UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarter ended September 30, 2006 |
-OR-
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number 0-12423
ALONG MOBILE TECHNOLOGIES, INC.
(Exact Name of small business issuer as specified in Its charter)
NEVADA | | 94-2906927 |
(State or other jurisdiction of | | (I.R.S. Employer Identification No.) |
incorporation or organization) | | |
| | |
No. 88, 9th Floor, Western Part of the 2nd South Ring Road, Xi’an City, Shaanxi Province, PRC (Address of principal executive offices) | | 710065 (Zip code) |
Issuer’s telephone number, including area code: 011-86-29-88360097
(Former name, former address or former fiscal year, if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rue 12b-2of the Exchange Act). Yes o No x
The number of shares outstanding of each of the Registrant’s classes of common stock, as of November 1, 2006 was 70,600,000 shares, all of one class of $0.001 par value Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes o No x
ALONG MOBILE TECHNOLOGIES, INC.
FORM 10-QSB
Quarter Ended September 30, 2006
TABLE OF CONTENTS
| PART I— FINANCIAL INFORMATION | |
| | Page |
Item 1. | Financial Statements | |
| Unaudited Condensed Consolidated Balance Sheet as of September 30, 2006 | 3 |
| Unaudited Condensed Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2006 (Consolidated) and 2005 | 4 |
| Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2006 (Consolidated) and 2005 | 5 |
| Notes to Unaudited Condensed Consolidated Financial Statements as of September 30, 2006 | 6 |
Item 2. | Managements Discussion and Analysis of Financial Condition or Plan of Operation | 12 |
Item 3. | Controls and Procedures | 19 |
| | |
| PART II—OTHER INFORMATION | |
Item 1. | Legal Proceedings | 20 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
Item 3. | Defaults Upon Senior Securities | 20 |
Item 4. | Submission of Matters to a Vote of Security Holders | 20 |
Item 5. | Other Information | 20 |
Item 6. | Exhibits and Reports on Form 8-K | 22 |
| |
SIGNATURES | 22 |
PART 1: FINANCIAL INFORMATION
ALONG MOBILE TECHNOLOGIES, INC. | |
| |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET | |
| | | |
| | September 30, | |
ASSETS | | 2006 | |
Current Assets | | | |
Cash and Cash Equivalents | | $ | 5,165,457 | |
Accounts Receivable, net | | | 38,074 | |
Inventories, net | | | 31,786 | |
Other Receivables and Prepayments | | | 2,376,951 | |
| | | | |
Total Current Assets | | | 7,612,268 | |
| | | | |
Property and Equipment, net | | | 3,838,367 | |
| | | | |
Other Assets | | | | |
| | | | |
Intangible Assets | | | 2,117,702 | |
| | | | |
Total Assets | | $ | 13,568,337 | |
| | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current Liabilities | | | | |
Accounts Payable | | $ | 10,481 | |
Other Payables and Accrued Liabilities | | | 952,266 | |
Value Added and Other Taxes Payable | | | 681,967 | |
| | | | |
| | | | |
| | | | |
Total Liabilities | | | 1,644,714 | |
Commitments and Contingencies (Note 7) Stockholders' Equity | | | | |
Common Stock ($0.001 par value, 200,000,000 shares authorized, 70,600,000 shares issued and outstanding as of September 30, 2006) | | | 70,600 | |
Additional Paid-in Capital | | | 8,053,523 | |
Retained Earnings | | | | |
Unappropriated | | | 3,113,612 | |
Appropriated | | | 547,895 | |
Accumulated Other Comprehensive Income | | | 137,993 | |
| | | | |
Total Stockholders' Equity | | | 11,923,623 | |
| | | | |
Total Liabilities and Stockholders' Equity | | $ | 13,568,337 | |
| | | | |
The accompanying notes are an integral part of these statements |
ALONG MOBILE TECHNOLOGIES, INC. | |
| |
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS | |
| |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | | 2006 (Consolidated) | | | 2005 | | | 2006 (Consolidated) | | | 2005 | |
Income | | | | | | | | | |
Sales | | $ | 1,453,036 | | $ | 1,082,001 | | $ | 3,893,522 | | $ | 3,042,915 | |
| | | | | | | | | | | | | |
Cost of Sales | | | (173,448 | ) | | (400,674 | ) | | (565,195 | ) | | (1,190,286 | ) |
| | | | | | | | | | | | | |
Gross Profit | | | 1,279,588 | | | 681,327 | | | 3,328,327 | | | 1,852,629 | |
| | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | |
Selling and Distribution | | | 260,019 | | | 87,061 | | | 637,200 | | | 239,914 | |
General and Administrative | | | 193,515 | | | 116,143 | | | 660,193 | | | 353,273 | |
Professional Fees | | | 48,997 | | | 19,250 | | | 78,997 | | | 36,750 | |
Depreciation | | | 30,725 | | | 22,176 | | | 80,258 | | | 62,828 | |
| | | | | | | | | | | | | |
Total Expenses | | | 533,256 | | | 244,630 | | | 1,456,648 | | | 692,765 | |
| | | | | | | | | | | | | |
Income from Operations | | | 746,332 | | | 436,697 | | | 1,871,679 | | | 1,159,864 | |
| | | | | | | | | | | | | |
Other Income: | | | | | | | | | | | | | |
Interest Income | | | 777 | | | 856 | | | 22,698 | | | 7,452 | |
Rental Income | | | 21,875 | | | - | | | 30,875 | | | - | |
| | | | | | | | | | | | | |
Income before Provision | | | | | | | | | | | | | |
for Income Taxes | | | 768,984 | | | 437,553 | | | 1,925,252 | | | 1,167,316 | |
| | | | | | | | | | | | | |
Provision for Income Taxes | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | |
Net Income | | | 768,984 | | | 437,553 | | | 1,925,252 | | | 1,167,316 | |
| | | | | | | | | | | | | |
Other Comprehensive Income | | | | | | | | | | | | | |
Currency Translation Gain | | | - | | | - | | | 161,496 | | | - | |
| | | | | | | | | | | | | |
Comprehensive Income | | $ | 768,984 | | $ | 437,553 | | $ | 2,086,748 | | $ | 1,167,316 | |
| | | | | | | | | | | | | |
Basic and Diluted | | | | | | | | | | | | | |
Earnings per Share | | $ | 0.01 | | $ | 0.01 | | $ | 0.03 | | $ | 0.02 | |
| | | | | | | | | | | | | |
