Florida
(State
or other jurisdiction of incorporation or organization)
|
7374
Primary
Standard Industrial Classification Code Number
|
330-751560
(I.R.S.
Employer Identification No.)
|
Title
of each class of securities to be registered
|
Amount
to be registered
|
Proposed
maximum offering price per share(1)
|
Proposed
maximum aggregate offering price(1)
|
Amount
of registration fee
|
Common
stock, par value, $.001 per share
|
9,571,486(2)
|
$0.57(1)
|
$5,455,747
|
$642.14
|
Common
stock, par value, $.001 per share
|
9,571,486(3)
|
$0.57(1)
|
$5,455,747
|
$642.14
|
Common
stock, par value, $.001 per share
|
9,571,486(4)
|
$0.57(1)
|
$5,455,747
|
$642.14
|
Common
stock, par value, $.001 per share
|
7,178,572(5)
|
$0.57(1)
|
$4,091,786
|
$481.60
|
Common
stock, par value, $.001 par share
|
500,000(6)
|
$0.43(7)
|
$215,000(7)
|
$33.54
(8)
|
Common
stock, par value, $.001 par share
|
200,000(9)
|
$0.31(10)
|
$62,000
|
$6.63
|
Total
|
36,593,030
|
$20,736,027
|
$2,448.19
|
· | our business strategies and future plans of operations, |
·
|
general
economic conditions in the People’s Republic of China (“China”) and
elsewhere, as well as the economic conditions affecting the industries
in
which we operate,
|
·
|
the
market acceptance and amount of sales of our products and
services,
|
· |
our
historical losses,
|
·
|
the
competitive environment within the industries in which we
compete,
|
·
|
our
ability to raise additional capital, currently needed for
expansion,
|
·
|
the
other factors and information discussed in other sections of this
prospectus and in the documents incorporated by reference in this
prospectus.
|
· |
Agencies
- We have primarily made sales for our mobile marketing services
via
advertising agencies. We have made approximately 91% of such sales
from
advertising agencies. These agencies are paid sales commissions of
between
15% and 20% under contracts with the
Company.
|
· |
Mobile
Carriers - In the future, we intend to co-market mobile carriers’ mobile
solutions to enterprises and use mobile carriers’ extensive connections
and influence to lead to potentially more
clients.
|
· |
In-House
Sales Staff - The Company has a database of 500,000 enterprises through
its previous Internet services. Through direct mail, advertising,
telephone calling and SMS, the in-house sales staff of approximately
23
people will contact many of these
companies.
|
· |
Sales
Support Offices - The Company plans to set up small sales support
offices
across China to enhance local presence, provide customer support
and show
responsiveness. Currently, we have offices in Beijing, Shanghai and
Shenzhen.
|
Statement
of Operations Data:
|
||||||||
Year
Ended
|
||||||||
March
31,
|
December
31,
|
|||||||
|
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
|
Revenue
|
1,459,944
|
1,127,207
|
$4,902,628
|
$2,170,766
|
$280,723
|
$0
|
$0
|
|
Cost
of revenue
|
296,465
|
233,984
|
1,427,291
|
473,235
|
134,340
|
0
|
0
|
|
Operating
expenses
|
1,245,636
|
725,161
|
11,454,523
|
1,939,747
|
337,093
|
191,269
|
298,525
|
|
Interest
income
|
24,558
|
17,242
|
84,932
|
82,602
|
15,066
|
1,272
|
43,281
|
|
Other
income (expenses)
|
-
|
1,984
|
20
|
10,272
|
(58,398)
|
(463,747)
|
0
|
|
Income
(Loss) before
minority
interest and
discontinued
operations
|
(57,599)
|
(187,288)
|
(9,024,984)
|
(230,615)
|
(234,042)
|
(653,744)
|
(255,244)
|
|
Provision
for minority interest
|
-
|
(126,547)
|
(138,469)
|
(28,157)
|
26,046
|
0
|
0
|
|
Gain
(loss) from discontinued operations
|
-
|
-
|
(9,163,453)
|
(258.772)
|
(106,281)
|
(254,035)
|
(1,255,659)
|
|
Net
Income (loss)
|
(57,599)
|
(60,741)
|
($9,163,453)
|
$3,018,672
|
($314,277)
|
($907,779)
|
($1,510,903)
|
|
Net
gain (loss) per basic and diluted shares
|
$(0.00)
|
$0.00
|
($0.52)
|
$0.20
|
($0.02)
|
($0.04)
|
($0.07)
|
|
Weighted
average number of common shares outstanding
|
20,011,792
|
16,024,670
|
17,633,162
|
14,856,834
|
13,786,670
|
24,757,270
|
21,360,010
|
Balance
Sheet Data:
|
|||||||
March
31,
|
December
31,
|
||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
2001
|
|
Current
assets
|
$5,907,256
|
$6,412,893
|
$5,466,574
|
$5,869,782
|
$3,460,530
|
$3,549,864
|
|
Total
assets
|
10,716,115
|
11,222,363
|
6,447,030
|
6,320,612
|
3,918,160
|
3,753,612
|
|
Current
liabilities
|
6,313,621
|
6,765,295
|
2,452,522
|
5,870,451
|
3,176,765
|
3,104,368
|
|
Minority
interest
|
0
|
0
|
32,791
|
38,147
|
0
|
0
|
|
Total
liabilities and minority interest
|
6,313,621
|
6,765,295
|
2,485,313
|
5,908,598
|
3,176,765
|
3,104,368
|
|
Stockholders'
equity
|
4,402,494
|
4,457,068
|
3,961,717
|
412,014
|
741,395
|
649,244
|
· |
the
promulgation of new laws and regulations and the interpretation of
those
laws and regulations;
|
· |
inconsistent
enforcement and application of the telecommunications industry’s
rules and regulations by the Chinese government between foreign and
domestic companies;
|
· |
the
restructuring of telecommunications carriers in
China;
|
· |
the
introduction of measures to control inflation or stimulate growth;
|
· |
the
introduction of new guidelines for tariffs and service rates, which
affect
our ability to competitively price our products and services;
|
· |
changes
in the rate or method of taxation;
|
· |
the
imposition of additional restrictions on currency conversion and
remittances abroad; or
|
· |
any
actions that limit our ability to develop, manufacture, import or
sell our
products in China, or to finance and operate our business in China.
|
· |
Cease
selling, incorporating or using any of the Company’s technology and/or
product that incorporates the challenged intellectual property, which
could adversely affect the Company’s revenue;
|
· |
Obtain
a license from the holder of the infringed intellectual property
right,
which may be costly or may not be available on reasonable terms,
if at
all; or
|
· |
Redesign
the Company’s product, which would be costly and time
consuming.
|
2006
|
High
|
Low
|
Second
Quarter
(April
1 - June 19, 2006)
|
$.39
|
$.19
|
First
Quarter
|
$.37
|
$.25
|
2005
|
|
|
Fourth
Quarter
|
$.67
|
$.32
|
Third
Quarter
|
$.73
|
$.36
|
Second
Quarter
|
$.70
|
$.38
|
First
Quarter
|
$.59
|
$.38
|
2004
|
|
|
Fourth
Quarter
|
$.68
|
$.18
|
Third
Quarter
|
$.65
|
$.16
|
$1.01
|
$.09
|
|
First
Quarter
|
$.27
|
$.10
|
During
the year, the Company had revenues in two segments:
|
|
Mobile
marketing services
|
$
4,703,348
|
Tuition
fees
|
199,280
|
The
cost of revenue in each segment was:
|
|
Mobile
marketing services
|
$
1,372,707
|
Tuition
fees
|
54,584
|
The
gross profit from each of the business segments was:
|
|
Mobile
marketing services
|
$
3,330,641
|
Tuition
fees
|
144,696
|
|
|
Total
|
$ 3,475,337
|
|
|
During
the quarter, the Company had revenues in two segments:
|
|
Mobile marketing services | $1,440,917 |
Tuition
fees
|
$19,027
|
The
cost of revenue in each segment was:
|
|
Mobile marketing services | $291,833 |
Tuition
fees
|
$4,632
|
The
gross profit from each of the business segments was:
|
|
Mobile | $1,149,084 |
Tuition
fees
|
$14,395
|
$1,163,479 |
China
Mobility Solutions, Inc.
(Florida,
U.S.A.)
|
|
Infornet
Investment Corp.
(100%
Owned)
(BC,
Canada)
|
Infornet
Investment Ltd.
(100%
Owned)
(Hong
Kong)
|
Windsor
Education Academy Inc.
(100%
Owned)
(BC,
Canada)
|
Beijing
ShiJiYingFu Consultant Corp. Ltd.
(100%
Owned)
(Beijing,
China)
|
Xinbiz
Corp.
(100%
Owned)
(British
Virgin Islands)
(Dormant)
|
Xinbiz
Ltd.
(100%
Owned by Xinbiz Corp.)
(Hong
Kong)
(Dormant)
|
Beijing
Quicknet Technology Development Corp.
