UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or
15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2002.
[ ] Transition report under Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______.
Commission file number: 000-18257
GOSUN COMMUNICATIONS LTD., INC.
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(Exact name of small business issuer as specified in its charter)
TEXAS 91-1939829
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
80 Zhong Shan Er Road Guangzhou, China 510080
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(Address of principal executive offices)
011-86-208-387-9773
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(Issuer's Telephone Number, Including Area Code)
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(Former name, address and 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 Securities 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13, or 15(d) of the Exchange Act subsequent to the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of March 31, 2002, there were 30,538,179 shares of common stock issued and
outstanding.
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FORM 10-QSB
GOSUN COMMUNICATIONS LIMITED, INC.
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET 3
CONSOLIDATED STATEMENTS OF INCOME 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 9
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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ITEM 1. FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
included in this Form 10-QSB reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operations for the periods presented. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year.
GOSUN COMMUNICATIONS LTD., INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2002 2001
------------ ------------
US$ US$
(Unaudited)
Current assets
Cash and cash equivalents 235,182 488,238
Accounts receivable, net of bad debt provision
(US$27,596, US$9,107) 788,376 561,887
Advances to suppliers 24,270 2,302
Other receivables 682,512 450,621
Inventories 1,163,018 1,234,234
Amounts due from affiliates 1,641,096 1,500,954
------------ ------------
Total current assets 4,534,454 4,238,236
Investment in an equity investee 57,831 50,585
Deposits 323,791 300,649
Property, plant and equipment, net 499,595 539,409
------------ ------------
Total assets 5,415,671 5,128,879
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 603,119 700,922
Accrued employee compensation and benefits 11,792 24,440
Other payables and accrued expenses 1,613,484 998,567
Income taxes payable 332,014 153,116
Amounts due to affiliates 120,406 90,581
Short term bank loans 1,062,802 1,690,821
------------ ------------
Total current liabilities 3,743,617 3,658,447
Amount due to stockholder 178,744 178,744
Convertible note, net of debt discount of (US$73,676, US$89,400) 211,060 210,600
------------ ------------
Total liabilities 4,133,421 4,047,791
------------ ------------
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GOSUN COMMUNICATIONS LTD., INC.
CONSOLIDATED BALANCE SHEETS
(continued)
Commitments and contingencies
Stockholders' equity
Preferred stock series A, par value US$0.001 per share;
100,000 shares authorized; no shares issued and
outstanding - -
Preferred stock series B, par value US$0.001 per share;
5,000 shares authorized; no shares issued and
outstanding - -
Common stock, par value US$0.001 per share; 49,000,000
shares authorized; 30,538,179 (2001: 30,093,179) shares
issued and outstanding 30,538 30,093
Unissued common stock - 39,375
Additional paid in capital 1,509,005 1,117,827
Accumulated losses (251,016) (113,182)
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1,288,527 1,074,113
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Minority interest (6,277) 6,975
------------ ------------
Total liabilities and stockholders' equity 5,415,671 5,128,879
============ ============
See accompanying notes to the consolidated financial statements.
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GOSUN COMMUNICATIONS LTD., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Three months ended
March 31, 2002 March 31, 2001
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US$ US$
Revenue
Sales of cellular phones and pagers 6,253,699 6,218,133
Sales of smart cards 5,929,122 3,591,035
Agency service 400,099 362,138
-------------- --------------
12,582,920 10,171,306
Cost of revenue
Cost of cellular phones and pagers 5,972,603 6,003,607
Cost of smart cards 5,406,414 3,337,307
Agency service 13,783 36,455
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11,392,800 9,377,369
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Gross profit 1,190,120 793,937
Other operating income, net 51,830 50,020
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1,241,950 843,957
Selling expenses 521,977 494,294
General and administrative expenses 657,109 243,768
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Operating income 62,864 105,895
Other income (expenses)
Interest income 12 686
Interest expenses (38,487) (20,024)
Share of profit (loss) of an equity investee 7,246 (1,983)
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Total other expenses, net (31,229) (21,321)
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Income before income taxes and minority interest 31,635 84,574
Income taxes 182,721 34,122
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Income (loss) before minority interest (151,086) 50,452
Minority interests (13,252) 926
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Net income (loss) (137,834) 49,526
============== ==============
Earnings per share - basic and diluted (0.00) 0.00
============== ==============
Weighted average common shares outstanding
- - basic and diluted 30,360,262 30,000,168
============== ==============
See accompanying notes to the consolidated financial statements.
