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: June 30, 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)
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.
X YES NO
----- -----
As of June 30, 2005, there were 16,921,670 shares of $0.001 par value common
stock outstanding.
1
CHINA MOBILITY SOLUTIONS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
June 30, 2005
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Consolidated 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..............................3
ITEM 3. Controls and Procedures...........................................8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................9
ITEM 2. Changes in Securities and Use of Proceeds.........................9
ITEM 3. Defaults Upon Senior Securities...................................9
ITEM 4. Submission of Matters to a Vote of Security Holders...............9
ITEM 5. Other Information.................................................9
ITEM 6. Exhibits and Reports on Form 8-K..................................9
SIGNATURE.....................................................................11
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA MOBILITY SOLUTIONS, INC. AND SUBSIDIARIES
(formerly Xin Net Corp.)
CONSOLIDATED BALANCE SHEETS
June 30, 2005 and December 31, 2004
(Unaudited - Prepared by Management)
Stated in U.S. dollars 2005 2004
--------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 5,843,782 $ 5,380,622
Accounts receivable 19,293 34,560
Prepaid Expenses and Other Current Assets 321,394 33,070
Amount due from related parties 20,398 18,322
--------------------------------------------------------------------------------------------------------------------------
Total Current Assets 6,204,867 5,466,574
Investment 1 1
Property and Equipment, Net (Note 2) 5,399 6,549
Goodwill 973,906 973,906
--------------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,184,173 $ 6,447,030
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 296,366 $ 340,824
Deferred Revenue 2,177,526 2,111,698
Amount due to related parties (Note 7) 129,963 -
--------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,603,855 2,452,522
Minority Interest 165,119 32,791
Commitments and Contingencies - -
Stockholders' Equity
Common Stock : $0.001 Par Value
Authorized : 50,000,000
Issued and Outstanding : 16,921,670 (2004: 15,826,670) 16,922 15,827
Additional Paid In Capital 9,269,083 8,770,378
Accumulated Deficit (4,692,228) (4,640,956)
Accumulated Other Comprehensive Loss (178,578) (183,532)
--------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 4,415,199 3,961,717
--------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 7,184,173 $ 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 month period and six month period ended June 30, 2005 AND June 30, 2004
(Unaudited - Prepared by Management)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
Stated in U.S. dollars 2005 2004 2005 2004
-----------------------------------------------------------------------------------------------------------------------------
Revenue
Mobile marketing services $ 1,131,988 $ - $ 2,186,501 $ -
Tuition fee 32,630 62,769 107,308 122,915
-----------------------------------------------------------------------------------------------------------------------------
1,164,618 62,769 2,293,809 122,915
Cost of revenue
Mobile marketing services 310,925 - 534,470 -
Tuition fee 16,579 13,828 27,018 28,373
-----------------------------------------------------------------------------------------------------------------------------
327,504 13,828 561,488 28,373
Gross profit 837,114 48,941 1,732,321 94,542
Expenses
Advertising and promotion 268,112 - 409,432 -
Consulting and professional 11,529 20,793 27,685 39,337
Depreciation 576 805 1,168 1,635
Foreign exchange loss 1,016 4,696 4,594 8,418
General and administrative 32,576 28,622 56,893 35,341
Investor relations 87,825 - 87,825 -
Legal settlement - 29,513 - 29,513
Rent 171,334 11,967 329,949 25,561
Salaries, wages and sub-contract 389,569 34,836 690,152 71,666
Website development - - 80,000 -
-----------------------------------------------------------------------------------------------------------------------------
962,537 131,232 1,687,698 211,471
Operating Income (Loss) (125,423) (82,291) 44,623 (116,929)
Other Income and Expenses
Interest income 19,172 29,555 36,414 29,556
Other income 19 1,186 19 1,461
Equity loss - (81,273) - (81,273)
-----------------------------------------------------------------------------------------------------------------------------
19,191 (50,532) 36,433 (50,256)
Income (Loss) before minority interest and
discontinued operations (106,232) (132,823) 81,056 (167,185)
Minority interest (5,781) 9,677 (132,328) 4,634
-----------------------------------------------------------------------------------------------------------------------------
Loss from Continuing Operations (112,013) (123,146) (51,272) (162,551)
Discontinued operations
Loss from discontinued business press operations - (62,142) - (41,654)
-----------------------------------------------------------------------------------------------------------------------------
Net Loss Available to Common Stockholders $ (112,013) $ (185,288) $ (51,272) $(204,205)
=============================================================================================================================