(49%
Owned and 51% Indirectly Owned and Controlled )
(Beijing,
China)
|
· |
For
customer acquisition
|
· |
For
customer retention
|
· |
For
loyalty building
|
· |
As
a sales promotion tool
|
· |
To
support product launches
|
· |
To
raise brand awareness
|
· |
For
internal communications
|
· |
As
a redemption / coupon tool
|
· |
For
direct marketing
|
· |
As
an effective business-to-business communications
vehicle
|
· |
As
an additional revenue stream
|
· |
To
be able to offer time / location specific
offers
|
· |
As
a channel for delivering ring tones and
logos
|
· |
Mobile
Banking
|
· | Mobile Tax Services |
· | SMS-based Services for Police |
Status:
|
Market
Ready
|
Costs to Launch: | 4 million RMB (US$480,000) for fixed assets and marketing |
Steps to Launch: | Raise funds, approach companies through agents |
Target Market: | Small, medium and large businesses |
Fee Per Year to Client: | 5,000 RMB (US$600) |
· |
It
enables sales representatives to deliver information at point-of-contact
in the field, via SMS;
|
· |
The
user-company can configure the mobile field sales solution to model
their
unique sales needs with two-way
communications;
|
· |
The
solution can integrate critical customer information from back office
records or legacy systems, giving the field sales team relevant
information to complete an order;
|
· |
It
can receive up-to-the-minute input from the field, providing real-time
information for decision-making support from the
office;
|
· |
Applications
can support hundreds of simultaneous users and require no in-house
program
development.
|
Status:
|
Market
Ready
|
Costs to Launch: | 1.5 million RMB (US$180,000) for fixed assets and marketing |
Steps to Launch: | Raise funds, approach banks through agents |
Target Market: | Customers of banks |
Fee Per Year to Client: | 3,000 RMB (US$360) |
Status:
|
Market
Ready
|
Costs to Launch: | 1.25 million RMB (U$150,000) for fixed assets and marketing |
Steps to Launch: | Raise funds, approach police departments |
Target Market: | Police Departments |
Fee Per Year to Client: | 5,000 RMB (US$600) |
Status:
|
Market
Ready
|
Costs to Launch: | 1.25 million RMB (U$150,000) for fixed assets and marketing |
Steps to Launch: | Raise funds, approach tax offices |
Target Market: | Tax Offices |
Fee Per Year to Client: | 2,000 RMB (US$240) |
Name
|
Age
|
Position
|
Xiao-qing
Du
|
36
|
President
and Director
|
Ernest
Cheung
|
55
|
Director
and Secretary
|
Greg
Ye
|
36
|
Director
|
Bryan
Ellis
|
35
|
Director
|
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.*
|
THE
COMPANY
|
OTCBB
|
Secretary
|
Mar-97
|
Current
|
China
Internet
|
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,
|
2005
|
10,129
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
President
of
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
330,000(1)
|
Infornet
Subsidiary
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|||||||||
Ernest
Cheung,
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Secretary
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
165,000(2)
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|||||||||
Officers
as a group
|
2005
|
10,129
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
495,000
|
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
(1) |
Options
at $0.30 per share which were granted in 2004 and exercised in
2005.
|
(2) |
Options
at $0.30 per share which were granted in 2004 and will expire on
August 1,
2007.
|
Name
|
Number
of Securities Underlying Options
Granted
|
Percent
of Total Options Granted All Employees in Fiscal
Year
|
Exercise
or Base Price
($/Share)
|
Expiration
Date
|
Xiao-qing
Du
|
None
|
|||
Ernest
Cheung
|
None
|
Name
|
Number
of Shares Acquired on
Exercise (#)
|
Value
Realized($)
|
Number
of Securities Underlying Unexercised Options at Fiscal
Year
End (#)
|
Value
of Unexercised In-the-Money Options at Fiscal
Year
End $ (1)
|
||||
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||
Xiao-qing
Du
|
330,000
|
$9,900
|
0
|
0
|
0
|
0
|
||
Ernest
Cheung
|
0
|
0
|
165,000
|
0
(1)
|
0
(1)
|
0
|
Summary
Compensation Table of Directors
|
|||||||||
Cash
Compensation
|
Security
Grants
|
||||||||
Name
and Principal Position
|
Year
|
Annual
Retainer Fees ($)
|
Meeting
Fees ($)
|
Consulting
Fees/Other Fees ($)
|
Number
of Shares
|
Securities,
Underlying Options/SARs (#) (SHARES)
|
LTIP
Payments
|
All
other Compensation
|
|
Xiao-qing
Du,
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Director
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||
|
|||||||||
Ernest
Cheung,
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Director
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Maurice
Tsakok
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Director
(1)
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
(Resigned
2004)
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|||||||||
Greg
Ye
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Director
|
|||||||||
|
|||||||||
|
|||||||||
Bryan
Ellis
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Directors
as a group
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
of Beneficial Interest
|
Percent
of Class
|
Common
Stock
|
Xiao-qing
(Angela) Du (1)(2)
|
1,250,000
|
6.25%
|
Common
Stock
|
Richco
Investors, Inc.(1)
|
1,137,999
(3)(5)
|
5.69%
|
Common
Stock
|
Ernest
Cheung(1)
|
1,446,333
(3)(4)(5)
|
7.23%
|
Common
Stock
|
Maurice
Tsakok (1)
|
1,225,333
(3)(5)
|
6.12%
|
Common
Stock
|
Quicknet
Partners
#1859
New Century Office Tower
Beijing
China
|
2,040,000
|
10.19%
|
Common
Stock
|
Greg
Ye(1)
|
0
|
0%
|
Common
Stock
|
Bryan
Ellis(1)
|
0
|
0%
|
Total
for Officers and Directors as a group (4 persons)
|
|
2,696,333
|
13.47%
|
|
|
|
|
(1)
|
Except
as otherwise noted each person’s business address is c/o the Company, Ste.
900-789 West Pender Street, Vancouver BC V6C
1H2.
|
(2)
|
As
an officer, Ms. Du received 330,000 options in 2004 which are currently
exercisable.
|
(3)
|
Mr.
Cheung and Mr. Tsakok are officers, directors and beneficial owners
of
Richco Investors Inc. For purposes of this table, the 1,137,999 shares
owned by Richco are deemed owned by Mr.Cheung and Mr. Maurice Tsakok,
a
former director, beneficially and individually.
|
(4)
|
Ernest
Cheung has options to purchase 165,000 shares at $0.30 per share,
all of
which are currently exercisable. Ernest Cheung is President of
Development
Fund II of Nova Scotia, Inc. which owns 63,333 common shares included
in
the above table.
|
· |
An
aggregate of 28,714,458 shares
of our Common Stock are issuable to 37 investors in our Offering,
which
shares are being offered hereby for resale upon conversion of Debentures
and/or exercise of warrants. An
additional 4,785,843 Shares are issuable to these same investors
pursuant
to the May 4, 2006 Waiver/Settlement Agreement, however, are not
included
in this registration statement. The Offering of 134 units (“Units”)
was sold at $25,000 per Unit or an aggregate of $3,350,000 and
net
proceeds of approximately $2,866,000. Each Unit consists of $25,000
principal amount of Debentures, and Class A Warrants and Class
B Warrants.
The Debentures are currently convertible at $.30 per share, as
adjusted,
for 83,333 shares of Common Stock (of
which 71,429 shares are registered hereby); mature on August 15,
2006 and accrue interest at a rate of not less than 6% per annum.
Each
Unit also includes: (i) Class A Warrants exercisable at $.38 per
share, as
adjusted, to purchase 83,333 shares of Common Stock (of
which 71,429 shares are registered hereby) for two years from the
Effective Date, but no later than February 15, 2008; and (ii) Class
B
Warrants exercisable at $.45 per share, as adjusted, to purchase
83,333
shares of Common Stock (of
which 71,429 shares are registered hereby) for three years from the
Effective Date, but no later than February 15, 2009.
For additional information, see “Description of Securities” and “Plan of
Distribution” elsewhere in this prospectus.
|
· |
In
connection with the Offering, we issued warrants to purchase 7,178,572 shares
of Common Stock (an
additional 1,196,378 shares are not registered hereby), to the
placement agent, and its assignees including selected dealers (“Placement
Agent Warrant Shares”).
|
· |
500,000
shares were issued to Yim Sheung Wai, a consultant with Lanxes
Consultants
Limited, upon exercise of an option pursuant to the Registration
Statement
on Form S-8, SEC File #333-124654, which shares are being re-registered
pursuant to this prospectus.
|
· |
200,000
Warrant Shares are issuable to Crystal Research Associates LLC, a
consultant.
|
Number
of Shares Owned Prior to Sale
|
Number
of Shares Being Offered for Sale
|
Amount
and Nature of Beneficial Ownership After the Sale of the Shares
Being
Offered Percentage(1)
|
|||
Selling
Shareholder
|
Before
|
After
|
|||
Alpha
Capital AG (18)
|
3,000,000
|
3,000,000
|
(3)
|
13.0%
|
-
|
Robert
Baron
|
128,574
|
128,574
|
(4)
|
*
|
-
|
Robert
Bauers
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Brookshire
Securities (19)
|
325,000
|
325,000
|
(2)
|
1.6%
|
-
|
Michael
Capozzi
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Lewis
G. Cole
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Thomas
Dupont
|
428,574
|
428,574
|
(6)
|
2.1%
|
-
|
John
E. and Georgianna Gimbel
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Andreas
Gubser
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Michael
Hamblett
|
7,500
|
7,500
|
(2)
|
*
|
-
|
Philip
J. Hempleman
|
2,442,858
|
2,442,287
|
(7)
|
9.7%
|
-
|
Fiona
Holland
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Richard
N. Houlding
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Iroquois
Master Fund LTD (20)
|
3,214,287
|
3,214,287
|
(8)
|
13.8%
|
-
|
Robert
Jackson
|
107,145
|
107,145
|
(9)
|
*
|
-
|
Louis
Jaffe
|
428,574
|
428,574
|
(6)
|
2.1%
|
-
|
George
Jarskey
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Francis
William Johnson
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Kinder
Investments, L.P. (21)
|
1,500,000
|
1,500,000
|
(10)
|
7.0%
|
-
|
Michael
J. Maloney
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Frank
Mantek
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Management
Solutions International, Inc. (22)
|
350,000
|
350,000
|
(2)
|
1.7%
|
-
|
Meridian
Ventures, LLC (23)
|
525,000
|
525,000
|
(2)
|
2.6%
|
-
|
Meyers
Associates, LP (24)
|
5,963,572
|
5,963,572
|
(2)
|
23.0%
|
-
|
Karen
Lynne Miller
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Dr.
