SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT #1
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended: March 31, 2005
Commission file number 0-26559
CIK No. 0001082603
CHINA MOBILITY SOLUTIONS, INC.
------------------------------
(Exact name of registrant as specified in this charter)
XIN NET CORP.
-------------
(Former name of Registrant)
Florida 330-751560
------------------------------- --------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
#900 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 632-9638
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
----- -----
As of March 31, 2005, there were 15,826,670 shares of $0.001 par value common
stock outstanding.
CHINA MOBILITY SOLUTIONS, INC.
(FORMERLY XIN NET CORP.)
INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
March 31, 2005
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Consolidated Balance Sheets..............................................F-1
Consolidated Statements of Operations....................................F-2
Consolidated Statements of Cash Flows....................................F-3
Notes to Consolidated Financial Statements...............................F-4
ITEM 2. Management's Discussion and Analysis.............................5
ITEM 3. Controls and Procedures..........................................7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................10
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds......10
ITEM 3. Defaults Upon Senior Securities..................................10
ITEM 4. Submission of Matters to a Vote of Security Holders..............10
ITEM 5. Other Information................................................10
ITEM 6. Exhibits.........................................................10
SIGNATURE................................................................11
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements have been adjusted with all adjustments, which, in
the opinion of management, are necessary in order to make the financial
statements not misleading.
For financial information, please see the financial statements and the
notes thereto, attached hereto and incorporated herein by this reference.
The financial statements have been prepared by China Mobility Solutions,
Inc. without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted accepted in the United States of America, have been condensed
or omitted as allowed by such rules and regulations, and management believes
that the disclosures are adequate to make the information presented not
misleading. These financial statements include all of the adjustments which, in
the opinion of management, are necessary to a fair presentation of financial
position and results of operations. All such adjustments are of a normal and
recurring nature. These financial statements should be read in conjunction with
the audited financial statements at December 31, 2004, included in the Company's
and Form 10-KSB.
Cautionary and Forward Looking Statements
In addition to statements of historical fact, this Form 10-QSB contains
forward-looking statements. The presentation of future aspects of China Mobility
Solutions, Inc. (the "Company") found in these statements is subject to a number
of risks and uncertainties that could cause actual results to differ materially
from those reflected in such statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. Without limiting the generality of the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," or "could" or the negative variations thereof or comparable
terminology are intended to identify forward-looking statements.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties that may cause the Company's actual results to be
materially different from any future results expressed or implied in those
statements. Important facts that could prevent the Company from achieving any
stated goals include, but are not limited to, the following:
Some of these risks might include, but are not limited to, the
following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its busi-
ness, inability to raise additional capital or financ
-ing to implement its business plans;
(e) failure to commercialize its technology or to make
sales;
3
(f) rapid and significant changes in markets;
(g) litigation with or legal claims and allegations by
outside parties;
(h) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, or the exercise of warrants and stock
options, and other risks inherent in the Company's businesses.
The Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-QSB and Annual Report on Form 10-KSB
filed by the Company in 2004 and any Current Reports on Form 8-K filed by the
Company.
4
CHINA MOBILITY SOLUTIONS, INC. AND SUBSIDIARIES
(formerly Xin Net Corp.)