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GOSUN COMMUNICATIONS LTD., INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Retained
Unissued Additional earnings Total
Common stock common paid in (accumulated stockholders'
Shares Amount stock capital losses) equity
---------- -------- --------- ----------- ------------ -------------
US$ US$ US$ US$ US$
Balance, December 31, 2001 30,093,179 30,093 39,375 1,117,827 (113,182) 1,074,113
Issuance of shares in connection
with consulting services 410,000 410 (39,375) 391,365 - 352,400
Conversion of notes and interest
payable to common stock at
$0.5387 per share on
March 13, 2002 5,000 5 - 2,688 - 2,693
Conversion of notes and interest
payable to common stock at
$0.4293 per share on
March 25, 2002 25,000 25 - 10,708 - 10,733
Conversion of notes and interest
payable to common stock at
$0.4293 per share on
March 26, 2002 5,000 5 - 2,141 - 2,146
Write back of debt discount - - - (15,724) - (15,724)
Net income for the quarterly
period ended March 31, 2002 - - - - (137,834) (137,834)
---------- -------- --------- ---------- ---------- -------------
Balance, March 31, 2002 30,538,179 30,538 - 1,509,005 (251,016) 1,288,527
========== ======== ========= ========== ========== =============
See accompanying notes to the consolidated financial statements
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GOSUN COMMUNICATIONS LTD., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended Three months ended
March 31, 2002 March 31, 2001
------------------ ------------------
US$ US$
Cash flows from operating activities
Net income (loss) (137,834) 49,526
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation 43,177 27,501
Write off of property, plant and equipment 29,182 -
Expenses compensated by common stock 218,525 -
Interest on convertible note compensated by common stock 308 -
Unparticipated loss (profit) of an equity investee (7,246) 1,983
Minority interests (13,252) 926
Increase (decrease) from changes in
Accounts receivable (226,489) (136,754)
Advances to suppliers (21,968) (302,932)
Other receivables and deposits (121,158) (237,266)
Income tax recoverable - 4,272
Inventories 71,216 (410,160)
Amounts due from affiliates (110,317) (279,429)
Accounts payable (97,803) 622,832
Accrued employee compensation and benefits (12,648) (15,261)
Other payables and accrued expenses 614,917 13,239
Income taxes payable 178,898 31,686
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Net cash provided by (used in) operating activities 407,508 (629,837)
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Cash flows from investing activities
Acquisition of property, plant and equipment (32,545) (60,755)
----------- -----------
Net cash used in investing activities (32,545) (60,755)
----------- -----------
See accompanying notes to the consolidated financial statements
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GOSUN COMMUNICATIONS LTD., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Three months ended Three months ended
March 31, 2002 March 31, 2001
------------------ ------------------
US$ US$
Cash flows from financing activities
Advances from (repayment to) affiliates, net - 44,376
Proceeds from issuing common stock - 16,000
Repayment to stockholder - (51,932)
Proceeds from short term bank loans 96,618 845,411
Repayment of short term bank loans (724,637) (241,547)
----------- -----------
Net cash provided by financing activities (628,019) 612,308
----------- -----------
Net increase (decrease) in cash and cash equivalents (253,056) (78,284)
Cash and cash equivalents, beginning of period 488,238 158,927
----------- -----------
Cash and cash equivalents, end of period 235,182 80,643
=========== ===========
Supplemental disclosure of cash flow information
Interest paid 38,487 20,024
Income taxes paid 3,822 -
Supplemental disclosure of significant non-cash transactions
Issuance of common stock in connection with consulting services 218,525 -
Conversion of notes and interest payable to common stock 15,572 -
=========== ===========
See accompanying notes to the consolidated financial statements
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Management's Discussion and Analysis of Plan of Operations.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the notes thereto, included as part of
this Quarterly Report.