Gerald Millstein
|
107,145
|
107,145
|
(9)
|
*
|
-
|
Richard
Molinsky
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Donald
Mudd
|
1,285,716
|
1,285,716
|
(11)
|
6.0%
|
-
|
Nite
Capital LP (25)
|
1,285,716
|
1,285,716
|
(11)
|
6.0%
|
-
|
Omicron
Master Trust (26)
|
771,429
|
771,429
|
(12)
|
3.7%
|
-
|
Wayne
and Bonnie Pensenstadler
|
642,858
|
642,858
|
(13)
|
3.1%
|
-
|
Norman
Rothstein
|
171,429
|
171,429
|
(14)
|
*
|
-
|
The
Rubin Family Irrevocable Trust (27)
|
428,574
|
428,574
|
(6)
|
2.1%
|
-
|
SCG
Capital, LLC (28)
|
428,574
|
428,574
|
(6)
|
2.1%
|
-
|
Cira
A. Lim, John L. Smith
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Southridge
Partners LP (29)
|
4,285,716
|
4,285,716
|
(15)
|
17.6%
|
-
|
Anthony
Spatacco
|
3,750
|
3,750
|
(2)
|
*
|
-
|
Starboard
Capital (30)
|
3,750
|
3,750
|
(2)
|
*
|
-
|
Michael
F. Stone
|
1,285,716
|
1,285,716
|
(11)
|
6.0%
|
-
|
Robert
I. Strougo
|
107,145
|
107,145
|
(9)
|
*
|
-
|
Rodney
E. and Donna R. Suggs
|
2,571,429
|
2,571,429
|
(16)
|
11.4%
|
-
|
Yim
Sheung Wai
|
500,000
|
500,000
|
(31)
|
||
Peter
Wakeham
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
David
Ward
|
107,145
|
107,145
|
(9)
|
*
|
-
|
Dr.
Ferdinand Weisbrod
|
857,145
|
857,145
|
(17)
|
4.1%
|
-
|
Dean
Whitla
|
214,287
|
214,287
|
(5)
|
1.1%
|
-
|
Crystal
Research Associates LLC
|
200,000
|
200,000
|
(32)
|
-
|
-
|
(1) |
As
of June 20, 2006, we had 21,511,792 shares
of Common Stock issued and unless otherwise indicated, each person
has
sole disposition and voting power with respect to the shares
indicated.
For purposes of this table, a person or group of persons is:
(a) deemed to
have "beneficial ownership" of any shares as of a given date
which such
person has the right to acquire within 60 days after such date
and (b)
assumed to have sold all shares registered hereby in this offering.
For
purposes of computing the percentage of outstanding shares held
by each
person or group of persons named above on a given date, any security
which
such person or persons has the right to acquire within 60 days
after such
date is deemed to be outstanding for the purpose of computing
the
percentage ownership of such person or persons, but is not deemed
to be
outstanding for the purpose of computing the percentage ownership
of any
other person. |
(2) | These are Placement Agent Warrant Shares. |
(3)
|
These
include 1,000,000 shares issuable upon conversion of the Debentures,
1,000,000 shares issuable upon exercise of the Class A Warrants
and
1,000,000 shares issuable upon exercise of the Class B
Warrants.
|
(4)
|
These
include 42,858 shares issuable upon conversion of the Debentures,
42,858
shares issuable upon exercise of the Class A Warrants and 42,858
shares
issuable upon exercise of the Class B
Warrants.
|
(5)
|
These
include 71,429 shares issuable upon conversion of the Debentures,
71,429
shares issuable upon exercise of the Class A Warrants and 71,429
shares
issuable upon exercise of the Class B
Warrants.
|
(6)
|
These
include 142,858 shares issuable upon conversion of the Debentures,
142,858
shares issuable upon exercise of the Class A Warrants and 142,858
shares
issuable upon exercise of the Class B
Warrants.
|
(7)
|
These
include 714,286 shares issuable upon conversion of the Debentures,
714,286
shares issuable upon exercise of the Class A Warrants and 714,286
shares
issuable upon exercise of the Class B
Warrants.
|
(8)
|
These
include 1,071,429 shares issuable upon conversion of the Debentures,
1,071,429 shares issuable upon exercise of the Class A Warrants
and
1,071,429 shares issuable upon exercise of the Class B
Warrants.
|
(9)
|
These
include 35,715 shares issuable upon conversion of the Debentures,
35,715
shares issuable upon exercise of the Class A Warrants and 35,715
shares
issuable upon exercise of the Class B
Warrants.
|
(10)
|
These
include 500,000 shares issuable upon conversion of the Debentures,
500,000
shares issuable upon exercise of the Class A Warrants and 500,000
shares
issuable upon exercise of the Class B
Warrants.
|
(11)
|
These
include 428,572 shares issuable upon conversion of the Debentures,
428,572
shares issuable upon exercise of the Class A Warrants and 428,572
shares
issuable upon exercise of the Class B
Warrants.
|
(12)
|
These
include 257,143 shares issuable upon conversion of the Debentures,
257,143
shares issuable upon exercise of the Class A Warrants and 257,143
shares
issuable upon exercise of the Class B
Warrants.
|
(13)
|
These
include 214,286 shares issuable upon conversion of the Debentures,
214,286
shares issuable upon exercise of the Class A Warrants and 214,286
shares
issuable upon exercise of the Class B
Warrants.
|
(14)
|
These
include 57,143 shares issuable upon conversion of the Debentures,
57,143
shares issuable upon exercise of the Class A Warrants and 57,143
shares
issuable upon exercise of the Class B
Warrants.
|
(15)
|
These
include 1,428,572 shares issuable upon conversion of the Debentures,
1,428,572 shares issuable upon exercise of the Class A Warrants
and
1,428,572 shares issuable upon exercise of the Class B
Warrants.
|
(16)
|
These
include 857,143 shares issuable upon conversion of the Debentures,
857,143
shares issuable upon exercise of the Class A Warrants and 857,143
shares
issuable upon exercise of the Class B
Warrants.
|
(17)
|
These
include 285,715 shares issuable upon conversion of the Debentures,
285,715
shares issuable upon exercise of the Class A Warrants and 285,715
shares
issuable upon exercise of the Class B
Warrants.
|
(18)
|
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Konrad Ackerman,
Director.
|
(19) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Timothy Roggiero,
President.
|
(20) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Joshua Silverman, Authorized
Signatory.
|
(21) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Dov Perlysky, Managing Member of
G.P.
|
(22) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Michael Sid, President.
|
(23) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Shahid Khan, President.
|
(24) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Bruce Meyers, President.
|
(25) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Keith A. Goodman, Manager of the General
Partner.
|
(26) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Bruce Bernstein, Managing
Partner.
|
(27) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Marjorie Rubin, Trustee.
|
(28) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Steven Geduld.
|
(29) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by Henry Sargent, Portfolio
Manager.
|
(30) |
Voting
and disposition power with respect to the shares offered hereby
for resale
is held by James Dotzam, Managing
Principal.
|
(31) |
On
August 17, 2005, Yim Sheung Wai received an option to purchase
500,000
shares of Common Stock. The option was exercisable at $.40 per
share. The
option was granted in consideration of consulting services rendered
in
connection with assisting the Company in locating strategic business
partners. Ms. Wai is not affiliated with any registered broker-dealer.
The
option was exercised in September 2005 and the underlying shares
are being
registered hereby.
|
(32) |
On
November 3, 2005, Crystal Research Associates, LLC (“Crystal”) was granted
warrants to purchase 200,000 shares of Common Stock exercisable
at $.45
per share. The warrants were granted in consideration of a contract
entered into between the parties for Crystal to write an independent
research report for the Company. Crystal is not affiliated with
any
registered broker-dealer. Voting and/or depositive power with rights
to
the 200,000 shares issuable upon exercise of the warrants is held
by Karen
Goldfarb, Crystal’s President.
|
· |
the
name of each of such selling shareholder and the participating brokers
and/or dealers,
|
· |
the
number of shares involved,
|
· |
the
price at which such shares are being sold,
|
· |
the
commissions paid or the discounts or concessions allowed to such
brokers
and/or dealers,
|
· |
where
applicable, that such brokers and/or dealers did not conduct any
investigation to verify the information set out or incorporated by
reference in the prospectus, as supplemented, and
|
· |
other
facts material to the transaction.