CONSOLIDATED BALANCE SHEETS
March 31, 2005 and December 31, 2004
(Prepared by Management)
Stated in U.S. dollars 2005 2004
-----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 5,667,735 $ 5,380,622
Accounts receivable 29,224 34,560
Prepaid Expenses and Other Current Assets 24,610 33,070
Amount due from related parties 47,524 18,322
-----------------------------------------------------------------------------------------------------------------------------
Total Current Assets 5,769,093 5,466,574
Investment 1 1
Property and Equipment, Net 5,966 6,549
Goodwill 973,906 973,906
-----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 6,748,966 $ 6,447,030
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 400,346 $ 340,824
Deferred Revenue 2,016,279 2,111,698
-----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,416,625 2,452,522
Minority Interest 159,338 32,791
Commitments and Contingencies - -
Stockholders' Equity
Common Stock : $0.001 Par Value
Authorized : 50,000,000
Issued and Outstanding : 16,321,670 (2004: 15,826,670) 16,322 15,827
Additional Paid In Capital 8,918,383 8,770,378
Accumulated Deficit (4,580,215) (4,640,956)
Accumulated Other Comprehensive Loss (181,487) (183,532)
-----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 4,173,003 3,961,717
-----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 6,748,966 $ 6,447,030
=============================================================================================================================
(The accompanying notes are an integral part of these financial statements)
F-1
CHINA MOBILITY SOLUTIONS, INC. AND SUBSIDIARIES
(formerly Xin Net Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2005 AND 2004
(Unaudited - Prepared by Management)
Stated in U.S. dollars 2005 2004
----------------------------------------------------------------------------------------------------
Revenue
Mobile marketing services $ 1,052,529 $ -
Tuition fee 74,678 60,146
----------------------------------------------------------------------------------------------------
1,127,207 60,146
Cost of revenue
Mobile marketing services 223,545 -
Tuition fee 10,439 14,545
233,984 14,545
Gross profit 893,223 45,601
Expenses
Advertising and promotion 141,320 1,634
Consulting and professional 16,156 18,544
Depreciation 592 830
Foreign exchange loss (gain) 3,578 3,722
General and administrative 24,317 5,085
Rent 158,615 13,594
Salaries, wages and sub-contract 300,583 36,830
Website development 80,000 -
----------------------------------------------------------------------------------------------------
725,161 80,239
Operating Income (Loss) 168,062 (34,638)
Other Income
Interest income 17,242 1
Other income 1,984 275
----------------------------------------------------------------------------------------------------
19,226 276
Income (Loss) before minority interest and
discontinued operations 187,288 (34,362)
Minority interest (126,547) (5,043)
----------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations 60,741 (39,405)
Discontinued operations
Income from discontinued business press operations - 20,488
----------------------------------------------------------------------------------------------------
Net Income (Loss) Available to Common Stockholders $ 60,741 $ (18,917)
====================================================================================================
Earnings (loss) per share attributable to common stockholders:
Earnings (loss) from continuing operations $ 0.00 $ (0.00)
Earnings (loss) from discontinued operations 0.00 0.00
----------------------------------------------------------------------------------------------------
Total basic and diluted $ 0.00 $ (0.00)
====================================================================================================
Weighted average number of common shares outstanding:
Basic and diluted 16,024,670 13,786,670
====================================================================================================
(The accompanying notes are an integral part of these financial statements)
F-2
CHINA MOBILITY SOLUTIONS, INC. AND SUBSIDIARIES
(formerly Xin Net Corp.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the three months ended March 31, 2005 and December 31, 2004
(Prepared by Management)
Accumulated
Stock Additional Other
Common Amount At Paid In Accumulated Comprehensive
Stated in U.S. dollars Shares Par Value Capital Deficit Loss Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 41,360,010 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 6,120 544,680 550,800
Reverse stock split 3:1 on June 24, 2004 (31,653,340) (31,653) 31,653 -
Net income for the 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 $ (4,640,956) $ (183,532) $ 3,961,717
Issuance of common stock for cash on
exercised of stock options on February
24, 2005 @$0.30 495,000 495 148,005 148,500
Net income for the three months ended
March 31, 2005 60,741 60,741
Foreign currency translation adjustments 2,045 2,045
Balance, March 31, 2005 16,321,670 $ 16,322 $ 8,918,383 $ (4,580,215) $ (181,487) $ 4,173,003
===================================================================================================================================
(The accompanying notes are an integral part of these financial statements)
F-3
CHINA MOBILITY SOLUTIONS, INC. AND SUBSIDIARIES
(formerly Xin Net Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2005 AND 2004
(Unaudited - Prepared by Management)
Stated in U.S. dollars 2005 2004
-----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 60,741 $ (18,917)
Less: income from discontinued operations - (20,488)
Adjustments to reconcile net loss to net cash
Provided by (Used in) operating activities
Depreciation and amortization 592 830
Translation adjustments 2,045 3,903
Minority interest 126,547 5,043
Changes in assets and liabilities
Decrease in accounts receivable 5,336 1,106
Decrease in prepaid expenses and other current assets 8,451 8,263
Increase in amount due from related parties (29,202) -
Increase in accounts payable 59,522 17,469
Decrease in deferred revenue (95,419) (7,730)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 138,613 (10,521)
-----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Issuance of common stock for cash 148,500 -
-----------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 148,500 -
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 287,113 (10,521)
Net cash provided by discontinued operations - 10,863
-----------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 287,113 342
Cash and cash equivalents - beginning of period 5,380,622 3,303,677
Cash and cash equivalents - end of period $ 5,667,735 $ 3,304,019
=======================================================================================================================
Supplemental Information :
Cash paid for :
Interest $ 1 $ -
Income taxes - -
(The accompanying notes are an integral part of these financial statements)
F-4
CHINA MOBILITY SOLUTIONS, INC.