Weighted Average | | | | | | | | | | | | | |
Number of Shares | | | 70,221,739 | | | 56,911,443 | | | 70,074,725 | | | 56,911,443 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these statements | | | | | | |
| | | | | | |
ALONG MOBILE TECHNOLOGIES, INC. | |
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS | |
| |
| | Nine Months Ended | |
| | September 30, | |
| | 2006 (Consolidated) | | 2005 | |
Operating Activities | | | | | |
Net Income | | $ | 1,925,252 | | $ | 1,167,316 | |
Adjusted to Reconcile Net Income to Net Cash Provided by Operating Activities | | | | | | | |
Allowance for doubtful accounts | | | 62,614 | | | - | |
In-kind contribution | | | 8,438 | | | 21,910 | |
Amortization on Intangible Assets | | | 101,631 | | | 90,579 | |
Depreciation on Property and Equipment | | | 80,258 | | | 62,828 | |
Changes in Operating Assets and Liabilities | | | | | | | |
Decrease (Increase) in Accounts Receivable | | | 47,211 | | | (306 | ) |
Decrease in Inventories | | | 22,719 | | | 273,257 | |
Increase in Other Receivables and Prepayments | | | (2,362,774 | ) | | (1,236 | ) |
Increase (Decrease) in Accounts Payable | | | 104 | | | (2,291 | ) |
Increase in Other Payables and Accrued Liabilities | | | 418,305 | | | 85,762 | |
Increase in Value Added and Other Taxes Payable | | | 4,502 | | | 205,789 | |
Increase in Dividends Payable | | | - | | | 6,329 | |
| | | | | | | |
Net Cash Provided by Operating Activities | | | 308,260 | | | 1,909,937 | |
| | | | | | | |
Investing Activities | | | | | | | |
Acquisition of Intangible Assets | | | (625,000 | ) | | - | |
Decrease in Note Receivable | | | 1,237,624 | | | 724,638 | |
Purchase of Equipment | | | (1,987,500 | ) | | (55,487 | ) |
| | | | | | | |
Net Cash (Used in) Provided by Investing Activities | | | (1,374,876 | ) | | 669,151 | |
| | | | | | | |
Financing Activities | | | | | | | |
| | | | | | | |
Dividends Paid | | | (309,406 | ) | | - | |
| | | | | | | |
Net Cash Used in Financing Activities | | | (309,406 | ) | | - | |
| | | | | | | |
Effect of Exchange Rates on Cash | | | 64,828 | | | 106,588 | |
| | | | | | | |
Net (Decrease) Increase in Cash and Cash Equivalents | | | (1,311,194 | ) | | 2,685,676 | |
| | | | | | | |
Cash and Cash Equivalents, Beginning of Period | | | 6,476,651 | | | 4,025,402 | |
| | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 5,165,457 | | $ | 6,711,078 | |
| | | | | | | |
| | | | | | | |
Supplemental Information of Non-Cash Investing and Financing Activities: In August 2006, the Company issued 600,000 shares of restricted common stock to a third party for partial settlement of a 20 years’ software license fee, having a fair value of $636,000. The accompanying notes are an integral part of these statements |
ALONG MOBILE TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(As of September 30, 2006)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments consisting only of normal recurring accruals considered necessary to present fairly the Company’s consolidated financial position at September 30, 2006, the consolidated results of operations for the three and nine months ended September 30, 2006 and 2005, and consolidated cash flows for the nine months ended September 30, 2006 and 2005. The consolidated results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2006. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2005 appearing in the Company’s annual report on Form 10-KT as filed with the Securities and Exchange Commission.
NOTE 2. GENERAL ORGANIZATION AND BUSINESS
Along Mobile Technologies, Inc. (“AMT”), formerly International Synergy Holding Company, Ltd., was first organized in the State of Utah in 1976 as Merit Diversified International, Inc. and was subsequently reincorporated in the state of Nevada on August 9, 1994. Since its inception AMT made several attempts to acquire and operate various businesses and has gone through several reorganizations and name changes.
On January 11, 2002 AMT acquired 100% of the outstanding stock of AppleJuice Productions, Inc. (“AppleJuice”), a Michigan corporation founded in November 18, 1987. It was acquired for its name and connections in the entertainment industry to complement the intangible assets then owned by the Company. On November 28, 2005, the directors of AMT resolved to spin-off one hundred percent of the common stock of AppleJuice to the Company’s stockholders on the basis of one share of common stock of the subsidiary for every one share of common stock of the Company held of record on November 27, 2005.
Main Glory Holdings Limited (“Main Glory”) was incorporated in Hong Kong on July 13, 2005 as an investment holding company.
Shaanxi Jialong Hi-Tech Incorporated Company (“Jialong”) was incorporated as a joint stock company in the People’s Republic of China (“PRC”) on December 28, 2000 with its principal place of business in Xian, Shaanxi Province, PRC.
Jialong is a mobile high technology corporation in the PRC. It is principally engaged in producing and selling wireless entertainment applications including ring-tone, games, images and e-books services for mobile devices through its unique downloading terminals. Jialong is also engaged in the research, development and sale of hardware including routers, firewalls, downloading terminals, PMP, MP3 and MP4.
On November 23, 2005, the stockholders of Jialong entered into a definitive agreement with Main Glory in which they exchanged 100% of their ownership of Jialong for 100% of ownership in Main Glory. As both companies are under common management, the exchange of shares has been accounted for as a reorganization of entities and the financial statements have been prepared as if the reorganization had occurred retroactively.