|
Consolidated
Balance Sheets as of March 31, 2006 (Unaudited) and December
31,
2005
|
F-1
|
Consolidated
Statements of Operations for the three months ended March 31,
2006 and
2005 (Unaudited)
|
F-2
|
Consolidated
Statement of Stockholders’ Equity for the three month period ended March
31, 2006 and the year ended December 31, 2005 (Unaudited)
|
F-3
|
Consolidated
Statements of Cash Flows for the three months ended March 31,
2006 and
2005 (Unaudited)
|
F-4
|
Notes
to Consolidated Financial Statements, March 31, 2006
(Unaudited)
|
F-5
to F-10
|
Report
of Independent Registered Public Accounting Firm
|
F-11
|
Consolidated
Balance Sheets as of December 31, 2005 and 2004
|
F-12
|
Consolidated
Statements of Operations for the years ended December 31, 2005
and
2004
|
F-13
|
Consolidated
Statement of Stockholders’ Equity for the years ended December 31, 2005
and 2004
|
F-14
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005
and
2004
|
F-15
|
Notes
to Consolidated Financial Statements, December 31, 2005
|
F-16
to F-28
|
CONSOLIDATED
BALANCE SHEETS
|
||||
Stated
in U.S. dollars
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
(Unaudited)
|
|
(Audited)
|
ASSETS
|
||||
Current
Assets
|
||||
Cash
and
Cash Equivalents
|
$
|
5,741,569
|
$
|
6,138,609
|
Accounts
receivable
|
6,835
|
5,870
|
||
Prepaid
Expenses and Other Current Assets
|
113,131
|
235,165
|
||
Amount
due
from related parties
|
45,721
|
33,249
|
||
|
|
|
|
|
Total
Current Assets
|
5,907,256
|
6,412,893
|
||
Investment
|
1
|
1
|
||
Property
and Equipment, Net (Note 2)
|
5,646
|
6,248
|
||
Goodwill
|
4,802,520
|
4,802,520
|
||
Other
assets
|
692
|
701
|
||
Total
Assets
|
$
|
10,716,115
|
$
|
11,222,363
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||
Current
Liabilities
|
||||
Accounts
Payable and Other Accrued Liabilities
|
$
|
336,735
|
$
|
362,013
|
Deferred
Revenue
|
2,626,886
|
3,053,282
|
||
Convertible
Debentures (Note 3)
|
3,350,000
|
3,350,000
|
||
|
|
|
|
|
Total
Current Liabilities
|
6,313,621
|
6,765,295
|
||
Stockholders'
Equity
|
||||
Common
Stock
: $0.001 Par Value
|
||||
Authorized
:
500,000,000 common shares
|
||||
Issued
and
Outstanding : 20,011,792 shares (2005: 20,011,792 shares)
|
20,012
|
20,012
|
||
Additional
Paid In Capital
|
18,442,826
|
18,442,826
|
||
Accumulated
Deficit
|
(13,862,008)
|
(13,804,409)
|
||
Accumulated
Other Comprehensive Loss
|
(198,336)
|
(201,361)
|
||
|
|
|
|
|
Total
Stockholders' Equity
|
4,402,494
|
4,457,068
|
||
Total
Liabilities and Stockholders' Equity
|
$
|
10,716,115
|
$
|
11,222,363
|
(The
accompanying notes are an integral part of these consolidated
financial
statements)
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||
(Unaudited)
|
||||
|
|
Three
Months Ended
|
||
Stated
in U.S. dollars
|
|
March
31, 2006
|
|
March
31, 2005
|
Revenue
|
||||
Mobile
marketing services
|
$
|
1,440,917
|
$
|
1,052,529
|
Tuition
fee
|
|
19,027
|
|
74,678
|
1,459,944
|
1,127,207
|
|||
Cost
of revenue
|
||||
Mobile
marketing services
|
291,833
|
223,545
|
||
Tuition
fee
|
|
4,632
|
|
10,439
|
296,465
|
233,984
|
|||
Gross
profit
|
|
1,163,479
|
|
893,223
|
Expenses
|
||||
Advertising
and promotion
|
199,171
|
141,320
|
||
Consulting
and professional
|
89,979
|
16,156
|
||
Depreciation
|
611
|
592
|
||
Foreign
exchange loss (gain)
|
(1,310)
|
3,578
|
||
General
and administrative
|
36,274
|
24,317
|
||
Interest
expense
|
54,312
|
-
|
||
Investor
relations
|
87,825
|
-
|
||
Liquidated
damages
|
201,000
|
-
|
||
Rent
|
235,913
|
158,615
|
||
Salaries,
wages and sub-contract
|
341,861
|
300,583
|
||
Website
development
|
|
-
|
|
80,000
|
|
1,245,636
|
725,161
|
||
Operating
Income (Loss)
|
(82,157)
|
168,062
|
||
Other
Income
|
||||
Interest
income
|
24,558
|
17,242
|
||
Other
income
|
|
-
|
|
1,984
|
24,558
|
19,226
|
|||
Income
(loss) before minority interest
|
(57,599)
|
187,288
|
||
Minority
interest
|
-
|
(126,547)
|
||
|
|
|
|
|
Net
Income (Loss) Available to Common Stockholders
|
|
$
(57,599)
|
|
$60,741
|
Earnings
(loss) per share attributable to common
stockholders:
|
||||
Basic
and diluted
|
|
(0.00)
|
|
$0.00
|
Weighted
average number of common shares outstanding:
|
||||
Basic
and diluted
|
|
20,011,792
|
|
16,024,670
|
(The
accompanying notes are an integral part of these consolidated
financial
statements)
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|||||||
For
the three month period ended March 31, 2006 and year ended December
31, 2005
|
|||||||
(Unaudited)
|
|||||||
|
Accumulated
|
||||||
Stock
|
Additional
|
|
Other
|
||||
Common
|
Amount
At
|
Paid
In
|
Accumulated
|
Comprehensive
|
Comprehensive
|
||
Stated
in U.S. dollars
|
Shares
|
Par
Value
|
Capital
|
Deficit
|
Income
(Loss)
|
Income
(Loss)
|
Total
|
Balance,
December 31, 2004
|
15,826,792
|
$
15,827
|
$
8,770,378
|
$
(4,640,956)
|
$
(183,532)
|
$3,961,717
|
|
Issuance
of common stock for cash on
|
|||||||
exercise
of stock options on February
|
|||||||
24,
2005 @$0.30
|
495,000
|
495
|
148,005
|
148,500
|
|||
Issuance
of common stock for services
|
|||||||
rendered
|
600,000
|
600
|
350,700
|
351,300
|
|||
Issuance
of common stock for cash on
|
|||||||
exercise
of stock options on September
|
|||||||
1,
2005 @$0.40
|
500,000
|
500
|
199,500
|
200,000
|
|||
Issuance
of common stock for cash on
|
|||||||
exercise
of stock options on September
|
|||||||
1,
2005 @$0.35
|
2,590,000
|
2,590
|
903,910
|
906,500
|
|||
Stock-based
compensation
|
126,000
|
126,000
|
|||||
Fair
value of new Series 'A' warrants issued
|
3,254,305
|
3,254,305
|
|||||
Fair
value of new Series 'B' warrants issued
|
3,637,165
|
3,637,165
|
|||||
Intrinsic
value of the conversion feature of the
|
|||||||
convertible
debenture
|
1,052,863
|
1,052,863
|
|||||
Net
income (loss) for the year ended
|
|||||||
December
31, 2005
|
(9,163,453)
|
(9,163,453)
|
(9,163,453)
|
||||
Foreign
currency translation adjustments
|
(17,829)
|
(17,829)
|
(17,829)
|
||||
|
|
|
|
|
|
|
|
Total
comprehensive income (loss)
|
$
(9,181,282)
|
||||||
Balance,
December 31, 2005
|
20,011,792
|
$
20,012
|
$18,442,826
|
$
(13,804,409)
|
$
(201,361)
|
$4,457,068
|
|
Net
income (loss) for the three months ended
|
|||||||
March
31, 2006
|
(57,599)
|
(57,599)
|
(57,599)
|
||||
Foreign
currency translation adjustments
|
3,025
|
$3,025
|
3,025
|
||||
|
|
|
|
|
|
|
|
Total
comprehensive income (loss)
|
$(54,574)
|
||||||
Balance,
March 31, 2006
|
20,011,792
|
$20,012
|
$18,442,826
|
$
(13,862,008)
|
$(198,336)
|
$4,402,494
|
|
(The
accompanying notes are an integral part of these consolidated
financial
statements)
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||
(Unaudited)
|
||||
Three
Months Ended
|
||||
Stated
in U.S. dollars
|
|
March
31, 2006
|
|
March
31, 2005
|
Cash
flows from operating activities
|
||||
Net
income (loss)
|
$(57,599)
|
$60,741
|
||
Adjustments
to reconcile net loss to net cash
|
||||
Provided
by (Used in) operating activities
|
||||
Depreciation
and amortization
|
611
|
592
|
||
Interest
expenses on intrinsic value of the convertible debenture
|
||||
Translation
adjustments
|
3,025
|
2,045
|
||
Minority
interest
|
-
|
126,547
|
||
Changes
in assets and liabilities
|
||||
(Increase)Decrease
in accounts receivable
|
(965)
|
5,336
|
||
(Increase)Decrease
in prepaid expenses and other current assets
|
122,034
|
8,451
|
||
Increase
in amount due from (to) related parties
|
(12,472)
|
(29,202)
|
||
Decrease
in accounts payable
|
(25,278)
|
59,522
|
||
Increase
in deferred revenue
|
(426,396)
|
(95,419)
|
||
Net
cash provided by (used in) operating activities
|
|
(397,040)
|
|
138,613
|
Cash
flows from financing activities
|
||||
Issuance
of common stock for cash
|
-
|
148,500
|
||
Net
cash flows provided by financing activities
|
|
-
|
|
148,500
|
Increase
(Decrease) in cash and cash equivalents
|
(397,040)
|
287,113
|
||
Cash
and cash equivalents - beginning of period
|
6,138,609
|
5,380,622
|
||
Cash
and cash equivalents - end of period
|
|
$5,741,569
|
|
$5,667,735
|
Supplemental
Information :
|
||||
Cash
paid for :
|
||||
Interest
|
$53,600
|
$1
|
||
Income
taxes
|
-
|
-
|
||
(The
accompanying notes are an integral part of these consolidated
financial
statements)
|
The
accompanying unaudited financial statements have been prepared
in
conformity with generally accepted accounting principles in the
United
States of America. However, certain information and footnote
disclosures
normally included in financial statements prepared in accordance
with
generally accepted accounting principles have been omitted or
condensed
pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). In the opinion of management, all adjustments of a
normal recurring nature necessary for a fair presentation have
been
included. The results for interim periods are not necessarily
indicative
of results for the entire year. These condensed consolidated
financial
statements and accompanying notes should be read in conjunction
with the
Company’s annual consolidated financial statements and the notes thereto
for the fiscal year ended December 31, 2005 included in its Annual
Report
on Form 10-KSB.