Earnings (loss) per share attributable to common stockholders:
Earnings (loss) from continuing operations $ (0.01) $ (0.01) $ (0.00) $ (0.01)
Earnings (loss) from discontinued operations 0.00 (0.00) 0.00 (0.00)
-----------------------------------------------------------------------------------------------------------------------------
Total basic and diluted $ (0.01) $ (0.01) $ (0.00) $ (0.01)
=============================================================================================================================
Weighted average number of common shares outstanding:
Basic and diluted 16,921,670 13,966,011 16,522,057 13,876,340
=============================================================================================================================
(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 Period from December 31, 2003 to June 30, 2005
(Unaudited - 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
exercise of stock options on February
24, 2005 @$0.30 495,000 495 148,005 148,500
Issuance of common stock for investor
relations services 600,000 600 350,700 351,300
Net loss for the six months ended
June 30, 2005 (51,272) (51,272)
Foreign currency translation adjustments 4,954 4,954
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2005 16,921,670 $ 16,922 $ 9,269,083 $ (4,692,228) $ (178,578) $ 4,415,199
====================================================================================================================================
(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 RETAIN EARNINGS
For the three month period and six month period ended June 30, 2005 AND June 30, 2004
(Unaudited - Prepared by Management)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
Stated in U.S. dollars 2005 2004 2005 2004
------------------------------------------------------------------------------------------------------------------------
Retained earnings (Deficit),
beginning of period $(4,580,215) $ (7,678,545) $ (4,640,956) $ (7,659,628)
Net Loss Available to
Common Stockholders (112,013) (185,288) (51,272) (204,205)
------------------------------------------------------------------------------------------------------------------------
Retained earnings (Deficit),
end of period $(4,692,228) $ (7,863,833) $ (4,692,228) $ (7,863,833)
========================================================================================================================
(The accompanying notes are an integral part of these financial statements)
F-4
CHINA MOBILITY SOLUTIONS, INC. AND SUBSIDIARIES
(formerly Xin Net Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three month period and six month period ended June 30, 2005 AND June 30, 2004
(Unaudited - Prepared by Management)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (112,013) $ (185,288) $ (51,272) $ (204,205)
Adjustments to reconcile net loss to net cash
20,488
Provided by (Used in) operating activities
Depreciation and amortization 576 1,202 1,168 2,032
Loss on disposal of subsidiary 41,292 - 41,292
Translation adjustments 2,909 5,978 4,954 9,881
Minority interest 5,781 (9,677) 132,328 (4,634)
Non-cash operating expenses 87,825 - 87,825 -
Equity loss 81,273 - 81,273
Changes in assets and liabilities
(Increase)Decrease in accounts receivable 9,931 (20,571) 15,267 (19,465)
(Increase)Decrease in prepaid expenses and other current assets (33,318) 6,974 (24,867) 15,237
Increase in amount due from (to) related parties 157,089 (41,210) 127,887 (41,210)
Decrease in accounts payable (103,980) (85,776) (44,458) (68,307)
Increase in deferred revenue 161,247 25,427 65,828 17,697
Increase in liabilities to be disposed of 137,926 - 137,926
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 176,047 (21,962) 314,660 (32,483)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Cash transferred in from acquisition of Quicknet 1,477,355 - 1,477,355
Cash transferred out from disposal of Dawa (15,217) - (15,217)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 1,462,138 - 1,462,138
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Issuance of common stock for cash - 148,500 -
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities - - 148,500 -
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (1,084) - (1,084)
Net cash provided by discontinued operations (10,863)
Increase in cash and cash equivalents 176,047 1,428,229 463,160 1,428,571
Cash and cash equivalents - beginning of period 5,667,735 3,304,019 5,380,622 3,303,677
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 5,843,782 $ 4,732,248 $ 5,843,782 $ 4,732,248
====================================================================================================================================
Supplemental Information :
Cash paid for :
Interest $ 2 $ - $ 2 $ -
Income taxes - - - -
Non-cash investment :
Issuance of 2,040,000 common shares for the acquisition of Quicknet $ - $ 1,224,000 $ - $ 1,224,000
Issuance of 600,000 common shares for services rendered 351,300 - 351,300 -
(The accompanying notes are an integral part of these financial statements)
F-5
CHINA MOBILITY SOLUTIONS, INC.
(Previously known as Xin Net Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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. All inter-company transactions and
accounts have been eliminated.
Certain items have been reclassified to conform to the current period
presentation. There is no effect on total results of operations or stockholders'
equity.