On December 1, 2005 the Company changed its name from International Synergy Holding Company, Ltd. to Along Mobile Technologies, Inc. and acquired all the issued and outstanding shares of Main Glory by issuing 56,911,443 shares of common stock of the Company to the shareholders of Main Glory and 6,900,000 shares of common stock of the Company to a third party consultant under an Exchange Agreement.
The merger of AMT and Main Glory was treated for accounting purposes as a capital transaction and recapitalization by Main Glory (“the accounting acquirer”) and re-organization by AMT (“the accounting acquiree”). The financial statements have been prepared as if the reorganization had occurred retroactively.
Accordingly, the financial statements include the following:
(1) | The balance sheet consists of the net assets of the acquirer at historical cost and the net assets of the acquiree at historical cost. |
(2) | The statement of operations includes the operations of the acquirer for the periods presented and the operations of the acquiree from the date of the merger. |
AMT, Main Glory and Jialong are hereafter referred to as (“the Company”)
NOTE 3. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements as of September 30, 2006 reflect the reverse acquisition and consolidated financial statements of AMT, Main Glory and its 100% owned subsidiary Jialong.
The accompanying unaudited condensed financial statements as of September 30, 2005 reflect the financial statements of Jialong only.
All significant inter-company accounts and transactions have been eliminated in consolidation.
NOTE 4. OTHER RECEIVABLES AND PREPAYMENTS
Other receivables and prepayments at September 30, 2006 (unaudited) consisted of the following:
Advances to Staff | | $ | 4,318 | |
Rental Deposits Paid | | | 2,187,500 | |
Purchase Deposits Paid | | | 185,000 | |
Prepayments | | | 133 | |
| | $ | 2,376,951 | |
NOTE 5. INTANGIBLE ASSETS
Intangible assets at September 30, 2006 (unaudited) consisted of the following:
Patent Rights | | $ | 1,207,729 | |
Prepaid License Fees | | | 1,261,000 | |
Less: Accumulated Amortization | | | (351,027 | ) |
Intangible Assets, net | | $ | 2,117,702 | |
The Company acquired $1,207,729 in patent rights from a third party in 2003.
Pursuant to an agreement entered into with a third party on August 20, 2006, the Company paid a license fee of $1,261,000 for the use of a software technology for 20 years, expiring on August 20, 2026. The fee was paid in cash of $625,000 and by issuance of 600,000 shares of restricted common stock having a fair value of $636,000.
The intangible assets of patent rights and prepaid license fees are stated at cost, less accumulated amortization and are amortized on a straight line basis over 10 years and 20 years respectively from the date of acquisition. Amortization expenses for the nine months ended September 30, 2006 and 2005 were $101,631 and $90,579, respectively.
The Directors consider no impairment loss on the fair value of the intangible assets for the nine months ended September 30, 2006 (unaudited) as the future cash flow of related products are sufficient to cover the fair value of intangible assets.
NOTE 6. OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities at September 30, 2006 (unaudited) consisted of the following:
Other payables | | $ | 129,160 | |
Accrued Statutory Staff Welfare and Salaries | | | 341,606 | |
Accrued Liabilities | | | 44,000 | |
Sublease Rental Deposits Received | | | 437,500 | |
| | $ | 952,266 | |
NOTE 7. COMMITMENTS AND CONTINGENCIES
Operating Leases Commitments:
The Company occupies 100 spaces and 1,000 spaces of kiosks from third parties under operating leases which expire on April 12, 2007 and August 16, 2011 at monthly rentals of $15,000 and $62,500 respectively. Accordingly, for the nine months ended September 30, 2006 and 2005, the Company recognized rental expense for these spaces in the amount of $85,575 and $0 respectively.
As of September 30, 2006, the Company has outstanding commitments with respect to non-cancelable operating leases, which are due as follows:
2007 | | $ | 866,300 | |
2008 | | | 750,000 | |
2009 | | | 750,000 | |
2010 | | | 750,000 | |
2011 | | | 728,125 | |
Total | | $ | 3,844,425 | |
Pursuant to the agreement for the lease of 1,000 spaces of kiosks, the Company is required to pay a deposit of $2,500,000. As of September 30, 2006, $1,750,000 was paid and the Company has yet to pay $750,000.
The Company also subleases part of the 100 spaces of kiosks to a third party under an operating lease which expires on April 14, 2007 at a monthly rental $7,292. Accordingly, for the nine months ended September 30, 2006 and 2005, the Company recognized rental income for these spaces in the amount of $30,875 and $0 respectively.
As of September 30, 2006, the Company has future minimum lease rental income of $56,625 in 2007.
Purchase Commitments:
As of September 30, 2006, the Company has commitments under a contract for the purchase of equipment of $185,000.
NOTE 8. STOCKHOLDERS’ EQUITY
Stock Issuances
In August 2006, the Company issued 600,000 shares of restricted common stock having a fair value of $636,000 for settlement of part of a license fee.
In-Kind Contribution
During the nine months ended September 30, 2006 and 2005, the Company recorded $8,438 and $21,910 respectively as contributed capital by a stockholder for the usage of office equipment and office spaces occupied.