The
unaudited condensed consolidated financial statements include
China
Mobility Solutions, Inc. and its subsidiaries. All inter-company
transactions and accounts have been
eliminated.
|
March
31,
|
|
December
31,
|
||
|
|
2006
|
|
2005
|
Equipment
|
$
26,986
|
|
$
26,986
|
|
Library
|
|
9,554
|
|
9,554
|
Furniture
|
|
10,189
|
|
10,189
|
Total
|
|
46,729
|
|
46,729
|
Less
: Accumulated depreciation
|
|
(41,083)
|
|
(40,481)
|
Net
book figures
|
|
$
5,646
|
|
$
6,248
|
On August 15, 2005, the Company completed an offering of 134 units ("Units") for $3,350,000. Each Unit was sold for $25,000, consisting of $25,000 principal amount of senior convertible debentures (the "Debentures"), and one new Series “A” Warrant and one new Series “B” Warrants. The Debentures are initially convertible at $0.35 per share for 71,429 shares of common stock of the Company; maturing on August 15, 2006 and accruing interest at a rate of not less than 6% per annum equal to the sum of 2% per annum plus the one-month London Inter-Bank Offer Rate (“LIBOR”). The Debentures are subject to redemption at 125% of the principal amount plus accrued interest commencing six months after the effective date (the "Effective Date") of the registration statement. The registration statement has not been approved by the regulatory authority. |
Each
Unit also includes: (i) new Series “A” Warrants exercisable at $0.44 per
share to purchase 71,429 shares of Common Stock of
the Company for two
years from the Effective Date, but no later than February
15, 2008; and
(ii) new Series “B” Warrants exercisable at $0.52 per share to purchase
71,429 shares of Common Stock for three years from
the Effective Date, but
no later than February 15, 2009. The new Series “A” and new Series “B”
Warrants are subject to redemption by the Company at
$0.001 per Warrant at
any time commencing six months and twelve months, respectively,
from the
Effective Date, provided the average closing bid price
of the common stock
of the Company equals or exceeds 175% of the respective
exercise prices
for 20 consecutive trading days.
|
On
January 18, 2006, the Company received a letter (the
“Default Notice”)
from the attorney for Southridge Partners, LP, (the “Lender”)
the holder of $500,000 principal amount of the Company's
Senior
Convertible Debentures (the “Debenture”) stating that the
Company was in default of certain transaction agreements (the
“Transaction Agreements”) issued in connection with the Debenture by
virtue of the Company's issuance of registered shares
of stock to
employees and consultants under a Form S-8 registration
statement and the
filing of the Form S-8 prior to the date of effectiveness
(the “Effective
Date”) of the Company’s SB-2 Registration Statement required under the
Registration Rights Agreement (one of the Transaction
Agreements).
|
The
Debenture was issued on August 15, 2005, as part of a
$3,350,000 offering
of units. Under the original terms of the Debenture,
each unit included
$25,000 principal amount of Debentures, initially convertible
at $.35 per
share, matured on August 15, 2006 and accrued interest
at not less than 6%
per annum equal to the sum of 2% per annum plus the one
month LIBOR rate.
Each unit also included Class A Warrants exercisable
at $.44 per share and
Class B Warrants exercisable at $.52 per share.
|
The
Company denied that it was in default of the Transaction
Agreements;
however, in order to avoid costly litigation, the parties
entered into a
waiver/settlement agreement as of May 4, 2006 (the “Waiver/Settlement
Agreement”).
In
accordance with the terms of the Waiver/Settlement Agreement,
the initial
conversion price of the Debenture was reduced from $.35
per share to $.30
per share, the Class A Warrant exercise price was reduced
from $.44 to
$.38 per share and the Class B Warrant exercise price
was reduced from
$.52 to $.45 per share. In addition, the number of shares
of the Company’s
common stock exercisable upon conversion of each $25,000
principal amount
of Debenture and upon exercise of the Class A and Class
B Warrants
included in each Unit was increased from 71,429 shares
to 83,333 shares
for each of the Debenture, Class A Warrants and Class
B Warrants, or an
aggregate of 250,000 shares per unit.
|
The
Lender waived the S-8 Default set forth in the Default
Notice and the
Company agreed not to file any additional S-8 Registration
Statements
prior to 45 days after the Effective Date of the Registration
Statement.
|
Basic
earnings (loss) per share are computed by dividing net earnings
(loss)
available to common stockholders by the weighted-average
number of common
shares outstanding during the period. Diluted earnings per
share is
computed by dividing net earnings available to common stockholders
by the
weighted-average number of common shares outstanding during
the period
increased to include the number of additional common shares
that would
have been outstanding if potentially dilutive common shares
had been
issued.
|
The
following table sets forth the computations of shares and
net loss used in
the calculation of basic and diluted loss per share for the
three-month
periods ended March 31, 2006 and
2005:
|
Three
months ended
|
|||
|
|
March
31,
|
|
|
|
2006
|
2005
|
Net
income (loss) for the period
|
(57,599)
|
60,741
|
|
|
|||
Weighted-average
number of shares outstanding
|
20,011,792
|
16,024,670
|
|
Effective
of dilutive securities :
|
|||
Dilutive
options - $0.30
|
-
|
-
|
|
Dilutive
warrants new Series "A" - $0.44
|
-
|
-
|
|
Dilutive
warrants new Series "B" - $0.52
|
-
|
-
|
|
Dilutive
potential common shares
|
-
|
-
|
|
Adjusted
weighted-average shares and assumed
conversions
|
20,011,792
|
16,024,670
|
|
|
|||
Basic
income (loss) per share attributable to common
shareholders
|
$
(0.00)
|
$
0.00
|
|
Diluted
income (loss) per share attributable to common
shareholders
|
$
(0.00)
|
$
0.00
|
|
During
the quarter
ended March 31, 2006, 10 Series “B” warrants which entitle the holders to
purchase a common share of the Company at $2.25 each expired
on March 31,
2006.
|
As
of March 31, 2006, 134 new Series “A” warrants were outstanding which
entitle the holders to purchase 71,429 common shares of the
Company at
$0.44 each within two years from the Effective Date but no
later than
February 15, 2008. 134 new Series “B” warrants were outstanding which
entitle the holders to purchase 71,429 common shares of the
Company at
$0.52 each within three years from the Effective Date but
no later than
February 15, 2009.
|
The
Company filed a Form S-8 Registration Statement for its
2006 non-qualified
Stock Option Plan” with Securities Exchange Commission on November 3,
2005. The total number of shares of the Company available
for grants of
stock options and common stock under the Plan shall be
4,000,000 common
shares. Stock options may be granted to non-employees
and directors of the
Company or other persons who are performing or who have
been engaged to
perform services of special importance to the management,
operation or
development of the Company. All stock options granted
hereunder must be
granted within ten years from the earlier of the date
of this Plan is
adopted or approved by the Company’s shareholders. No stock option granted
to any employee or 10% shareholder shall be exercisable
after the
expiration of ten years from the date such non qualifying
stock option
(“NQSO”) is granted. The Company, in its discretion, may provide
that an
Option shall be exercisable during such ten year period
or during any
lesser period of time, through the delivery of fully
paid and
non-assessable common shares, with an aggregate fair
market value on the
date the NQSO is exercised equal to the option price,
provided such
tendered shares have been owned by the Optionee for at
least one year
prior to such exercise.
|
Options
outstanding at March 31, 2006 were 660,000 with an option
price of $0.30
each. No options were granted, exercised, canceled or
forfeited during the
quarter ended March 31, 2006. The weighted average remaining
contractual
life is 1.31 years.
|
Prior
to January 1, 2006, the Company accounted for stock-based
awards under the
intrinsic value method, which followed the recognition
and measurement
principles of APB Opinion No. 25, “Accounting for Stock Issued to
Employees”, and related Interpretations. The intrinsic value method
of
accounting resulted in compensation expense for stock
options to the
extent that the exercise prices were set below the fair
market price of
the Company’s stock at the date of grant.
|
As
of January 1, 2006, the Company adopted SFAS No. 123(R)
using the modified
prospective method, which requires measurement of compensation
cost for
all stock-based awards at fair value on the date of grant
and recognition
of compensation over the service period for awards expected
to vest. The
fair value of stock options is determined using the Black-Scholes
valuation model, which is consistent with the Company’s valuation
techniques previously utilized for options in footnote
disclosures
required under SFAS No. 123, “Accounting for Stock Based Compensation”, as
amended by SFAS No. 148, “Accounting for Stock Based Compensation
Transition and Disclosure”.
|
Since
the Company did not issue stock options to employees during
the three
months ended March 31, 2006 or 2005, there is no effect
on net loss or
earnings per share had the Company applied the fair value
recognition
provisions of SFAS No. 123(R) to stock-based employee compensation.
When
the Company issues shares of common stock to employees
and others, the
shares of common stock are valued based on the market price
at the date
the shares of common stock are approved for
issuance.
|
During
the three-month period ended March 31, 2006, the Company
paid $14,475, as
compared with $5,296 during the comparable period in 2005, to a
director and an officer as wages and benefits.
As
of March 31, 2006, the Company had an amount of $21,421,
as compared with
$21,443 as of December 31, 2005, due from a company with a common
director without interest or specific terms of repayment.
As
of March 31, 2006, the Company advanced $9,730, as compared
with $8,485 as
of December 31, 2005, to a director of the Company for
expenses to be
incurred on behalf of the
Company.
|
There have been no new pronouncements issued since March 31, 2005, that are expected to have a material impact on the Company’s financial statements. |
The Company’s reportable segments are geographic areas and two operating segments, the latter comprised of mobile communication and ESL education. Summarized financial information concerning the Company’s reportable segments is shown in the following table. The “Other” column includes corporate related items, and, as it relates to segment profit (loss), income and expenses not allocated to reportable segments. |
A.