(Previously known as Xin Net Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
( Unaudited )
1. Basis of Presentation
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, 2004 included in its Annual Report on Form
10-KSB.
The unaudited condensed consolidated financial statements include China Mobility
Solutions, Inc. and its subsidiaries. Significant inter-company transactions and
accounts have been eliminated.
Certain items have been reclassified to conform to the current period
presentation. There is no effect on total results of operations or shareholders'
equity.
2. Property and Equipment
Property and equipment consist of the followings:-
March 31, December 31,
2005 2004
Equipment $ 24,832 $ 24,832
Library 9,554 9,554
Furniture 9,975 9,975
--------- ---------
Total 44,361 44,361
Less: Accumulated depreciation (38,395) (37,812)
--------- ---------
Net book value $ 5,966 $ 6,549
========= =========
The depreciation expense charged to continuing operations for the three-month
period ended March 31, 2005 was $592.
F-5
CHINA MOBILITY SOLUTIONS, INC.
(Previously known as Xin Net Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
( Unaudited )
3. Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share are computed by dividing net earnings (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing net earnings available to common stockholders by the weighted-average
number of common shares outstanding during the period increased to include the
number of additional common shares that would have been outstanding if
potentially dilutive common shares had been issued.
The following table sets forth the computations of shares and net loss used in
the calculation of basic and diluted loss per share for the three months ended
March 31, 2005 and 2004:
Three months ended
March 31,
2005 2004
--------------------
Income (Loss) from continuing operations $ 60,741 $ (39,405)
Income (Loss) from discontinued operations - 20,488
-----------------------------
Net income (loss) for the period 60,741 (18,917)
Weighted-average number of shares outstanding 16,024,670 13,786,670
Effective of dilutive securities:
Dilutive options - $0.30 220,000 -
Dilutive warrants - $2.25 - -
-----------------------------
Dilutive potential common shares 220,000 -
-----------------------------
Adjusted weighted-average shares and
assumed conversions 16,244,670 13,786,670
Basic income (loss) per share attributable to common shareholders:
Income (loss) from continuing operations $ 0.00 $ (0.00)
Income (loss) from discontinued operations 0.00 0.00
-----------------------------
Total basic income (loss) per share $ 0.00 $ (0.00)
=============================
Diluted income (loss) per share attributable to common shareholders:
Income (loss) from continuing operations $ 0.00 $ (0.00)
Income (loss) from discontinued operations 0.00 0.00
-----------------------------
Total diluted income (loss) per share $ 0.00 $ (0.00)
=============================
The effect of outstanding options and warrants was not included as the effect
would be antidilutive.
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.
F-6
CHINA MOBILITY SOLUTIONS, INC.
(Previously known as Xin Net Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
( Unaudited )
4. Share Purchase Warrants
5,884,990 Series "A" warrants were expired on March 31, 2005. As of March 31,
2005, 10 Series "B" warrants were outstanding which entitle the holders to
purchase a common share of the Company at $2.25 each on or before March 31,
2006.
--------------------------------------------------------------------------------
5. Stock Options
On February 24, 2005, 495,000 stock options at $0.30 each were exercised.
Options outstanding at March 31, 2005 were 660,000 with option price of $0.30
each. No options were granted, canceled or forfeited during the three-month
period ended March 31, 2005. The weighted average remaining contractual life is
2.3 years.
6. Segment 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 expenses not
allocated to reportable segments.
A. By geographic areas Canada China Other Total
------ ----- ----- -----
Three months ended March 31, 2005
---------------------------------
Revenue from continuing operations $ 74,678 $1,062,529 $ - $1,127,207
Operating income (loss) 7,212 257,183 (96,333) 168,062
Total assets 112,381 6,589,865 46,720 6,748,966
Depreciation 584 - 8 592
Interest income 4 17,238 - 17,242
Income from discontinued operations - - - -
Investment in equity method investee - - 1 1
Three months ended March 31, 2004
---------------------------------
Revenue from continuing operations $ 60,146 $ - $ - $ 60,146
Operating income (32,329) (956) (1,353) (34,638)
Total assets 158,287 5,675,378 486,888 6,320,553
Depreciation 789 - 41 830
Interest income 1 - - 1
Income from discontinued operations 20,488 - - 20,488
Investment in equity method investee - - 253,524 253,524
F-7
CHINA MOBILITY SOLUTIONS, INC.