NOTE 9. SEGMENTS
The Company operates in two reportable segments, Wireless Entertainment Applications and Hardware. The accounting policies of the segments are the same as described in the summary of significant accounting policies. The Company evaluates segment performance based on income from operations. As a result, the components of operating income for one segment may not be comparable to another segment. The following is a summary of the Company’s segment information for the nine months ended September 30, 2006 and 2005:
| | Wireless Entertainment Applications | | Hardware | | Total | |
For the nine months ended September 30, 2006 | | | | | | | |
Revenues | | $ | 3,767,002 | | $ | 126,520 | | $ | 3,893,522 | |
Gross Profit | | | 3,283,565 | | | 44,762 | | | 3,328,327 | |
Total Assets | | | 8,366,643 | | | 5,201,694 | | | 13,568,337 | |
Additions to Long-lived Assets | | | 3,248,500 | | | - | | | 3,248,500 | |
Intangible Assets | | | 2,117,702 | | | - | | | 2,117,702 | |
Depreciation on Fixed Assets | | | 80,258 | | | - | | | 80,258 | |
Amortization on Intangible Assets | | | 101,631 | | | - | | | 101,631 | |
| | | | | | | | | | |
For the nine months ended September 30, 2005 | | | | | | | | | | |
Revenues | | $ | 1,825,749 | | $ | 1,217,166 | | $ | 3,042,915 | |
Gross Profit | | | 1,409,149 | | | 443,480 | | | 1,852,629 | |
Total Assets | | | 4,488,090 | | | 5,246,332 | | | 9,734,422 | |
Additions to Long-lived Assets | | | 55,487 | | | - | | | 55,487 | |
Intangible Assets | | | 956,119 | | | - | | | 956,119 | |
Depreciation on Fixed Assets | | | 62,828 | | | - | | | 62,828 | |
Amortization on Intangible Assets | | | 90,579 | | | - | | | 90,579 | |
NOTE 10. RELATED PARTY TRANSACTIONS
The Company used certain office equipment and occupied spaces rented by a stockholder of the Company and recognized $25,313 and $21,910 as rental expenses for the nine months ended September 30, 2006 and 2005 respectively.
The office equipment was used and the spaces were occupied by the Company free of payment during the three months ended March 31, 2006 and the rental expenses of $8,438 was recorded as contributed capital by a stockholder. Commencing from April 2006, monthly rental of $2,813 was paid to the stockholder.
NOTE 11. CONCENTRATIONS AND RISKS
During the nine months ended September 30, 2006 and 2005, 100% of the Company’s assets were located in China and 100% of the Company’s revenues were derived from companies and customers located in China.
The Company relied on three suppliers for approximately $29,500, $14,500 and $13,750 representing in aggregate 100% of purchases for the nine months ended September 30, 2006, and two suppliers for approximately $310,668 and $205,000 respectively representing in aggregate 59% and 39% of purchases for the nine months ended September 30, 2005. At September 30, 2006 and 2005, accounts payable to those suppliers totaled $2,134 and $0 respectively.
NOTE 12. THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Statement No. 154 - Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB Statement No. 3) (Issued 05/05)
This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.
Statement No. 155 - Accounting for Certain Hybrid Financial Instruments (Issued 02/06)
This Statement amends SFAS No. 133 “Accounting for Derivatives Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 140”). This Statement amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instruments.
Statement No. 156 - Accounting for Servicing of Financial Assets (Issued 03/06)
This Statement amends FASB Statement No. 140 and requires that all separately recognized servicing rights be initially measured at fair value, if practicable. In addition, this statement permits an entity to choose between two measurement methods (amortization method or fair value measurement method) for each class of separately recognized servicing assets and liabilities. This new accounting standard is effective January 1, 2007.
Statement No. 157 - Fair Value Measurements (Issued 09/06)
This statement is to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance for applying those definitions in GAAP that are dispersed among the many accounting pronouncements that require fair value measurements. SFAS No. 157 retains the exchange price notion in earlier definitions of fair value, but clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or liability in the principal or most advantageous market for the asset or liability. Moreover, the SFAS states that the transaction is hypothetical at the measurement date, considered from the perspective of the market participant who holds the asset or liability. Consequently, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price), as opposed to the price that would be paid to acquire the asset or received to assume the liability at the measurement date (an entry price).
SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). Finally, SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Entities are encouraged to combine the fair value information disclosed under SFAS No. 157 with the fair value information disclosed under other accounting pronouncements, including SFAS No. 107, Disclosures about Fair Value of Financial Instruments, where practicable. The guidance in this Statement applies for derivatives and other financial instruments measured at fair value under SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" at initial recognition and in all subsequent periods.
SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, although earlier application is encouraged. Additionally, prospective application of the provisions of SFAS No. 157 is required as of the beginning of the fiscal year in which it is initially applied, except when certain circumstances require retrospective application.
Statement No. 158 - Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of SFAS No. 87, 88, 106 and 132 (R)) (Issued 09/06)
This statement amends SFAS No. 87, 88, 106 and 132(R), to require an employer to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare, and other postretirement plans in their financial statements. Previous standards required an employer to disclose the complete funded status of its plan only in the notes to the financial statements. Moreover, because those standards allowed an employer to delay recognition of certain changes in plan assets and obligations that affected the costs of providing benefits, employers reported an asset or liability that almost always differed from the plan's funded status. Under SFAS No. 158, a defined benefit postretirement plan sponsor that is a public or private company or a nongovernmental not-for-profit organization must (a) recognize in its statement of financial position an asset for a plan's overfunded status or a liability for the plan's underfunded status, (b) measure the plan's assets and its obligations that determine its funded status as of the end of the employer's fiscal year (with limited exceptions), and (c) recognize, as a component of other comprehensive income, the changes in the funded status of the plan that arise during the year but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employers' Accounting for Pensions, or SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 158 also requires an employer to disclose in the notes to financial statements additional information on how delayed recognition of certain changes in the funded status of a defined benefit postretirement plan affects net periodic benefit cost for the next fiscal year.
The adoption of these new Statements is not expected to have a material effect on the Company’s current financial position, results or operations, or cash flows.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
The following review concerns the three months ended September 30, 2006 and September 30, 2005, which should be read in conjunction with the financial statements and notes thereto presented in the Form 10-QSB.
