MICHAEL A. LITTMAN
Attorney at Law
7609 Ralston Road
Arvada, CO 80002
(303) 422-8127
Fax (303) 431-1567
September 25, 2008
VIA EDGAR AND FEDERAL EXPRESS
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Securities and Exchange Commission
Attn: Larry Spirgel, Assistant Director
Mail Stop 3720
Washington, D.C. 20549
Re: China Wi-Max Communications, Inc.
Registration Statement on Form 10
Filed on June 5, 2008
File No. 000-53268
Dear Mr. Spirgel,
We have filed Amendment number 1 to Form 10 with amendments responsive to
your comments dated July 1, 2008 in which we have denoted the comment number in
parenthesis, where amendments were made, and we further respond to each of your
comments as follows:
GENERAL
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1. PLEASE REVISE YOUR DISCLOSURE THROUGHOUT THE REGISTRATION STATEMENT TO
CLEARLY IDENTIFY THE ENTITY THAT YOU ARE REFERRING TO. TERMS SUCH AS "THE
COMPANY" AND "CHINA WI-MAX" SHOULD ONLY REFER TO THE REGISTRANT, NOT TO ANY
OPERATING ENTITY OR ANY OTHER PARTIES. SINCE CHINA WI-MAX IS NOT AN OPERATING
BUSINESS, YOU SHOULD IDENTIFY EACH OPERATING ENTITY, AS APPLICABLE, THROUGHOUT
THE DOCUMENT. WHERE YOU OPERATE YOUR BUSINESS THROUGH AN OPERATING ENTITY IN THE
PRC, YOUR DISCLOSURE SHOULD BE CLEAR THAT CHINA WI-MAX DOES NOT DIRECTLY OPERATE
THAT BUSINESS, BUT INSTEAD HAS A PARTIAL OWNERSHIP INTEREST OR CONTRACTUAL
RELATIONSHIP WITH THAT ENTITY.
Response:
We have substantially revised the Registration Statement text to eliminate
the confusing verbiage. We have carefully edited for consistency throughout, but
have not marked as (COMMENT #1) because there were numerous corrections. We hope
this is acceptable.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 2 of 11
ITEM 1. BUSINESS, PAGE 3
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In order to respond to the comments regarding Item 1, we have substantially
revised and edited the document for these comments. After such action the
pagination of the document has changed, considerably. We have marked when
possible those specific revisions that were a result of the comments.
2. WE NOTE YOUR STATEMENT THAT THE COMPANY "PLANS TO LAUNCH ITS FIRST NETWORK IN
BEIJING DURING THE SECOND QUARTER OF 2008." UPDATE THIS DISCLOSURE AND
SPECIFICALLY IDENTIFY THE SOURCES OF THE NECESSARY CAPITAL TO FUND SUCH
DEVELOPMENT.
Response:
We have updated the disclosures in the document to reflect that the Company
is in the process of completing and launching the first network in Beijing prior
to the end of the third quarter. We have also identified the use of funds
currently raised to launch the initial network and what will be needed to
complete launches of additional networks and the company's business plan on page
4 where marked (COMMENT #2).
3. WE NOTE YOUR STATEMENT THAT YOU ARE ESTABLISHING A SET OF WHOLLY OWNED AND
PARTIALLY OWNED COMPANIES IN THE PRC TO OPERATE YOUR BUSINESS. PLEASE REVISE
YOUR DISCLOSURE HERE AND ELSEWHERE IN THE DOCUMENT, AS APPROPRIATE, TO PROVIDE A
DETAILED DISCUSSION OF YOUR CORPORATE STRUCTURE. TO AID INVESTORS IN
UNDERSTANDING YOUR COMPLEX CORPORATE STRUCTURE, WE ENCOURAGE YOU TO INCLUDE A
REVISED DIAGRAM OF YOUR CURRENT CORPORATE STRUCTURE IN THE BUSINESS SECTION.
Response:
We have included a newly revised diagram as Exhibit 99.1 - Appendix A to
comply with this Comment. Please see (COMMENT #3).