(Previously known as Xin Net Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
( Unaudited )
Mobile ESL
B. By operating segment communications education Other Total
------ ----- ----- -----
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
For the three months ended March 31, 2004
-----------------------------------------
Revenue from external customers $ - $ 60,146 $ - $ 60,146
Intersegment revenue - - - -
Interest revenue - 1 - 1
Interest expense - - - -
Depreciation - 741 89 830
Segment operation profit (loss) - (10,472) (24,166) (34,638)
Segment assets - 31,383 6,289,170 6,320,553
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The information presented here should be read in conjunction with China Mobility
Solutions, Inc.'s consolidated financial statements and related notes. In addi-
tion to historical information, the following discussion and other parts of this
document contain certain forward-looking information. When used in this
discussion, the words "believes," "anticipates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those projected due to a number of factors beyond the
Company's control. The Company does not undertake to publicly update or revise
any of its forward-looking statements even if experience or future changes show
that the indicated results or events will not be realized. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. Readers are also urged to carefully review and
consider the Company's discussions regarding the various factors, which affect
its business, included in this section and elsewhere in this report.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2004 AS COMPARED TO THE
QUARTER ENDED MARCH 31, 2003
The information presented here should be read in conjunction with China
Mobility Solutions Inc.'s consolidated financial statements and related notes.
In addition to historical information, the following discussion and other parts
of this document contain certain forward-looking information. When used in this
discussion, the words "believes," "anticipates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those projected due to a number of factors beyond the
Company's control. The Company does not undertake to publicly update or revise
any of its forward-looking statements even if experience or future changes show
that the indicated results or events will not be realized. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. Readers are also urged to carefully review and
consider the Company's discussions regarding the various factors, which affect
its business, included in this section and elsewhere in this report.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2005 AS COMPARED TO THE
QUARTER ENDED MARCH 31, 2004
Revenues. The Company achieved revenues of $1,127,207 in the first quarter 2005
compared $60,146 in the first quarter 2004 in the form of net sales of Mobile
marketing services and education courses (Windsor). The Company had operating
income of $168,062 in the first quarter 2005 , resulting in an income of
$60,741.
Business Segments
During the quarter, the Company had revenues in two segments:
Mobile marketing services $1,052,529
Windsor - ESL Education $74,678
The cost of revenue in each segment was:
Mobile marketing services $223,545
Windsor $10,439
The gross profit from each of the business segments was:
Mobile $828,984
Windsor $64,239
--------
$893,223
5
Note: The Registrant owns 51% of the QuickNet. While revenues and costs
of revenues are consolidated for reporting purposes, a 49% minority interest in
the two companies exists, which, in effect, reduces the allocable gross profit
by 49% or $437,679.
Operating Expenses. The Company incurred operating expenses of $725,161 in the
first quarter 2005 compared to operating expenses of $80,239 in the first
quarter 2004.
Net Income. The net Income in the first quarter 2005 was $ 60,741 compared to
the net loss in the first quarter 2004 of $ 18,917. The per share income for the
first quarter 2005 was nominal, and the per share loss for the first quarter
2004 was nominal.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash capital of $5,667,735 at the quarter ended March 31, 2005.
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 quarter ended March 31, 2005 it had $5,769,093 in current assets and
current liabilities of $2,416,625.
The cash capital at the end of the period of $5,667,735 will be used to fund
continuing operations.
Net cash flows provided by operating activities increased to $138,613 for the
quarter ended March 31, 2005 from ($10,521) for the quarter ended March 31,
2004.
Changes in Financial Condition:
At the end of the first quarter 2005 Company had assets $6,748,966 compared
to $6,447,030 at year-end 2004. The current assets totaled $5,769,093 at the end
of the first quarter 2005 compared to $5,466,574 at 2004 year-end. Total
liabilities at the end of the first quarter 2004 were $2,416,625 compared to
$2,452,522 at 2004 year-end. At March 31, 2005 the Company had $ 5,667,735 in
cash compared to $5,380,622 2004 year-end.
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. However, if losses occur it
may 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 grow the new business
of SMS services in China, it may use all of its available capital without
generating a profit.
The effects of inflation have not had a material impact on its operation,
nor is it expected to in the immediate future.
6
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.
Future Trends:
For the Education Services side, we have operated for over a year now, the
competition is very fierce in the market. The Canadian government has tighten
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. The Canadian government also adopts more strict
system to choose schools that can be funded by the government and every school
needs to re-register with the government. There is no assurance that Windsor
Education Academy will continue receiving government funding in the coming
years.
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. However, if losses continue
it may 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
SMS services in China, it may use all of its available capital without
generating a profit.