Forward Looking Statements
The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", “estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Overview
ALONG MOBILE TECHOLOGIES, INC. (“AMT”, “we” or the “Company”) through its wholly owned subsidiary - Shaanxi Jialong Hi-Tech Incorporation Company (“Jialong”) is a mobile value-added services (“MVAS”) provider in the People’s Republic of China (the “PRC” or “China”). We design, produce, publish, manufacture, provide and distribute proprietary wireless entertainment applications such as ring-tones, games, images, videos and e-books (“Wireless Applications”) to our customers. In September 2003, we acquired patent rights for mobile games together with the exploit kits from a third party from which we expand our mobile games catalogue. We also design, produce and distribute portable digital hardware products such as MP3, MP4 and PMP’ s (“Hardware Products”) which, together with mobile communication devices manufactured and/or distributed by unaffiliated third party manufacturers and distributors of such products, may be used in conjunction with our proprietary Wireless Applications. Our Wireless Applications are intended to be downloaded by our customers on a fee-basis by means of our proprietary public downloading terminals (“Terminals”) which are installed by us in strategic locations such as shopping centers, universities, entertainment centers, cinemas, hotels, airports, restaurants and parks and additionally, through our customers access to and, use of, the Internet. The customers for our Wireless Applications include anyone in Greater China who has a mobile telephone or other personal digital assistant communications device. The customers for our Hardware Products are targeted throughout Greater China and these customers can purchase our Hardware Products through non-affiliated resellers and retailers located throughout China with whom we have established working agreements.
The Company was initially incorporated in the State of Nevada in 1994 as Merit Diversified International Incorporated. From 1994 through 2005, the Company’s name was changed several times beginning in 1994 to Allied Artists Entertainment Group, Inc., in 2001 to International Synergy Holding Company, Ltd., and we adopted our current name, Along Mobile Technologies, Inc. in December, 2005. Our world headquarter is located at No. 88, 9th Floor, Western Part of the 2nd South Ring Road, Xi’an City, Shaanxi Province, PRC 710065. In November, 2005, the Company, then named International Synergy Holding Company, Ltd., (“ISYH”) acquired, as a wholly owned subsidiary, Main Glory Holdings, Ltd., a Hong Kong company (“Main Glory”). The acquisition of Main Glory as a wholly owned subsidiary of ISYH was accomplished through the use of a Stock Exchange Agreement wherein ISYH received one hundred percent, (100%) of all of the issued and outstanding common shares of Main Glory in return for the issuance to the Main Glory shareholders and consultants to such shareholders of Sixty Three Million Eight Hundred Eleven Thousand Four Hundred and Forty Three, (63,811,443) shares of ISYH common stock. Prior to ISYH’s acquisition of Main Glory as a wholly owned subsidiary in November 2005, Main Glory consummated a Stock Exchange Agreement with Shaanxi JiaLong Hi-Tech Incorporated Company, a company formed in the PRC in 2002, (“JiaLong”) whereby, JiaLong became a wholly owned subsidiary of Main Glory.
Our goal is to enhance the value to our user base and thereby continue the expansion of our customer base throughout Greater China. Through our efforts, we have established a significant scale and customer reach and has built a significant leadership position in the MVA market in China. We continue to develop new products and build strategic partnerships to enhance our offerings and increase our customer base. These initiatives are designed to leverage our brand strength and expand our presence in the MVA industry in China.
In the third quarter of 2006, we entered into several purchase contracts with Feiyang Industry & Trade Co. Ltd. (“Feiyang”) for the purchase of total 1000 downloading machines, which are principally used to expand our network coverage in the PRC. We estimated that our revenue in the next quarter would be increased by around 30% resulting from the purchase of the additional downloading machines.
Strategy
Our aim is to be the leader in the Greater China market for MVA products and services. The core of our business is our on-going effort to provide our customers with continuously evolving and changing Wireless Applications and Hardware Products and the upgrading of technological platforms such as our Mobile Information & Entertainment Service Platform, (“MIESP”) all of which allow our customers easy, immediate and affordable access to our products. To advance this core business, we are growing our business in ways that we believe complement our strategic focus.
We have made a fundamental determination to remain in control of the dissemination of our products and direct oversight of our billing for the use of our products. We have determined that the possible negatives associated with being dependent upon third party communication providers such as China Mobile and China Unicom for the delivery of our products and services, the billing of our fees and collection of those fees can and, should be, avoided for the present time. We have determined that by vending our products into our own established and controlled distribution network we can make our products and services available to any one who uses a mobile telephone or other PDA device through direct connection over their mobile telephone or PDA; through the use of our proprietary web site and finally through the use of our proprietary public Terminals. In this manner we continue to have direct control over the promotion, sale and dissemination of our Wireless Application products and services as well as the ability to directly control the billing of our customers and collection from our customers without the use of a middleman or the fees that usually accompany the use of middleman providers such as China Mobile and China Unicom.
We own and control our own studios and development center where we are constantly engaged in the research and development of the refinement and expansion of our product lines and services as well as the concepts embodied and required for the building and growing of our controlled distribution network. We are working to implement a growth strategy around expanding product and service lines and our controlled network infrastructure that includes the following key elements:
| o | A heightened focus on the needs of our customer, delivering customer-specific solutions, high quality products and world-class customer service; |
| o | Sales growth through market share gains, new products introductions and expansion into adjacent and related markets; |
| o | Development of new sales channels and market opportunities through the use of partnerships and alliances with other application, service and equipment vendors, distributors, resellers and systems integrators; |
| o | Lowering our cost structure through improved operational efficiencies and economies of scale to compete effectively in a more cost-conscious marketplace; and |
| o | Applications, products and services portfolio additions and enhancements through both strategic acquisitions and our own research and development process. |
Customer Focus. We are committed to maximizing our efforts to better understand those Wireless Applications, Hardware Products and Services required and desired by our customers and then delivering those same Wireless Applications, Hardware Products and Services to our customers in a simple, direct and economical fashion. We strive to offer customer-specific solutions, price competitive products that offer great functionality and quality, and world-class customer service that offers on-time product delivery and highly responsive support. We believe those companies that best service their customers with compelling value propositions that include the aforementioned elements hold a competitive advantage in efforts to grow their businesses.