Results of Operations
The following table shows the selected consolidated income statement data
of the Company and its subsidiaries for the three-month period ended March 31,
2002 and March 31, 2001. The data should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
included as part of the Quarterly Report:
Three-Month Period Ended Three-Month Period Ended
(In US$ 000) March 31, 2002 March 31, 2001
Revenue
Sales of Cellular Phones and Pagers 6,254 6,218
Sales of Smart Cards 5,929 3,591
Agency Service 400 362
--------------- ---------------
12,583 10,171
Cost of Revenue
Cost of Cellular Phones and Pagers (5,973) (6,004)
Cost of Smart Cards (5,406) (3,337)
Agency Service (14) (36)
--------------- ---------------
(11,393) (9,377)
Gross Profit 1,190 794
Gross Profit Margin 9% 8%
Other Income 52 50
Selling Expenses (522) (494)
General and Administration Expenses (657) (244)
Financing/Interest Expense(Net) (31) (21)
--------------- ---------------
Income before Income Taxes 32 85
Income Taxes (183) (34)
Minority Interest 13 (1)
--------------- ---------------
Net Income (Loss) (138) (50)
========= =========
Three-Month Period Ended March 31, 2002 Compared To Three-Month Period Ended
March 31, 2001
Revenue, Cost of Revenue, and Gross Profit Margin
Total revenue for the three-month period ended March 31, 2002 increased by
US$2.4 million or 23.7% to US$12.5 million, compared to US$10.2 million for the
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three-month period ended March 31, 2001. The increase in total revenue was
primarily the result of the Company's effort of promoting the corporate image in
its respective industry as well as strategies regarding the opening of larger
retail stores for attracting customers. For the three-month period ended March
31, 2002, the Company has three major sources of revenue, namely from selling
cellular phones and pagers, selling of smart cards and acting as a licensed
primary agent for one of the two cellular communication providers in the PRC,
China Mobile Communications Corporation. Of the total revenue of US$12.5 million
for the three-month period ended March 31, 2002, 49.7% was generated from the
sales of cellular phones and pagers; 47.1% from the sales of smart cards and
3.2% from agency service. Compared with the total revenue of US$10.2 million for
the three-month period ended March 31, 2001, 61.1% was generated from the sales
of cellular phones and pagers; 35.5% from the sales of smart cards; and 3.4%
from agency service.
As of March 31, 2002, there were 13 stores in the Guangdong Province that
generated a total of US$9.6 million in total revenue and 1 store in Shanghai
that generated a total of US$541,000 in total revenue. Comparing to the end of
December 2001, there were 16 stores in Guangdong Province and 3 stores in
Shanghai. During the three-month period ended March 31, 2002, 3 stores in
Guangdong Province and 1 store in Shanghai were closed, but 2 mega stores were
opened in Guangdong Province. The management believes that the Company's
strategy to open relatively larger stores will continue. The management further
believes that this strategy can capture economies of scale and can provide a
variety of choices for consumers to choose from.
Total cost of sales of cellular phones and pagers for the three-month
period ended March 31, 2002 was US $6.0 million and was similar to that for the
three-month period ended March 31, 2001. Total cost of sales of smart cards for
the three-month period ended March 31, 2002 was US $5.4 million, compared to
US$3.3 million for the same corresponding period in year 2001. Total cost of
providing agency service for the three-month ended March 31, 2002 was US$14,000,
compared to US$36,000 for the three-month period ended March 31, 2001, a
decrease of 62%. The cost of sales of cellular phones and pagers represented
52.5% of the total costs of sales for the three-month period ended March 31,
2002, compared to 64.0% for the same corresponding period in year 2001. Total
cost of sales of smart cards approximated 47.5% of the total costs of sales for
the three-month period ended March 31, 2002, compared to 35.6% for the same
corresponding period in year 2001. And the total cost of providing agency
service represented a very minimal amount for the three-month period ended March
31, 2002, compared to 0.4% for the three-month period ended March 31, 2001.
The 1.6% increase in gross profit margin from 7.8% for the three-month
period ended March 31, 2001 to 9.4% for the three-month period ended March 31,
2002 was the result of the increase in competitiveness of the Company's cellular
phones, pagers and smart cards and the increase in revenue. Management believes
that competition on pricing of cellular phones and telecommunication products
will continue to increase for the remaining periods in year 2002; however,
management plans to increase the number of mega stores in Guangdong Province as
well as in Shanghai and Beijing in order to improve sales revenue. Management
also plans to offer other value-added services for customers; for example,
discounted repair and maintenance bundles when purchasing cellular phones and
related products.