The effects of inflation have not had a material impact on its operation,
nor is it expected to in the immediate future.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
it is able to collect the information it is required to disclose in the reports
it files with the SEC, and process, summarize, and disclose this information
within the time periods specified in the rules of the SEC. The Company's Chief
Executive and Chief Financial Officers are responsible for establishing and
maintaining these procedures and, as required by the rules of the SEC, evaluate
their effectiveness.
Our Chief Executive Officer and Chief Financial Officer, have evaluated
the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the period covered by
this report. The evaluation included control areas in which we intend to make,
changes to improve and enhance controls. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures were not effective
because of a material weakness as discussed below.
7
Internal Control Over Financial Reporting
The Company maintains a system of internal controls designed to provide
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets; access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Material Weakness in Disclosure Controls
A material weakness is a condition in which the design or operation of
one or more of the internal control components does not reduce to a relatively
low level the risk that misstatements caused by error or fraud in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions.
The Securities and Exchange Commission rulemaking for Section 404 of the
Sarbanes-Oxley Act of 2002, requires that a company's internal controls over
financial reporting be based upon a recognized internal control framework. While
the Company has an internal controls and procedures manual in place, and
management believes the controls and procedures are effective, the manual
concerning the Company's Subsidiary, Beijing QuickNet, was not based upon the
recognized (COSO) internal control framework, because we had not found one that
fit the limited scope of our operations.
These areas were in expenditure approval and documentation in the Beijing
Quicknet subsidiary and in the recording and tracking of subscription revenue in
the Beijing Quicknet subsidiary. Accordingly, we determined this to be a
material weakness.
This material weakness in the Company's disclosure controls and procedures was
identified by management and its internal accountants after the first quarter of
2005 as they were preparing the first quarter financial statements for review.
This was a precaution to ensure the Company's foreign operations were in
compliance with all controls and procedures necessary to have accurate
financials. This material weakness did not have an effect on the Company's
financial statements. Notwithstanding the discovery of such material weakness,
management continues to believe that its disclosure controls and procedures were
effective at December 31, 2004, because during the course of the preparation of
the financial statements for the December 31, 2004 audit, the Company did not
find any significant financial discrepancies or disclosures discrepancies from
its internal statements or quarterly statements.
8
Furthermore, during the first half of the Company's fiscal year ending December
31, 2004 management rectified this material weakness by revising the Company's
internal controls and procedures manual basing this revision upon a model
framework created by the Committee of Sponsoring Organizations of the Treadway
Commission (or "COSO") as is appropriate to our operations. This framework is
entitled Internal Control-Integrated Framework. The COSO Framework, which is the
common shortened title, was published in 1992 and we believe, will satisfy the
Securities and Exchange Commission requirements of Section 404 of the
Sarbanes-Oxley Act of 2002.
In order to cure the material weakness described above, the following changes in
our internal controls over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) were implemented in our manual
during our first fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting:
A. Expenditure controls/approvals and documentation by Board Committee for
the subsidiary in China, Beijing Quicknet; and
B. Subscription accounting and tracking for its subsidiary in China, Beijing
QuickNet.
All changes are expected to be fully implemented by year end 2005.
During the first half of the Company's fiscal year ending December 31,
2005 management will be revising the Company's internal controls and procedures
document basing this revision upon a model framework created by the Committee of
Sponsoring Organizations of the Treadway Commission (or "COSO") as is
appropriate to our operations. This framework is entitled Internal
Control-Integrated Framework. The COSO Framework, which is the common shortened
title, was published in 1992 and we believe, will satisfy the Securities and
Exchange Commission requirements of Section 404 of the Sarbanes-Oxley Act of
2002.
To address this material weakness management is committed to re-writing
its internal controls and procedures manual based upon the Treadway Commission
report as is appropriate to our operations during the first half of fiscal year
ending December 31, 2005.
Except as noted above, there have not been any changes in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during our first fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On Feb.7, 2005, China Mobility Solutions, Inc. was sued by Sino-I Tech-
nology 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
The following are filed as Exhibits to this Quarterly Report. The
numbers refer to the Exhibit Table of Item 601 of Regulation S-K:
Exhibit 31 - Sarbanes Oxley Certifications
Exhibit 32 - Sarbanes Oxley Certifications
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Dated: November 4, 2005
CHINA MOBILITY SOLUTIONS, INC.
By: /s/ Angela Du
----------------------------
Angela Du,
Chief Executive Officer
By: /s/ Ernest Cheung
-----------------------------
Ernest Cheung,
Secretary and Chief Financial Officer
11