Growing Sales. In the current environment of constrained capital spending by MVA’s, we believe that we must grow our market share to significantly grow our business. We are undertaking several initiatives in our efforts to gain market share. Specifically, we look to sell more of our current portfolio of Wireless Applications and Hardware Products to our existing customers, introduce new products and services to our existing customers, and introduce the entire AMT product and services portfolio to new customers. The cornerstone of these initiatives is our commitment to focus on the needs and demands of our customers. We also are committed to the development and introduction of new products that have applications in our current markets and as adjacent markets
Lowering Cost Structure. We remain committed to lower our overall cost structure and be a low-cost industry leader. Over the next three years we want to work toward lowering our operating margin (exclusive of impairment, restructuring and acquisition-related charges, amortization of purchased intangibles and stock-based compensation expenses). To meet this goal we must contain costs.
Product Portfolio Additions. We continue to invest in research and development initiatives and to search for appropriate acquisition opportunities to strengthen our core product portfolio. Our efforts are focused on opportunities within our existing markets, as well as opportunities in adjacent or related markets that will strengthen our product offerings. In addition, we are focused on acquisitions that may enhance our geographic operations. We also will continue to evaluate and monitor our existing business and product lines for growth and profitability potential. If we believe it necessary, we will deemphasize or divest product lines that we no longer believe can advance our strategic vision.
Results of Operations
The following table compares our statement of operations data for the three and nine months ended September 30, 2006 and 2005. The trends suggested by this table may not be indicative of future operating results, which will depend on various factors and which can vary from quarter to quarter.
| | Nine Months Ended September 30, | | Three Months Ended September 30, | |
| | 2006 | | | | % of increase/ | | 2006 | | | | % of increase/ | |
| | (Consolidated) | | 2005 | | (decrease) | | (Consolidated) | | 2005 | | (decrease) | |
Revenues | | $ | 3,893,522 | | $ | 3,042,915 | | | 27.95 | % | $ | 1,453,036 | | $ | 1,082,001 | | | 34.29 | % |
Cost of revenues | | | (565,195 | ) | | (1,190,286 | ) | | (52.52 | %) | | (173,448 | ) | | (400,674 | ) | | (56.71 | %) |
Gross margin | | | 3,328,327 | | | 1,852,629 | | | 79.65 | % | | 1,279,588 | | | 681,327 | | | 87.81 | % |
Selling and distribution expenses | | | 637,200 | | | 239,914 | | | 165.60 | % | | 260,019 | | | 87,061 | | | 198.66 | % |
General and administrative expenses | | | 660,193 | | | 353,273 | | | 86.88 | % | | 193,515 | | | 116,143 | | | 66.62 | % |
Professional fees | | | 78,997 | | | 36,750 | | | 114.96 | % | | 48,997 | | | 19,250 | | | 154.53 | % |
Depreciation and amortization | | | 80,258 | | | 62,828 | | | 27.74 | % | | 30,725 | | | 22,176 | | | 38.55 | % |
Other income | | | 53,573 | | | 7,452 | | | 618.91 | % | | 22,652 | | | 856 | | | 2,546.26 | % |
Income tax expense | | | - | | | - | | | - | | | - | | | - | | | - | |
Net income | | | 1,925,252 | | | 1,167,316 | | | 64.93 | % | | 768,984 | | | 437,553 | | | 75.75 | % |
Currency Translation | | | 161,496 | | | - | | | 100.00 | % | | - | | | - | | | - | |
Comprehensive income | | | 2,086,748 | | | 1,167,316 | | | 78.76 | % | | 768,984 | | | 437,553 | | | 75.75 | % |
Revenue, Cost of Revenue and Gross Profit Margin
Revenue increased by $850,607 from $3,042,915 for the nine months ended September 30, 2005 to $3,893,522 for the nine months ended September 30, 2006 and by $371,035 from $1,082,001 for the three months ended September 30, 2005 to $1,453,036 for the three months ended September 30, 2006.
The increase was mainly attributable to the increase in sales of our Wireless Applications products. In the third quarter of 2006, approximately 1,000 downloading terminals were installed and operated, making our total terminals to more than 1,800. We shall continue to install additional terminals in suitable locations in the north western part of the PRC. Another factor to the increase is our success in enhancing our brand awareness through marketing activities. Sales of Hardware products continue to decrease as the management decided to concentrate our efforts on Wireless Applications.
Revenue | | | For nine months ended September 30, | | | | | | For three months ended September 30, | | | | |
| | | 2006 | | | | | | Increase/ | | | 2006 | | | | | | Increase/ | |
Product | | | (Consolidated) | | | 2005 | | | (decrease) | | | (Consolidated) | | | 2005 | | | (decrease) | |
| | | | | | | | | | | | | | | | | | | |
Wireless Entertainment Applications | | $ | 3,767,002 | | $ | 1,825,749 | | $ | 1,941,253 | | $ | 1,447,032 | | $ | 622,600 | | $ | 824,432 | |
Hardware | | | 126,520 | | | 1,217,166 | | | (1,090,646 | ) | | 6,004 | | | 459,401 | | | (453,397 | ) |
| | | | | | | | | | | | | | | | | | | |
TOTAL | | $ | 3,893,522 | | $ | 3,042,915 | | $ | 850,607 | | $ | 1,453,036 | | $ | 1,082,001 | | $ | 371,035 | |
Cost of revenue decreased from $1,190,286 for the nine months ended September 30, 2005 to $565,195 for the nine months ended September 30, 2006 and from $400,674 for three months ended September 30, 2005 to $173,448 for the three months ended September 30, 2006.