4. ALSO, PROVIDE A DETAILED DESCRIPTION OF THE NATURE OF YOUR OWNERSHIP INTEREST
IN EACH OF THE OPERATING COMPANIES IN THE PRC. IF YOU INTEND TO OPERATE YOUR
BUSINESS IN THE PRC THROUGH CONTRACTUAL ARRANGEMENTS WITH OPERATING ENTITIES,
ENSURE THAT YOU DISCUSS THE RISKS AND UNCERTAINTIES ASSOCIATE WITH OPERATING A
BUSINESS IN THE PRC THROUGH AN OWNERSHIP STRUCTURE BASED ON CONTRACTUAL
ARRANGEMENTS RATHER THAN ON EQUITY.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 3 of 11
Response:
We have responded to comment number 4, by including the nature of the
Company's ownership in each entity in the diagram labeled Exhibit 99.1 -
Appendix A. Further, we have included disclosure as to our ownership in these
entities and their operational status. The Company does not intend to operate
the entities through contractual arrangements and therefore no disclosure has
been made as to operating agreements. These disclosures are found on pages 4 and
6 and are marked (COMMENT #4).
Disclosures relating to the risks and uncertainties of operating companies
in the People's Republic of China (PRC) can be found in the Risk Factors.
5. WE NOTE FROM YOUR DISCLOSURE THAT THE OPTICAL FIBER AND LICENSED SPECTRUM
PURCHASED ON BEHALF OF THE COMPANY TO DATE ARE CURRENTLY HELD BY THREE PARTIES
IN BEIJING, CHINA. PLEASE DESCRIBE ANY RELATIONSHIP OR COMMON OWNERSHIP BETWEEN
YOU, OR ANY OF YOUR AFFILIATES, AND THE BUYERS AND HOLDERS OF THE OPTICAL FIBER
AND LICENSED SPECTRUM. ALSO, WE NOTE THAT YOU HAVE ACCOUNTED FOR THOSE
TRANSACTIONS AS NON-REFUNDABLE DEPOSITS. PLEASE DESCRIBE HOW THE OPTICAL FIBER
AND LICENSED SPECTRUM WERE PURCHASED "AT THE DIRECTION" OF THE COMPANY AND
DISCUSS WHETHER YOU HAVE DIRECT OWNERSHIP OVER THOSE ASSETS, OR, ALTERNATIVELY,
HOW YOU PLAN TO EXERCISE CONTROL OVER THOSE ASSETS AND DERIVE THE ECONOMIC
BENEFIT FROM THEM.
Response:
As previously mentioned much of Item 1 was revised and edited for these
comments. Also, please see the paragraphs marked (COMMENT #5) on pages 3 and 4
in response to this comment.
6. WE NOTE THE DISCLOSURE ON YOUR WEBSITE THAT YOU HAVE ENTERED INTO A
COOPERATIVE AGREEMENT WITH A MAJOR BROADBAND PROVIDER IN BEIJING TO IDENTIFY AND
PURCHASE COMPANIES IN THE WI-MAX ARENA. PLEASE EXPAND YOUR DISCLOSURE HERE AND
ELSEWHERE IN THE REGISTRATION STATEMENT, AS APPROPRIATE, TO PROVIDE A
DESCRIPTION OF ALL MATERIAL TERMS OF THE COOPERATION AGREEMENT AND THE IDENTITY
OF THE COUNTERPARTY.
Response:
The cooperative agreement referred to on our website was not completed and
has been abandoned by all parties. We have removed the discussion of the
cooperative agreement from our website and have not made any disclosure of it
within this document.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 4 of 11
7. UNDER A SEPARATE HEADING, PLEASE PROVIDE A DETAILED DISCUSSION OF THE
PRINCIPAL GOVERNMENTAL REGULATIONS THAT YOUR BUSINESS WILL BE SUBJECT TO, IN
PARTICULAR THOSE APPLICABLE TO FOREIGN-INVESTED ENTERPRISES IN THE PRC.
Response:
We have included a separate section entitled PRINCIPAL CHINESE GOVERNMENT
REGULATIONS on page 12 where marked (COMMENT #7) to satisfy this comment.
8. ITEM 101(H)(4)(XII) OF REGULATION S-K REQUIRES DISCLOSURE OF THE NUMBER OF
TOTAL AND FULL-TIME EMPLOYEES. WE NOTE YOUR DISCLOSURE ON PAGE 5 THAT YOU INTEND
ON HIRING SALESPEOPLE, BUT PLEASE CLARIFY THAT YOU CURRENTLY HAVE NO EMPLOYEES.
Response:
We have included disclosure as to the number of full and part-time
employees on Page 3 where marked (COMMENT #8).
9. PLEASE PROVIDE THE INFORMATION REQUIRED BY ITEM 101(H)(5) OF REGULATION S-K
REGARDING REPORTS TO SECURITY HOLDERS.