By geographic areas
|
|
China
|
Canada
|
Other
|
Total
|
Three
months ended March 31, 2006
|
|||||
Revenue
from continuing operations
|
$
1,440,917
|
$
19,027
|
$
-
|
$
1,459,944
|
|
Operating
income (loss)
|
387,730
|
(39,158)
|
(430,729)
|
(82,157)
|
|
Total
assets
|
3,257,230
|
298,983
|
7,159,902
|
10,716,115
|
|
Depreciation
|
-
|
611
|
-
|
611
|
|
Interest
income
|
6,303
|
397
|
17,858
|
24,558
|
|
Income
from discontinued operations
|
-
|
-
|
-
|
-
|
|
Investment
in equity method investee
|
-
|
-
|
1
|
1
|
|
Three
months ended March 31, 2005
|
|||||
Revenue
from continuing operations
|
$
1,052,529
|
$
74,678
|
$
-
|
$
1,127,207
|
|
Operating
income (loss)
|
257,183
|
7,212
|
(96,333)
|
168,062
|
|
Total
assets
|
6,589,865
|
112,381
|
46,720
|
6,748,966
|
|
Depreciation
|
-
|
584
|
8
|
592
|
|
Interest
income
|
17,238
|
4
|
-
|
17,242
|
|
Income
from discontinued operations
|
-
|
-
|
-
|
-
|
|
Investment
in equity method investee
|
-
|
-
|
1
|
1
|
|
|
|||||
B.
By operating segments
|
Mobile
communications
|
ESL
education
|
Other
|
Total
|
||
For
the three months ended March 31, 2006
|
||||||
Revenue
from external customers
|
$
1,440,917
|
$
19,027
|
$
-
|
$
1,459,944
|
||
Intersegment
revenue
|
|
|
-
|
-
|
-
|
-
|
Interest
revenue
|
|
|
6,303
|
397
|
17,858
|
24,558
|
Interest
expense
|
|
|
-
|
-
|
54,312
|
54,312
|
Depreciation
|
|
|
-
|
436
|
175
|
611
|
Segment
operation profit (loss)
|
|
|
387,730
|
(12,385)
|
(457,502)
|
(82,157)
|
Segment
assets
|
|
|
3,257,230
|
78,739
|
7,380,146
|
10,716,115
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2005
|
|
|
|
|
|
|
Revenue
from external customers
|
|
|
$
1,052,529
|
$
74,678
|
$
-
|
$
1,127,207
|
Intersegment
revenue
|
|
|
-
|
-
|
-
|
-
|
Interest
revenue
|
|
|
-
|
4
|
17,238
|
17,242
|
Interest
expense
|
|
|
-
|
-
|
1
|
1
|
Depreciation
|
|
|
-
|
542
|
50
|
592
|
Segment
operation profit (loss)
|
|
|
258,260
|
28,235
|
(118,433)
|
168,062
|
Segment
assets
|
2,303,522
|
99,819
|
4,345,625
|
6,748,966
|
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 (U.S.A.) (From 1965)
|
|
|
Vancouver,
British Columbia
|
Registered
with:
|
Canada
V7Y 1C6
|
Public
Company Accounting Oversight Board (U.S.A.) (PCAOB)
|
|
Canadian
Public Accountability Board (CPAB)
|
Telephone:
(604) 662-8899
|
Canada
- British Columbia Public Practice License
|
Fax:
(604) 662-8809
|
|
Email:
moenca@telus.net
|
|
“Moen
and Company LLP”
|
|
(“Signed”)
|
|
Chartered
Accountants
|
Vancouver,
British Columbia, Canada
March
31, 2006
|
|
CHINA
MOBILITY SOLUTIONS, INC.
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
December
31, 2005 and 2004
|
|||||||
|
|
|
|
|
|
||
Stated
in U.S. dollars
|
|
2005
|
|
2004
|
|
||
|
|
|
|
|
|
||
ASSETS
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Current
Assets
|
|
|
|
|
|
||
Cash
and Cash Equivalents
|
|
$
|
6,138,609
|
|
$
|
5,380,622
|
|
Accounts
receivable
|
|
|
5,870
|
|
|
34,560
|
|
Prepaid
Expenses
|
|
|
235,165
|
|
|
33,070
|
|
Amount
due from related parties
|
|
|
33,249
|
|
|
18,322
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
6,412,893
|
|
|
5,466,574
|
|
|
|
|
|
|
|
||
Investment
|
|
|
1
|
|
|
1
|
|
Property
and Equipment, Net (Note 4)
|
|
|
6,248
|
|
|
6,549
|
|
Goodwill
|
|
|
4,802,520
|
|
|
973,906
|
|
Other
assets
|
|
|
701
|
|
|
-
|
|
Total
Assets
|
|
$
|
11,222,363
|
|
$
|
6,447,030
|
|
|
|
|
|
|
|
||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Current
Liabilities
|
|
|
|
|
|
||
Accounts
Payable
|
|
$
|
260,326
|
|
$
|
340,824
|
|
Accrued
Liabilities
|
|
|
101,687
|
|
|
-
|
|
Deferred
Revenue
|
|
|
3,053,282
|
|
|
2,111,698
|
|
Convertible
Debentures (Note 5)
|
|
|
3,350,000
|
|
|
-
|
|
|
|
|
|
|
|
||
Total
Current Liabilities
|
|
|
6,765,295
|
|
|
2,452,522
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
-
|
|
|
32,791
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
Stock : $0.001 Par Value
|
|
|
|
|
|
|
|
Authorized
:
500,000,000 common shares
|
|
|
|
|
|
|
|
Issued
and Outstanding : 20,011,792 shares (2004: 15,826,792
shares)
|
|
|
20,012
|
|
|
15,827
|
|
Additional
Paid
In Capital
|
|
|
18,442,826
|
|
|
8,770,378
|
|
Retained
Earnings (Deficit)
|
|
|
(13,804,409
|
)
|
|
(4,640,956
|
)
|
Accumulated
Other Comprehensive Loss
|
|
|
(201,361
|
)
|
|
(183,532
|
)
|
|
|
|
|
|
|
||
Total
Stockholders' Equity
|
|
|
4,457,068
|
|
|
3,961,717
|
|
|
|
|
|
|
|
||
Total
Liabilities and Stockholders' Equity
|
|
$
|
11,222,363
|
|
$
|
6,447,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated
financial
statements
|
CHINA
MOBILITY SOLUTIONS, INC.
|
|||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|||||||
For
the Years Ended December 31, 2005 AND 2004
|
|||||||
|
|
||||||
Stated
in U.S. dollars
|
|
2005
|
|
2004
|
|
||
|
|
|
|
|
|
||
Revenue
|
|
|
|
|
|
||
Mobile
marketing services
|
|
$
|
4,703,348
|
|
$
|
1,871,960
|
|
Tuition
fees
|
|
|
199,280
|
|
|
298,806
|
|
|
|
|
4,902,628
|
|
|
2,170,766
|
|
Cost
of revenue
|
|
|
|
|
|
||
Mobile
marketing services
|
|
|
1,372,707
|
|
|
412,222
|
|
Tuition
fee
|
|
|
54,584
|
|
|
61,013
|
|
|
|
|
1,427,291
|
|
|
473,235
|
|
Gross
profit
|
|
|
3,475,337
|
|
|
1,697,531
|
|
Expenses
|
|
|
|
|
|
||
Advertising
and
promotion
|
|
|
953,720
|
|
|
541,142
|
|
Commissions
|
|
|
376,146
|
|
|
-
|
|
Consulting
and
professional
|
|
|
339,128
|
|
|
116,784
|
|
Depreciation
|
|
|
2,705
|
|
|
2,071
|
|
Fair
value of warrants issued
|
|
|
6,891,486
|
|
|
-
|
|
Foreign
exchange gain
|
|
|
(109,880
|
)
|
|
(24,029
|
)
|
General
and administrative
|
|
|
309,513
|
|
|
110,116
|
|
Impairment
of
marketable securities
|
|
|
-
|
|
|
172,250
|
|
Investor
relations
|
|
|
263,475
|
|
|
-
|
|
Liquidated
damages (Note 12)
|
|
|
33,500
|
|
|
-
|
|
Rent
|
|
|
797,509
|
|
|
296,920
|
|
Salaries,
wages
and sub-contract
|
|
|
1,391,221
|
|
|
724,493
|
|
Management
fees
- stock-based compensation
|
|
|
126,000
|
|
|
-
|
|
Website
development
|
|
|
80,000
|
|
|
-
|
|
|
|
|
11,454,523
|
|
|
1,939,747
|
|
Operating
Loss
|
|
|
(7,979,186
|
)
|
|
(242,216
|
)
|
|
|
|
|
|
|
|
|
Other
Income and Expenses
|
|
|
|
|
|
|
|
Interest
income
|
|
|
84,932
|
|
|
82,602
|
|
Interest
expense on convertible debentures
|
|
|
(77,887
|
)
|
|
-
|
|
Interest
expense - intrinsic value of the conversion feature of debenture
(Note
9)
|
|
|
(1,052,863
|
)
|
|
-
|
|
Other
income
|
|
|
20
|
|
|
10,272
|
|
Equity
loss
|
|
|
-
|
|
|
(81,273
|
)
|
|
|
|
(1,045,798
|
)
|
|
11,601
|
|
|
|
|
|
|
|
||
Loss
before minority interest and discontinued
operations
|
|
|
(9,024,984
|
)
|
|
(230,615
|
)
|
Minority
interest
|
|
|
(138,469
|
)
|
|
(28,157
|
)
|
Loss
from Continuing Operations
|
|
|
(9,163,453
|
)
|
|
(258,772
|
)
|
|
|
|
|
|
|
||
Discontinued
operations
|
|
|
|
|
|
||
Gain
on
disposal of internet-related operations
|
|
|
-
|
|
|
3,319,098
|
|
Loss
on
disposal of business press operations
|
|
|
-
|
|
|
(41,292
|
)
|
Loss
from discontinued operations
|
|
|
-
|
|
|
(362
|
)
|
|
|
|
-
|
|
|
3,277,444
|
|
|
|
|
|
|
|
||
Net
Income (Loss) Available to Common Stockholders
|
|
$
|
(9,163,453
|
)
|
$
|
3,018,672
|
|
|
|
|
|
|
|
||
Earnings
(loss) per share attributable to common
stockholders:
|
|
|
|
|
|
||
Earnings
(loss)
from continuing operations
|
|
$
|
(0.52
|
)
|
$
|
(0.02
|
)
|
Earnings
(loss)
from discontinued operations
|
|
|
0.00
|
|
|
0.22
|
|
Total
basic and diluted
|
|
$
|
(0.52
|
)
|
$
|
0.20
|
|
|
|
|
|
|
|
||
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
||
Basic
and diluted
|
|
|
17,633,162
|
|
|
14,856,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated
financial
statements
|
CHINA
MOBILITY SOLUTIONS, INC.