2. Property and Equipment
June 30, 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: Acumulated depreciation (38,962) (37,812)
--------- ---------
Net book figures $ 5,399 $ 6,549
========= =========
The depreciation expenses charged to continuing operations for the three-month
and six-month periods ended June 30, 2005 were $576 and $1,168 respectively.
F-6
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-month and
six-month periods ended June 30, 2005 and 2004:
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
------------------- -------------------
Income (Loss) from continuing operations $ (112,013) $ (123,146) $ (51,272) $ (162,551)
Income (Loss) from discontinued operations - (61,142) - (41,654)
---------------------------- ----------------------------
Net income (loss) for the period (112,013) (184,288) (51,272) (204,205)
Weighted-average number of shares outstanding 16,921,670 13,966,011 16,475,658 13,876,340
Effective of dilutive securities:
Dilutive options - $0.30 - - - -
Dilutive warrants - $2.25 - - - -
---------------------------- ----------------------------
Dilutive potential common shares - - - -
---------------------------- ----------------------------
Adjusted weighted-average shares and 16,921,670 13,966,011 16,475,648 13,876,340
assumed conversions
Basic income (loss) per share attributable to common shareholders:
Income (loss) from continuing operations $ (0.01) $ (0.01) $ (0.00) $ (0.01)
Income (loss) from discontinued operations 0.00 (0.00) 0.00 (0.00)
---------------------------- ----------------------------
Total basic income (loss) per share $ (0.01) $ (0.01) $ (0.00) $ (0.01)
============================ ============================
Diluted income (loss) per share attributable to common shareholders:
Income (loss) from continuing operations $ (0.01) $ (0.01) $ (0.00) $ (0.01)
Income (loss) from discontinued operations 0.00 (0.00) 0.00 (0.00)
---------------------------- ----------------------------
Total diluted income (loss) per share $ (0.01) $ (0.01) $ (0.00) $ (0.01)
============================ ============================
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-7
4. Share Capital
During the quarter ended June 30, 2005, the Company issued 600,000 shares of its
common stock at a fair value of $351,300 to a company for one year investor
relations services until March 2006. As of June 30, 2005, $263,475 was recorded
as prepaid expenses and $87,825 was recorded as investor relations expense.
5. Share Purchase Warrants
5,884,990 Series "A" warrants were expired during the six-month period ended
June 30, 2005. As of June 30, 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.
6. Stock Options
On February 24, 2005, 495,000 stock options at $0.30 each were exercised.
Options outstanding at June 30, 2005 were 660,000 with option price of $0.30
each. No options were granted, canceled or forfeited during the six-month period
ended June 30, 2005. The weighted average remaining contractual life is 2.0
years.
7. Related Party Transactions
During the three-month and six-month periods ended June 30, 2005, the Company
paid $5,194.31 and $10,388.62 to an officer as wages and benefits.
As of June 30, 2005, the Company has an amount of $20,398 due to a company with
a common director without interest or specific terms of repayment.
As of June 30, 2005, the Company has an amount of $129,963 due to a director of
the Company for expenses advanced on behalf of the Company. The amount is
non-interest bearing and is repayable on demand.
F-8
8. 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 China Canada Other Total
----- ------ ----- -----
Three months ended June 30, 2005
--------------------------------
Revenue from continuing operations $1,131,988 $ 32,630 $ - $1,164,618
Operating income (loss) 4,743 (37,898) (92,268) (125,423)
Total assets 6,744,355 124,682 315,136 7,184,173
Depreciation - 576 - 576
Interest income 19,165 7 - 19,172
Income from discontinued operations - - - -
Investment in equity method investee - - - 1
Three months ended June 30, 2004
--------------------------------
Revenue from continuing operations $ - $ 62,769 $ - $ 62,769
Operating income (loss) 1,653 (53,793) (30,151) (82,291)
Total assets 8,770,544 190,008 218,708 9,179,260
Depreciation - 764 41 805
Interest income - 29,555 - 29,555
Income from discontinued operations - (62,142) - (62,142)
Investment in equity method investee - - 172,251 172,251
F-9
A. By geographic areas China Canada Other Total
----- ------ ----- -----
Six months ended June 30, 2005
--------------------------------
Revenue from continuing operations $2,186,501 $ 107,308 $ - $2,293,809
Operating income (loss) 261,926 (28,702) (188,601) 44,623)
Total assets 6,744,355 124,682 315,136 7,184,173
Depreciation - 1,160 8 1,168
Interest income 36,403 11 - 36,414
Income from discontinued operations - - - -
Investment in equity method investee - - 1 1
