
|
Equity
loss
in undistributed earnings of investee company |
|
|
-
|
|
|
-
|
|
|
(81,273
|
)
|
|
(81,273
|
)
|
Investment
in equity method investee |
|
|
-
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year
ended December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from
continuing operations |
|
$
|
-
|
|
$
|
280,723
|
|
$
|
-
|
|
$
|
280,723
|
|
Operating
profit (loss) |
|
|
(2,395
|
)
|
|
(110,325
|
)
|
|
(77,990
|
)
|
|
(190,710
|
)
|
Total
assets
|
|
|
5,675,109
|
|
|
151,474
|
|
|
494,029
|
|
|
6,320,612
|
|
Depreciation |
|
|
-
|
|
|
6,680
|
|
|
714
|
|
|
7,394
|
|
Interest
income |
|
|
15,049
|
|
|
12
|
|
|
5
|
|
|
15,066
|
|
Loss
from
discontinued operations |
|
|
(106,281
|
)
|
|
-
|
|
|
-
|
|
|
(106,281
|
)
|
Equity
loss
in undistributed earnings of investee company |
|
|
-
|
|
|
-
|
|
|
(66,076
|
)
|
|
(66,076
|
)
|
Investment
in equity method investee |
|
|
-
|
|
|
-
|
|
|
253,524
|
|
|
253,524
|
|
B.
By operating segments
|
|
Mobile
communications
|
|
ESL education
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
For
the year
ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from
external customers |
|
$
|
1,871,960
|
|
$
|
298,806
|
|
$
|
-
|
|
$
|
2,170,766
|
|
Intersegment
revenue |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
revenue |
|
|
82,588
|
|
|
14
|
|
|
-
|
|
|
82,602
|
|
Interest
expense - - 69 69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
- 1,710 361 2,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operation profit (loss) 57,964 (11,230) (288,950) (242,216) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets 6,351,943 73,823 21,264 6,447,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from
external customers $ - $ 280,723 $ - $ 280,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
revenue
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
revenue |
|
|
-
|
|
|
12
|
|
|
15,054
|
|
|
15,066
|
|
Interest
expense |
|
|
-
|
|
|
-
|
|
|
6,565
|
|
|
6,565
|
|
Depreciation
|
|
|
-
|
|
|
6,451
|
|
|
943
|
|
|
7,394
|
|
Segment
operation profit (loss) |
|
|
-
|
|
|
(63,208
|
)
|
|
(127,502
|
)
|
|
(190,710
|
)
|
Segment
assets |
|
|
-
|
|
|
46,439
|
|
|
6,274,173
|
|
|
6,320,612
|
|
CHINA
MOBILITY SOLUTIONS, INC.
(formerly
China Mobility Solutions, Inc.)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004
NOTE
10 -
COMMON STOCK, STOCK OPTIONS AND WARRANTS
Common
Stock
On
June
24, 2004, the Company carried out a 3 for 1 reverse stock-split. Figures
of
prior
periods have been retroactively restated to reflect the effect of the
reverse
stock-split.
Stock
Options
The
Company granted 2,136,000 incentive stock options on November 12, 1999 to
certain
directors, officers, employees and consultants of the Company who contributed
services to the Company. These stock options were expired on November
12, 2004. On July 23, 2004, the Company granted incentive stock options
for
1,155,000 shares at a price of $0.30 per share exercisable up to August 1,
2007,
to
five directors. All the options were vested immediately. (See Note
12)
Options
outstanding at December 31, 2004 were 1,155,000 with option price of
$0.30.
No
options were canceled, forfeited, or exercised during 2004. 2,136,000
stock
options with an exercise price of $1.30 were expired during the year. The
weighted
average exercise price of the options outstanding and exercisable is
$0.30
and
the weighted average remaining contractual life is 2.6 years.
Warrants
On
April
1, 2003, the Company extended its outstanding 5,884,990 (1,961,663 post-reverse
split) Series "A" Share Purchase Warrants as follows:
(i)
the
exercise price of the Series "A" Share Purchase Warrants is adjusted
to $0.50 ($1.50 post-reverse split) each and their term is
extended to March 31, 2005: (Subsequently expired)
(ii)
upon
exercise of one Series "A" Share Purchase Warrants at $0.50 ($1.50
post-reverse split), the holder will receive one common share
of
the company and one Series "B" Share Purchase Warrant; and
(iii)
the
exercise price of the Series "B" Share Purchase Warrants is adjusted
to $0.75 ($2.25 post-reverse split) each and their term is
extended to March 31, 2006;
(iv)
upon
exercise of one Series "B" Share Purchase Warrant at $0.75 ($2.25
post-reverse split), the holder will receive one common share
of
the Company.
As
of
December 31, 2004, there were 5,884,990 and 10 Series "A" and Series "B"
warrants
outstanding respectively.
NOTE
11 -
COMMITMENTS
Operating
leases - The Company leases office space under various operating leases
expiring through May 2005. Total rent expense charged to operations during
2004 and 2003 was $155,734 and $74,196, respectively. Future minimum
rental
commitments are (approximately) as follows: (2005: $123,624)
NOTE
12 -
RELATED PARTY TRANSACTIONS
Options
-
The Company's five directors were granted 1,155,000 options to purchase
shares at $0.30. All of the options are outstanding as of December 31,
2004.
Warrants
- Richco Investors Inc. has 1,085,000 "A" warrants to purchase shares
of
common
stock and has 1,085,000 "B" warrants to purchase shares of common stock.
The Company's former President has 80,000 "A" warrants to purchase shares
of
common
stock and has 80,000 "B" warrants to purchase shares of common stock.
Another
entity controlled by one of the directors of this Company has 190,000
"A"
warrants and 190,000 "B" warrants. All of the warrants are outstanding as
of
December
31, 2004, and subsequently expired (see Note 10).