The decrease in cost of revenue was mainly due to the decrease in purchases of Hardware products as we decided to cease certain Hardware Products business in the past quarters and in future.
| | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | For nine months ended September 30, | | | | | | For three months ended September 30, | | | | |
| | | 2006 | | | | | | Increase/ | | | 2006 | | | | | | Increase/ | |
Product | | | (Consolidated) | | | 2005 | | | (Decrease) | | | (Consolidated) | | | 2005 | | | (Decrease) | |
| | | | | | | | | | | | | | | | | | | |
Wireless Entertainment Applications | | $ | 483,437 | | $ | 416,600 | | $ | 66,837 | | $ | 169,645 | | $ | 118,992 | | $ | 50,653 | |
Hardware | | | 81,758 | | | 773,686 | | | (691,928 | ) | | 3,803 | | | 281,682 | | | (277,879 | ) |
| | | | | | | | | | | | | | | | | | | |
TOTAL | | $ | 565,195 | | $ | 1,190,286 | | $ | (625,091 | ) | $ | 173,448 | | $ | 400,674 | | $ | (227,226 | ) |
Our gross profit for the nine months ended September 30, 2006 was $3,328,327 with a substantial increase of $1,475,698 as compared with $1,852,629 for the nine months ended September 30, 2005. The gross profit increased from $681,327 for the three months ended September 30, 2005 to $1,279,588 for the three months ended September 30, 2006.
Our overall gross profit margin increased from 60.88% for the nine months ended September 30, 2005 to 85.48% for the nine months ended September 30, 2006 and from 62.97% for the three months ended September 30, 2005 to 88.06% for the three months ended September 30, 2006.
Our gross profit margin for Wireless Applications increased from 77.18% for the nine months ended September 30, 2005 to 87.17% for the nine months ended September 30, 2006 and from 80.89% for the three months ended September 30, 2005 to 88.28% for the three months ended September 30, 2006. The increase in gross profit margins is due to the success in controlling the increase of cost of revenue while increase in sales by installing more downloading terminals.
The gross profit margin for Hardware Products decreased slightly from 36.44% for the nine months ended September 30, 2005 to 35.38% for the nine months ended September 30, 2006 and from 38.68% for the three months ended September 30, 2005 to 36.66% for the three months ended September 30, 2006.
General and Administrative Expenses
General and Administrative expenses were $660,193 for the nine months ended September 30, 2006 with an increase of $306,920 from $353,273 for the nine months ended September 30, 2005. General and Administrative expenses increased from $116,143 for the three months ended September 30, 2005 to $193,515 for the three months ended September 30, 2006. The increase in general and administrative expenses was mainly due to the increase in operation expenses related to new business development. In August 2006, we had attended the Fourth Annual China Digital Entertainment Expo & Conference (ChinaJoy) in Shanghai. Costs related to the exhibition, product demonstration, traveling and promotional related expenses represented the majority of increase in general expenses for the third quarter of 2006. We anticipated that promotional related expenses could be steadily increased in accordance with our business plan and expansion. Nevertheless, the management still adopts a conservative approach and control to lower the increase of costs in relation to new business expansion.
Selling and Distribution Expenses
Selling and distribution expenses increased by $397,286 from $239,914 for the nine months ended September 30, 2005 to $637,200 for the nine months ended September 30, 2006 and by $172,958 from $87,061 for the three months ended September 30, 2005 to $260,019 for the three months ended September 30, 2006. The increase in our selling and distribution expenses was mainly due to the participation in the exhibition as mentioned above. During the third quarter of 2006, we also incurred rental expenses for the lease of kiosks where our downloading terminals are installed.
Liquidity and Capital Resources
Cash
Our cash balance amounted to $5,165,457 as of September 30, 2006, which was decreased by $1,545,621 as compared to $6,711,078 as of September 30, 2005. The decrease in cash balance was mainly due to cash used for the operations from business expansion.
For the nine months ended September 30, 2006, our cash provided by operating activities amounted to $308,260 as compared to $1,909,937 for the nine months ended September 30, 2005. The decrease was mainly due to the rental deposit payments for renting kiosks to house our downloading terminals.
Working Capital
As of September 30, 2006, we had cash and cash equivalents of $5,165,457, other current assets of $2,446,811 and current liabilities of $1,644,714. We believe we have sufficient cash to continue our current business. However, additional funds from sources other than operating activities have to be obtained if we wish to grow our business. We estimate that the upgrading of our existing technological platforms such as our MIESP so as to allow our customers easy, immediate and affordable access to our products together with subsequent development and marketing expenses will cost us approximately $10,000,000. We plan to finance this capital expenditure through the issuance of debt or equity securities.
Critical Accounting Policies
Management's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The Company's financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See note 2 to the Company's consolidated financial statements, "Summary of Significant Accounting Policies". Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that the following reflect the more critical accounting policies that currently affect the Company's financial condition and results of operations:
Accounts receivable
The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on managements’ assessment of the credit history with the customer and current relationships with them.
Long-lived Assets
The Company accounts for long-lived assets under the Statements of Financial Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS No. 142 and 144”). In accordance with SFAS No. 142 and 144, long-lived assets, goodwill and certain identifiable intangible assets held and used by the Company are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The Company believes that no impairment of property and equipment exist at September 30, 2006.
Revenue recognition
The Company recognizes revenue from the sale of hardware and wireless entertainment applications.
Revenue is recognized from the sale of hardware upon delivery or shipment of the products, at the time title passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed and determinable; and collectability is deemed probable. Revenue is recorded net of estimated provisions for returns, rebates and sales allowances.
Revenue from wireless entertainment applications download fees is based on a single fee per downloaded application or bundle of applications. Download fees are assessed on a per download basis for each game or bundle of games downloaded to a consumer’s mobile phone. Ring-tones and other features operate on the same basis. Revenue is recognized by delivery and acceptance of an application download to the end users. Where downloading terminals are owned by third parties, the Company reports to the owners of the downloading terminals the product and dollar amount of revenue earned and remits the agreed upon price for each download to the terminal owners. The Company records its revenue net of downloading terminals’ owners fees.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is provided on a straight-line basis, less estimated residual value over the asset’s estimated useful lives.
Income taxes
The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.
Off-Balance Sheet arrangements
The Company has not engaged in any off-balance sheet transactions since its inception.