Six months ended June 30, 2004
--------------------------------
Revenue from continuing operations $ - $ 122,915 $ - $ 122,915
Operating income (loss) 697 (86,122) (31,504) (116,929)
Total assets 8,770,544 190,008 218,708 9,179,260
Depreciation - 1,553 82 1,635
Interest income - 29,556 - 29,556
Income from discontinued operations - (41,654) - (41,654)
Investment in equity method investee - - 172,251 172,251
F-10
Mobile ESL
B. By operating segments communications education Other Total
-------------- --------- ----- -----
For the three months ended June 30, 2005
----------------------------------------
Revenue from external customers $1,133,972 $ (30,646) $ - $1,164,618
Intersegment revenue - - - -
Interest revenue 8,970 7 10,195 19,172
Interest expense - - 1 1
Depreciation - 535 41 576
Segment operation profit (loss) 2,828 (16,628) (111,623) (125,423)
Segment assets 2,446,380 121,847 4,615,946 7,184,173
For the three months ended June 30, 2004
----------------------------------------
Revenue from external customers $ - $ 62,769) $ - $ 62,769
Intersegment revenue - - - -
Interest revenue - 3 29,552 29,555
Interest expense - - - -
Depreciation - 717 88 805
Segment operation profit (loss) - (32,828) (49,463) (82,291)
Segment assets 1,593,844 75,973 7,509,443 9,179,260
Mobile ESL
B. By operating segments communications education Other Total
-------------- --------- ----- -----
For the six months ended June 30, 2005
----------------------------------------
Revenue from external customers $2,186,501 $ 170,308) $ - $2,293,809
Intersegment revenue - - - -
Interest revenue 8,970 11 27,433 36,414
Interest expense - - 2 2
Depreciation - 1,077 91 1,168
Segment operation profit (loss) 261,088 13,591 (230,056) (44,623)
Segment assets 2,446,380 121,847 4,615,946 7,184,173
For the six months ended June 30, 2004
----------------------------------------
Revenue from external customers $ - $ 122,915) $ - $ 122,915
Intersegment revenue - - - -
Interest revenue - 4 29,552 29,556
Interest expense - - - -
Depreciation - 1,458 177 1,635
Segment operation profit (loss) - (43,300) (73,629) (116,929)
Segment assets 1,593,844 75,973 7,509,443 9,179,260
F-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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," "anticipate," "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.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to revenue recognition, accounts receivable and
allowance for doubtful accounts, intangible and long-lived assets, and income
taxes. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used or changes in the accounting estimate that are reasonably
likely to occur could materially change the financial statements. We believe the
following critical accounting policies reflect our more significant estimates
and assumptions used in the preparation of our consolidated financial
statements:
3
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2005 AS COMPARED TO THE
QUARTER ENDED JUNE 30, 2004
Revenues. The Company had revenues of $1,164,618 in the second quarter of 2005
compared to $62,769 in the first quarter of 2004 in the form of net sales of
Mobile marketing services (Quicknet) of U.S.$1,131,988 and education courses
(Windsor) of U.S.$32,630. The Company incurred operating expenses of $962,537 in
the second quarter of 2005 compared to operating expenses of $131,232 in the
second quarter of 2004. The Company had an operating loss of ($125,123) in the
second quarter of 2005, and an net loss of ($112,013) compared to an operating
loss of ($82,291) and an net loss of ($123,146) in the second quarter in 2004.
Business Segments
During the quarter, the Company had revenues in two segments:
Mobile marketing services $1,131,988
Windsor - ESL Education $32,630
The cost of revenue in each segment was:
Mobile marketing services $310,925
Windsor $16,579
The gross profit from each of the business segments was:
Mobile $821,063
Windsor $16,051
--------
$837,114
Note: The Registrant controls 51% of the QuickNet because the Company
purchased 49%, has an option to acquire 2% for U.S.$100 and controls the Board
of QuickNet. The financials are consolidated based upon the control of QuickNet.
While revenues and costs of revenues are consolidated for reporting purposes, a
49% minority interest in QuickNet exists, which, in effect, reduces the
allocable gross profit by 49%. Quicknet is the operating subsidiary in China
which provides mobile marketing services by cell phone ads.
In the quarter in 2005, the Company had received revenue from both mobility
marketing services and education courses whereas in the quarter in 2004, the
Company had receives from education courses and Dawa Newsgroup (now
discontinued) only.
Net Income/Loss per share: The per share loss for the second quarter of
2005 was ($0.01), and the per share loss for the second quarter of 2004 was
($0.01).