|
|||||||||||||||||||||||||
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|||||||||||||||||||||||||
For
the Years Ended December 31, 2005 and 2004
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
Common
|
|
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
||||||||
|
|
|
|
Shares
|
|
Stock
|
|
Additional
|
|
Retained
|
|
|
|
Other
|
|
|
|
||||||||
|
|
Common
|
|
(Retroactively
|
|
Amount
At
|
|
Paid
In
|
|
Earnings
|
|
Comprehensive
|
|
Comprehensive
|
|
|
|
||||||||
Stated
in U.S. dollars
|
|
Shares
|
|
Stated)
|
|
Par
Value
|
|
Capital
|
|
(Deficit)
|
|
Income
(Loss)
|
|
Income
(Loss)
|
|
Total
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance,
December 31, 2003
|
|
|
41,360,010
|
|
|
13,786,792
|
|
$
|
41,360
|
|
$
|
8,194,045
|
|
$
|
(7,659,628
|
)
|
|
|
|
$
|
(163,763
|
)
|
$
|
412,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for acquisition of Quicknet on June 23,
2004
|
|
|
6,120,000
|
|
|
2,040,000
|
|
|
6,120
|
|
|
544,680
|
|
|
|
|
|
|
|
|
|
|
|
550,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse
stock split 3:1 on June 24, 2004
|
|
|
(31,653,218
|
)
|
|
|
|
|
(31,653
|
)
|
|
31,653
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,018,672
|
|
|
3,018,672
|
|
|
|
|
|
3,018,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,769
|
)
|
|
(19,769
|
)
|
|
(19,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,998,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
15,826,792
|
|
|
15,826,792
|
|
$
|
15,827
|
|
$
|
8,770,378
|
|
$
|
(4,640,956
|
)
|
|
|
|
$
|
(183,532
|
)
|
$
|
3,961,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash on exercise of stock options on February
24, 2005
@$0.30
|
|
|
495,000
|
|
|
|
|
|
495
|
|
|
148,005
|
|
|
|
|
|
|
|
|
|
|
|
148,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services rendered
|
|
|
600,000
|
|
|
|
|
|
600
|
|
|
350,700
|
|
|
|
|
|
|
|
|
|
|
|
351,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash on exercise of stock options on September
1, 2005
@$0.40
|
|
|
500,000
|
|
|
|
|
|
500
|
|
|
199,500
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash on exercise of stock options on September
1, 2005
@$0.35
|
|
|
2,590,000
|
|
|
|
|
|
2,590
|
|
|
903,910
|
|
|
|
|
|
|
|
|
|
|
|
906,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
126,000
|
|
|
|
|
|
|
|
|
|
|
|
126,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of Series 'C' warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
3,254,305
|
|
|
|
|
|
|
|
|
|
|
|
3,254,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of Series 'D' warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
3,637,165
|
|
|
|
|
|
|
|
|
|
|
|
3,637,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value of the conversion feature of the convertible
debenture
|
|
|
|
|
|
|
|
|
|
|
|
1,052,863
|
|
|
|
|
|
|
|
|
|
|
|
1,052,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,163,453
|
)
|
|
(9,163,453
|
)
|
|
|
|
|
(9,163,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,829
|
)
|
|
(17,829
|
)
|
|
(17,829
|
)
|
Total
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9,181,282
|
)
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
20,011,792
|
|
|
|
$
|
20,012
|
|
$
|
18,442,826
|
|
$
|
(13,804,409
|
)
|
|
|
$
|
(201,361
|
)
|
$
|
4,457,068
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated
financial
statements
|
CHINA
MOBILITY SOLUTIONS, INC.
|
|||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||||
For
the Years Ended December 31, 2005 AND 2004
|
|||||||
|
|
||||||
|
|
||||||
Stated
in U.S. dollars
|
|
2005
|
|
2004
|
|
||
Cash
flows from operating activities
|
|
|
|
|
|
||
Net
income (loss)
|
|
$
|
(9,163,453
|
)
|
$
|
3,018,672
|
|
Less:
loss from discontinued operations
|
|
|
-
|
|
|
362
|
|
Adjustments
to
reconcile net loss to net cash
|
|
|
|
|
|
||
Provided
by
(Used in) operating activities
|
|
|
|
|
|
||
Depreciation
and amortization
|
|
|
2,705
|
|
|
2,071
|
|
Stock-based
compensation
|
|
|
126,000
|
|
|
-
|
|
Fair
value of warrants issued
|
|
|
6,891,486
|
|
|
-
|
|
Interest
expenses on intrinsic value of the convertible debenture
|
|
|
1,052,863
|
|
|
-
|
|
Translation
adjustments
|
|
|
(17,829
|
)
|
|
(19,769
|
)
|
Minority
interest
|
|
|
138,469
|
|
|
28,157
|
|
Impairment
of
marketable securities
|
|
|
-
|
|
|
172,250
|
|
Gain
on
disposal of Internet-related operations
|
|
|
-
|
|
|
(3,319,098
|
)
|
Loss
on
disposal of business press operations
|
|
|
-
|
|
|
41,292
|
|
Non-cash
-
share issued for consulting fees, less prepaid
|
|
|
279,475
|
|
|
-
|
|
Equity
loss
|
|
|
-
|
|
|
81,273
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
||
Decrease
in
accounts receivable
|
|
|
28,690
|
|
|
57,107
|
|
(Increase)Decrease
in prepaid expenses and other current assets
|
|
|
(115,007
|
)
|
|
9,174
|
|
Increase
in
amount due from related parties
|
|
|
(14,927
|
)
|
|
(18,322
|
)
|
Increase
(Decrease) in accounts payable and accrued liabilities
|
|
|
5,189
|
|
|
(75,848
|
)
|
Increase
in
deferred revenue
|
|
|
941,584
|
|
|
468,649
|
|
Net
cash provided by (used in) operating activities
|
|
|
155,245
|
|
|
445,970
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Cash
transferred in from acquisition of Quicknet
|
|
|
-
|
|
|
1,477,355
|
|
Purchases
of
remaining interest of Quicknet
|
|
|
(4,000,000
|
)
|
|
-
|
|
Purchases
of
property and equipment
|
|
|
(2,368
|
)
|
|
-
|
|
Net
cash from sale of assets
|
|
|
-
|
|
|
152,381
|
|
Net
cash provided by discontinued operations
|
|
|
-
|
|
|
631
|
|
Net
cash flows provided by (used in) investing activities
|
|
|
(4,002,368
|
)
|
|
1,630,367
|
|
|
|
|
|
|
|
||
Cash
flows from financing activities
|
|
|
|
|
|
||
Issuance
of
common stock for cash
|
|
|
1,255,000
|
|
|
-
|
|
Issuance
of
convertible debentures for cash
|
|
|
3,350,000
|
|
|
-
|
|
Net
cash flows provided by financing activities
|
|
|
4,605,000
|
|
|
-
|
|
|
|
|
|
|
|
||
Effect
of exchange rate changes on cash
|
|
|
110
|
|
|
694
|
|
|
|
|
|
|
|
||
Increase
in cash and cash equivalents
|
|
|
757,987
|
|
|
2,077,031
|
|
|
|
|
|
|
|
||
Cash
and cash equivalents - beginning of year
|
|
|
5,380,622
|
|
|
3,303,591
|
|
|
|
|
|
|
|
||
Cash
and cash equivalents - end of year
|
|
$
|
6,138,609
|
|
$
|
5,380,622
|
|
|
|
|
|
|
|
||
Supplemental
Information :
|
|
|
|
|
|
||
Cash
paid for :
|
|
|
|
|
|
||
Interest
on
debentures
|
|
$
|
51,087
|
|
$
|
69
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
||
Non-cash
investment :
|
|
|
|
|
|
||
Issuance
of
6,120,000 common shares for the acquisition of Quicknet
|
|
$
|
-
|
|
$
|
550,800
|
|
Issuance
of
600,000 common shares for services rendered
|
|
|
351,300
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated
financial
statements
|
Furniture
& fixture
|
20%
|
Declining
balance method
|
Machinery
& equipment
|
20%
|
Declining
balance method
|
Computer
equipment
|
30%
|
Declining
balance method
|
Library
|
100
|
Declining
balance method
|
|
|
Year
Ended December 31
|
|
||||
|
|
2005
|
|
2004
|
|
||
Net
income (loss)
|
|
|
|
|
|
||
As
reported
|
|
$
|
(9,163,453
|
)
|
$
|
3,018,672
|
|
Stock-based
employee compensation cost, net of tax
|
|
|
(301,600
|
)
|
|
(267,300
|
)
|
Pro-forma
|
|
$
|
(9,465,053
|
)
|
$
|
2,751,372
|
|
|
|
|
|
|
|
|
|
Loss
per share
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.52
|
)
|
$
|
0.20
|
|
Pro-forma
|
|
$
|
(0.54
|
)
|
$
|
0.19
|
|
|
2005
|
|
2004
|
|
|
|
|
Risk
free interest rate
|
2.78%
|
|
3.65%
|
Expected
life of options in years
|
1
year
|
|
1
to 3 years
|
Expected
volatility
|
132%
|
|
184%
|
Dividend
per share
|
$0.00
|
|
$0.00
|
(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, the latter 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 2005 and 2004.
|
(4)
|
Windsor
Education Academy Inc., (a Canadian Corporation) (“Windsor”) is engaged in
providing English as a secondary language (“ESL”) training program to
foreign students.