Employees
As of September 30, 2006, we had approximately 157 full-time and 26 part-time employees employed in Greater China. From time to time we employ independent contractors to support our production, engineering, marketing, and sales departments.
Web Site Access to Our Periodic SEC Reports
Our corporate Internet address is http://www.Alonggame.com. We make available free of charge on or through our web site our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). We may from time to time provide important disclosures to investors by posting them in the investor relations section of our web site, as allowed by SEC rules. Information contained on AMT’s web site is not part of this report or any other report filed with the SEC. You may read and copy any public reports we filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site http://www.sec.gov that contains reports and information statements, and other information that we filed electronically.
Foreign Currency Exchange Rate Risk
The majority of our revenues derived and expenses and liabilities incurred are in Chinese Renminbi (“RMB”) with a relatively small amount in Hong Kong dollars (“HK$”) and the United States dollars (“US$” or “$”). Thus, our revenues and operating results may be impacted by exchange rate fluctuations in the currencies of China and Hong Kong. We have not tried to reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future. The availability and effectiveness of any hedging transactions may be limited and we may not be able to successfully hedge our exchange rate risks. Accordingly, we may experience economic losses and negative impacts on earnings and equity as a result of foreign exchange rate fluctuations.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to effectively identify and timely disclose important information. They concluded that the controls and procedures were effective as of September 30, 2006 to provide reasonable assurance that the information required to be disclosed by the Company in reports it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. While our disclosure controls and procedures provide reasonable assurance that the appropriate information will be available on a timely basis, this assurance is subject to limitations inherent in any control system, no matter how well it may be designed or administered.
Changes in Internal Controls. There was no change in our internal control over financial reporting during the quarter ended September 30, 2006, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not involved in any material pending legal proceedings at this time, and management is not aware of any contemplated proceeding by any governmental authority.
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
On September 15, 2006, the Company filed a Form SB-2 with the Commission. The Company registered 6,900,000 shares of Common Stock at a proposed maximum offering price of $1.175. This proposed maximum offering price is based on the average of the high and low prices for the Common Stock reported on the Pink Sheets on September 5, 2006 for the purpose of calculating the registration fee pursuant to Rule 457. The proposed maximum aggregate offering price should equal $8,107,500. For further information, please visit the EDGAR database website at http://www.sec.gov.
On August 16, 2006 the Company’s subsidiary, Jialong entered into a Cooperation Agreement with Shaanxi Shengtang Chuangyi Advertising & Consulting Co., Ltd. (“Shaanxi Shengtang”) for the purpose of renting 300 digital information kiosks (“kiosks”) for a period of 5 years, a copy of which is attached as an exhibit hereto. The financial obligations are as follows:
Jialong shall pay a rental deposit of RMB6,000,000 ($750,000) for the lease of 300 sets of kiosks to Shaanxi Shengtang on or before August 31, 2006.
The monthly rental of each kiosk is RMB500 ($62.50). Jialong shall pay for the previous month’s rental on or before the fifth day of each month to Shaanxi Shengtang.
On August 20, 2006 the Company’s subsidiary, Jialong entered into a Cooperation and Non-Patent License Contract with Beijing Flashow Media Co., Ltd. (“Beijing Flashow”), a copy of which is attached as an exhibit hereto. The Contract was for the granting of right to use the licensed technology - FLASHOW by Beijing Flashow to Jialong for 20 years. The license fee paid by Jialong to Beijing Flashow was RMB5,000,000 ($625,000) in cash together with issuance of 600,000 restricted shares of Common Stock of Along Mobile Technologies, Inc.
During September 2006 the Company’s subsidiary, Jialong entered into two Cooperation Agreements with Shaanxi Shengtang for the purpose of renting 700 kiosks for a period of 5 years, copies of which are attached as an exhibit hereto. The financial obligations are as follows:
Jialong shall pay rental deposits of RMB8,000,000 ($1,000,000) and RMB6,000,000 ($750,000) for the lease of 400 sets and 300 sets of kiosks to Shaanxi Shengtang on or before September 30, 2006 and October 31, 2006 respectively.
The monthly rental of each kiosk is RMB500 ($62.50). Jialong shall pay for the previous month’s rental on or before the fifth day of each month to Shaanxi Shengtang.
During August 2006 the Company’s subsidiary, Jialong entered into two Purchase Contracts with Feiyang Industry & Trade Co., Ltd. (“Feiyang”) for the purchase of 300 downloading machines at total consideration of RMB4,440,000 ($555,000), copies of which are attached as an exhibit hereto.
During September 2006 the Company’s subsidiary, Jialong entered into five Purchase Contracts with Feiyang for the purchase of a total of 900 downloading machines at total consideration of RMB13,320,000 ($1,665,000), copies of which are attached as an exhibit hereto.
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
OF
ALONG MOBILE TECHNOLOGIES, INC.
10.1 | Cooperation Agreement dated August 16, 2006 |
10.2 | Cooperation & Non-Patent License Contract dated August 20, 2006 |
10.3 | Cooperation Agreement dated September 10, 2006 |
10.4 | Cooperation Agreement dated September 30, 2006 |
10.5 | Purchase Contract dated August 14, 2006 |
10.6 | Purchase Contract dated August 25, 2006 |
10.7 | Purchase Contract dated September 3, 2006 |
10.8 | Purchase Contract dated September 10, 2006 |
10.9 | Purchase Contract dated September 18, 2006 |
10.10 | Purchase Contract dated September 25, 2006 |
10.11 | Purchase Contract dated September 28, 2006 |
31.1 | Rule 13a-14 (a)/15d-14 (a) Certification of Chief Executive Officer |
31.2 | Rule 13a-14 (a)/15d-14 (a) Certification of Chief Financial Officer |
32 | Section 1350 Certifications |
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| ALONG MOBILE TECHNOLOGIES, INC. |
| (Registrant) |
| | |
Date: November 3, 2006 | By: | /s/ Jianwei Li |
| Jianwei Li, President |
| |