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Other Income
Other income for the three-month period ended March 31, 2002 increased by
US$1,810, or 3.6% to US$51,830, compared to USD50,020 for the three-month ended
March 31, 2001. The increase was mainly due to additional income generated from
in-house repairs and maintenances of cellular phone services.
Selling Expenses
Selling expenses for the three-month period ended March 31, 2002 increased
by USD27,683 or 0.56% to USD521,977, compared to USD494,294 for the three-month
period ended March 31, 2001. The increase was mainly due to the following
factors:
a) Salaries and wages --- Salaries and wages increased mainly due to
the increase in salespersons and in line with the increase in
sales revenue.
b) Rental expenses --- Rental expenses decreased for the three-month
period ended March 31, 2002 primarily due to the closure of three
stores in Guandong Province and the closure of one store in
Shanghai.
General and Administration Expenses
General and administration expenses for the three-month period ended March
31, 2002 increased by US $413,341 or 170% to US $657,109, compared to US$243,768
for the three-month period ended March 31, 2001. The Company is in its
development stage and aims to employ high caliber individuals to continue to
improve the efficiency of its operation. Thus, most of the increase in general
and administrative expenses was related to the increase in the number of
employees. The following items contributed to most of the increase:
a) Professional fees. Professional fees for the three-month period
ended March 31, 2002 increased by US$270,076 to US$271,392,
compared to US$1,316 for the three-month period ended March 31,
2001. The main expenses are US$218,525, calculated via
disbursement of company shares to overseas financial advisors,
promotion companies, PR companies, compared to none for the
three-month period ended March 31, 2001.
b) Consultancy fees - Consultancy fees for the three-month period
ended March 31, 2002 increased by US$28,049 to US$28,985, compared
to US$936 for the three-month period ended March 31, 2001. The fee
was mainly used to pay the consulting fee for domestic enterprise
coordination and development.
c) Staff Insurance - Staff Insurance for the three-month period ended
March 31, 2002 increased by US$ 15,156 to US$15,184, compared to
US$28 for the three-month period ended March 31, 2001. The fee was
mainly increased for insurance payments due to enhanced welfare
for staff.
d) Depreciation - Depreciation for the three-month period ended March
31, 2002 increased by US$ 14,323 to US$16,122, compared to
US$1,799 for the three-month period ended March 31, 2001.
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Financial Expenses
Financing expenses was US$38,000 for the three-month period ended March
31, 2002, compared to US$20,000 for the three-month period ended March 31, 2001.
The decrease was primarily the result of less short-term bank loans from
commercial banks in the PRC for the provision of sufficient working capital
which were partially repaid during year 2001.
Income Taxes
The standard enterprise income tax rate in the PRC is 33% of which 30% is
attributable to the central government and 3% to the provincial government.
Newly established commercial enterprises, on application and approval by the tax
bureau, are exempted from enterprise income taxes in respect of income earned
during their first year of operation. The Company and its subsidiaries and
retail stores are in different stages of enjoying the above tax incentive
program.
Minority Interest
Minority interest (loss) of US($13,252) for the three-month period ended
March 31, 2002 was the result of sharing loss of the Shanghai Gosun
Communication Chain Operation Co., Ltd.
Net Income
Net income (loss) was US$(137,834) for the three-month period ended March
31, 2002, a decrease of US$187,360 compared to US $49,526 for the three-month
period ended March 31, 2001. The decrease was primarily due to increased general
and administrative expenses and income taxes.
Liquidity and Capital Resources
Cash and cash equivalents were US$235,182 as of March 31, 2002. This
represents a decrease from US $488,238 at December 31, 2001. The decrease was
primarily due to repayment of short-term bank loans of $628,000, purchase of
equipment of $32,000 offset by $407,000 net cash provided from operating
activities.
Management believes that the level of financial resources is a significant
competitive factor in the cellular phone industry and accordingly may choose at
any time to raise additional capital through debt or equity financing to
strengthen its financial position, facilitate growth and provide the Company
with additional flexibility to take advantage of business opportunities.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
a) Exhibits: None.
b) Reports on Form 8-K: None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
GOSUN COMMUNICATIONS LTD., Inc.
Date: June 14, 2002 By: /S/ YI-BIAO CHEN
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Yi-Biao Chen
Chairman of the Board
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