|
Cash
and short term investments
|
$
1,477,355
|
Accounts
receivables
|
90,560
|
Prepaid
expenses
|
10,998
|
Fixed
assets, net
|
14,930
|
Goodwill
|
846,782
|
Accounts
payables and accrued liabilities
|
(275,130)
|
Unearned
revenue
|
(1,614,695)
|
Fair
value of consideration issued - 2,040,000 common shares @ $0.27
per
share
|
$
550,800
|
|
|
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
|
)
|
Cash
and short term investments
|
|
$
|
1,356,834
|
|
Accounts
receivable
|
|
|
1,626
|
|
Goodwill
|
|
|
3,973,646
|
|
Accounts
payables and accrued liabilities
|
|
|
(134,452
|
)
|
Unearned
revenue
|
|
|
(1,197,654
|
)
|
Cash
paid
|
|
$
|
4,000,000
|
|
|
|
December
31,
|
|
||||
|
|
2005
|
|
2004
|
|
||
|
|
|
|
|
|
||
Equipment
|
|
$
|
26,986
|
|
$
|
24,832
|
|
Library
|
|
|
9,554
|
|
|
9,554
|
|
Furniture
|
|
|
10,189
|
|
|
9,975
|
|
Total
|
|
|
46,729
|
|
|
44,361
|
|
Less
: Accumulated depreciation
|
|
|
(40,481
|
)
|
|
(37,812
|
)
|
Net
|
|
$
|
6,248
|
|
$
|
6,549
|
|
Sales
proceeds
|
|
$
2,415,800
|
|
Less
:
|
Current
assets
|
|
(1,992,665)
|
|
Fixed
assets
|
|
(442,820)
|
|
Current
liabilities
|
|
3,338,783
|
Loss
on disposal of Dawa
|
$
3,319,098
|
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)
|
(1)
|
Joint
Venture needs to pay Income Tax if they operate and generate
income from
PRC;
|
(2)
|
Tax
is based on the total revenue after deducting cost of revenue,
expenses
and losses;
|
(3)
|
Joint
Venture Enterprises has an income tax rate of 30% from central
government,
and a 3% income rate from local government, therefore the total
income tax
rate is 33%;
|
(4)
|
The
Income Loss can be deducted from future years’ taxable income, but no more
than 5 years;
|
(5)
|
Tax
is calculated on a yearly basis.
|
|
|
2005
|
|
2004
|
|
||
|
|
|
|
|
|
||
Deferred
tax assets
|
|
$
|
1,081,616
|
|
$
|
512,349
|
|
Valuation
allowance
|
|
$
|
(1,081,616
|
)
|
$
|
(512,349
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
|
|
2005
|
|
2004
|
|
||
|
|
|
|
|
|
||
Statutory
federal income tax rate
|
|
|
33.0
|
%
|
|
33.0
|
%
|
Valuation
allowance
|
|
|
-33.0
|
%
|
|
-33.0
|
%
|
Effective
income tax rate
|
|
|
0.0
|
%
|
|
0.0
|
%
|
A.
By geographic areas
|
|
China
|
|
Canada
|
|
Other
|
|
Total
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
For
the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue
from continuing operations
|
|
$
|
4,703,348
|
|
$
|
199,280
|
|
$
|
-
|
|
$
|
4,902,628
|
|
Operating
profit (loss)
|
|
|
257,915
|
|
|
(64,024
|
)
|
|
(8,263,719
|
)
|
|
(8,069,828
|
)
|
Total
assets
|
|
|
8,152,122
|
|
|
147,803
|
|
|
2,922,438
|
|
|
11,222,363
|
|
Depreciation
|
|
|
-
|
|
|
2,697
|
|
|
8
|
|
|
2,705
|
|
Interest
income
|
|
|
20,193
|
|
|
105
|
|
|
64,634
|
|
|
84,932
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Investment
in equity method investee
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 - net
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
||||
B.
By operating segments
|
|
Mobile/Wireless
communications
|
|
ESL
education
|
|
Other
|
|
Total
|
|
||||
For
the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
||||
Revenue
from external customers
|
|
$
|
4,703,348
|
|
$
|
199,280
|
|
$
|
-
|
|
$
|
4,902,628
|
|
Intersegment
revenue
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
revenue
|
|
|
20,193
|
|
|
105
|
|
|
64,634
|
|
|
84,932
|
|
Interest
expense
|
|
|
-
|
|
|
-
|
|
|
77,887
|
|
|
77,887
|
|
Depreciation
|
|
|
-
|
|
|
2,218
|
|
|
487
|
|
|
2,705
|
|
Segment
operation profit (loss)
|
|
|
257,915
|
|
|
25,729
|
|
|
(8,353,472
|
)
|
|
(8,069,828
|
)
|
Segment
assets
|
|
|
8,152,122
|
|
|
82,490
|
|
|
2,987,751
|
|
|
11,222,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Shares
under option
|
|
Weighted
average per share exercise price
|
|
||
|
|
|
|
|
|
||
Balance,
December 31, 2003
|
|
|
2,136,000
|
|
$
|
3.90
|
|
Granted
|
|
|
1,155,000
|
|
|
0.30
|
|
Expired
|
|
|
(2,136,000
|
)
|
|
3.90
|
|
Balance,
December 31, 2004
|
|
|
1,155,000
|
|
|
0.30
|
|
Granted
|
|
|
3,090,000
|
|
|
0.32
|
|
Exercised
|
|
|
(3,585,000
|
)
|
|
0.31
|
|
Balance,
December 31, 2005
|
|
|
660,000
|
|
|
0.30
|
|
Year
Ending
|
|
|
|
|
December
31,
2006
|
|
$
|
178,670
|
|
December
31,
2007
|
|
|
57,843
|
|
|
|
$
|
236,513
|
|
SEC registration fee | $ 2,646.64 |
NASD registration fee | $ 2,760.00 |
Printing expenses | $ 5,000.00 |
Legal fees | $30,000.00 |
Accounting fees | $ 5,000.00 |
Miscellaneous | $ 4,593.36 |
Total | $50,000.00 |
Number
|
Description
|
|
3.1
|
Amendment to Articles of Incorporation, as amended(1) | |
3.2
|
Amended By-Laws(2) | |
4.1
|
|
Form of Debenture(3) |
4.2
|
Form of Class A Warrant(3) | |
4.3
|
|
Form of Class B Warrant(3) |
4.4
|
2005 Stock Option Plan (4) | |
4.5
|
Form of Stock Option Agreement (4) | |
*5.1
|
Opinion of Phillips Nizer LLP | |
5.2
|
Opinion of Stone, Rosenblatt & CHA (4) | |
10.1
|
Debenture Purchase and Warrant Agreement(3) | |
10.2
|
Business Plan(5) | |
10.3
|
Share Exchange Agreement(6) | |
10.4
|
Assets Transfer Agreement(7) | |
10.5
|
Option Written Notice(8) | |
10.6
|
Legal Letter(8) | |
10.7
|
Share Purchase Agreement, as amended(8) | |
10.8
|
Placement Agency Agreement, dated as of June 30, 2005, by and between China Mobility Solutions, Inc. and Meyers Associates, L.P. (10) | |
10.9
|
Waiver/Settlement Agreement, dated as of May 4, 2006, by and between Southridge Partners, LP and China Mobility Solutions, Inc. (11) | |
14.1
|
Code of Ethics (9) | |
21.1
|
Subsidiaries(9) | |
*23.1
|
Consent of Phillips Nizer LLP (included in Exhibit 5.1) | |
*23.2
|
Consent of Moen & Company. |
(1) |
Incorporated
herein by reference from Exhibit to Current Report on Form 8-K filed
August 26, 2005, file #000-26559.
|
(2) |
Incorporated
herein by reference from Exhibit to Current Report on Form 8-K filed
August 13, 2001, file #000-26559.
|
(3) |
Incorporated
herein by reference from Exhibit to Current Report on Form 8-K filed
on
August 18, 2005, file #000-26559.
|
(4) |
Incorporated
herein by reference from Exhibit to Registration Statement on Form
S-8
filed on May 5, 2005, file
#000-26559.
|
(5) |
Incorporated
herein by reference from Exhibit to Current Report on Form 8-K filed
on
June 30, 2005, file #000-26559.
|
(6) |
Incorporated
herein by reference from Exhibit to Current Report on Form 8-K filed
on
October 4, 2001, file #000-26559.
|
(7) |
Incorporated
herein by reference from Exhibit to Current Report on Form 8-K filed
on
July 12, 2001, file #000-26559.
|
(8) |
Incorporated
herein by reference from Exhibit to Current Report on Form 8-K filed
on
August 5, 2005, file #000-26559.
|
(9) |
Incorporated
herein by reference from Exhibit to Annual Report on Form 10-KSB
filed on
April 18, 2006, file #000-26559.
|
(10) |
Filed
with Amendment No. 2 to the Registration Statement on May 8,
2006.
|
(11) |
Incorporated
herein by reference from Exhibit to current report on Form 8-K
filed on
May 9, 2006.
|
CHINA MOBILITY SOLUTIONS, INC. | |
By:
|
|
Xiao-qing Du, Chief Executive Officer |
Signature
|
Title
|
Date
|
||
/s/ Xiao-qing Du
|
||||
Xiao-qing
Du
|
Chairman of the Board and Chief Executive Officer (Principal Executive Officer and Principal Accounting Officer) |
June
21, 2006
|
||
/s/ Ernest Cheung
|
June
21, 2006
|
|||
Ernest Cheung | Secretary, Director (Principal Financial Officer) | |||
/s/
Greg
Ye
|
||||
Greg Ye | Director |
June
21, 2006
|
||
/s/ Bryan D. Ellis
|
||||
Bryan D. Ellis | Director |
June
21, 2006
|
Exhibit
Index
|
||
Exhibit
Number
|
Description
|
|
5.1 | Opinion of Phillips Nizer LLP | |
23.2 | Consent of Phillips Nizer LLP (included in Exhibit 5.1) | |
23.3 | Consent of Moen & Company. |