4
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005 COMPARED TO
THE SAME PERIOD ENDED JUNE 30, 2004
The Company had revenues of U.S.$2,293,809 in the period ended June 30,
2005, compared to U.S.$122,915 in the same period in 2004. The increase in
revenue is due to the consolidation of QuickNet's (its subsidiary in China)
revenue in 2005, whereas in 2004, the sole revenues were those of Windsor for
education services and Dawa for advertising. The Company had a cost of revenue
of $561,488 in the period in 2005 compared to $28,373 in the same period in
2004. The Company incurred expenses of $1,687,698 in the six month period in
2005 and $211,471 in expenses in the period in 2004. The operating income (loss)
in the periods in 2005 and 2004 were $44,623 and ($116,929) respectively, after
interest income of $36,414 and $29,556 in 2005 and 2004 respectively, and
adjustment for minority interests (in QuickNet in 2005), the Company had a loss
from continuing operation in the period in 2005 of ($51,272) and in 2004 of
($162,551). The net loss per share was nominal in the period in 2005 compared to
($0.01) in the period in 2004.
The Company expects the trend of losses to continue at about the same rate
in the succeeding periods.
Business Segment Revenue
During the six month period in 2005, the Company had revenues in two
segments:
Mobile marketing services $2,186,501
Windsor - ESL Education $ 107,308
The operating income from each of the business segments was:
Mobile marketing services $261,926
Windsor - ESL Education ($28,702)
Changes in Financial Condition:
At the end of the second quarter of 2005, Company had assets of $7,184,173
compared to $6,447,030 at year-end 2004. The current assets totaled $6,204,867
at the end of the second quarter of 2005 compared to $5,466,574 at 2004
year-end. Total liabilities at the end of the second quarter of 2005 were
$2,603,855 compared to $2,452,522 at 2004 year-end. At June 30, 2005 the Company
had $ 5,843,782 in cash compared to $5,380,622 at year-end 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash capital of $5,843,782 at the quarter ended June 30,
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 June 30, 2005 it had $6,204,867 in current assets and
current liabilities of $2,603,855.
The cash capital at the end of the period of $5,843,782 will be used to
fund continuing operations.
Net cash flows provided by operating activities increased to $176,047 for
the quarter ended June 30, 2005.
5
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, or 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
mobile marketing 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.
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 two years now, the
competition is very fierce in the market. The Canadian government has tightened
its budget on English training for new immigrants, which lead to a termination
of government funding for Windsor, and this change had negative effects to the
revenue of Windsor Education Academy.
The Company has experienced growth in revenues in its Quicknet services, and it
anticipates future growth in revenues although China must always be viewed as a
highly competitive market where profitability may be difficult to achieve or
sustain.
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ITEM 3. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures:
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time period
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. As of the end of the period covered by this
report, the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
b. Changes in Internal Control over Financial Reporting:
There were changes in the Company's internal control over financial reporting
identified in connection with the Company's evaluation of these controls as of
the end of the period covered by this report that materially affected or are
reasonably likely to materially affect those controls. These changes included
the corrective action taken with regard to the material weakness identified in
the Company's Form 10-QSB for the period ended March 31, 2005.
The Company has implemented document control procedures for its subsidiary
QuckNet in its manual. These include:
A. Expenditure controls/approvals and documentation by Board Committee for
the subsidiary in China, Beijing Quicknet; and
B. Subscription accounting and tracking for its subsidiary in China,
Beijing QuickNet.
The Company is still working on implementing such internal controls and
procedures based on the model framework created by the Committee of Sponsoring
Organizations of the Treadway Commission (or "COSO") and plans to finish such
revisions by December 31, 2005.
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.
7
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities - None.
Item 4. Submission of matters to a vote of security holders.
On July 28, 2005, the following matters were voted on and approved by the share-
holders of China Mobility Solutions, Inc. at an annual shareholders' meeting:
1. Xiao-Qing (Angela) Du, Ernest Cheung, and Greg Ye were elected as directors
to hold office until the next annual meeting of shareholders.
2. The appointment of Moen and Company, as Independent Accountants, was
ratified for the annual period ending December 31, 2004.
3. The Company's authorized shares were increased to 500 million shares of
common stock.
4. The Company's 2005 Stock Option Plan was adopted.
Item 5. Other information - None.
Item 6. Exhibits and reports on Form 8-K
(a) 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 31.1 and 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES
OXLEY ACT
Exhibit 32.1 and 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
(b) Reports on Form 8-K filed during the three months ended June 30, 2005, which
are incorporated by reference:
8-K filed 04-22-05
8-K/A filed 04-27-05
8-K filed 06-30-05
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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
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