Response:
We have included information regarding the reports to shareholders as
required by Item101(h)(5) on page 3 where marked (COMMENT #9).
RISK FACTORS, PAGE 11
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GENERAL
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10. SOME OF YOUR RISK FACTORS ARE TOO VAGUE AND GENERIC, AND AT TIMES
UNNECESSARILY REDUNDANT, TO ADEQUATELY REFLECT THE RISKS THAT THE COMPANY IS
SUBJECT TO. PLEASE REVIEW YOUR ENTIRE RISK FACTOR SECTION AND REVISE AS
NECESSARY SO THAT IT IS CONCISE AND ORGANIZED LOGICALLY. PLEASE DO NOT PRESENT
RISKS THAT COULD APPLY TO ANY ISSUER IN YOUR INDUSTRY OR ANY OTHER INDUSTRY. IF
YOU ELECT TO RETAIN ANY OF THE GENERAL RISK FACTORS IN YOUR DOCUMENT, YOU MUST
CLEARLY EXPLAIN HOW THEY APPLY TO YOUR INDUSTRY, OR TO YOU. ALSO, SOME OF THE
SUBHEADINGS IN YOUR RISK FACTORS MERELY DESCRIBE A FACT ABOUT YOUR BUSINESS, AND
DO NOT REFLECT THE RISK YOU ARE TRYING TO CONVEY. REVISE YOUR RISK FACTOR
SUBHEADINGS SO THEY REFLECT THE RISK THAT FOLLOWS.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 5 of 11
FOR EXAMPLE:
CHINA WI-MAX HAS NO OPERATING HISTORY OR REVENUE...., PAGE 11
CHINA WI-MAX MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN, PAGE 11
CHINA WI-MAX CAN GIVE NO ASSURANCE OF SUCCESS...., PAGE 12
CHINA WI-MAX MAY HAVE A SHORTAGE OF WORKING CAPITAL...., PAGE 12
CHINA WI-MAX HAS MINIMAL OPERATING HISTORY..... PAGE 12
CHINA WI-MAX MAY ISSUE DEBT......., PAGE 14
PLEASE NOTE THAT THESE ARE EXAMPLES ONLY. PLEASE REVIEW YOUR ENTIRE RISK FACTOR
SECTION AND REVISE AS NECESSARY. REFER TO ITEM 503(C) OF REGULATION S-K.
Response:
Please note that we have updated the Risk Factor section to eliminate vague
and generic text beginning on page 18 where marked (COMMENT #10).
11. IN LIGHT OF THE PRC LAWS GOVERNING FOREIGN OWNERSHIP AND INVESTMENTS IN
TELECOMMUNICATIONS ENTERPRISES, PLEASE INCLUDE RISK FACTORS THAT DISCUSS THE
RISKS OF ESTABLISHING, OR ENTERING INTO CONTRACTUAL ARRANGEMENTS WITH, OPERATING
COMPANIES IN THE PRC.
Response:
We have added Risk Factors to include the risks of operating in the PRC
beginning on page 28 where marked (COMMENT #11).
12. WE NOTE YOUR DISCLOSURE ON PAGE 27 REGARDING THE POTENTIAL NEED FOR
ADDITIONAL FINANCING IN THE FUTURE. PLEASE PROVIDE A NEW RISK FACTOR TO DISCUSS
THE FACT THAT FINANCING MAY NOT BE AVAILABLE TO YOUR IN AMOUNTS OR ON TERMS
ACCEPTABLE TO YOU, IF AT ALL.
Response:
We have added the paragraph marked (COMMENT #12) on page 20.
CHINA WI-MAX MAY ISSUE DEBT HAVING PRIORITY, PAGE 14
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13. THE FIRST SENTENCE OF THIS RISK FACTOR APPEARS TO BE FROM A RISK FACTOR
CONTAINED IN A DEBT OFFERING. PLEASE REVISE TO CORRECT.
Response:
We have amended this risk factor on page 21 where marked (COMMENT #13).
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 6 of 11
ITEM 2. FINANCIAL INFORMATION, PAGE 20
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14. FOR EASE OF REFERENCE, PLEASE PRESENT YOUR DISCLOSURE IN ITEM 2 UNDER THE
HEADING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS." SEE ITEM 303 OF REGULATION S-K.
Response:
Please see added language on page 34 responsive to your comment marked
(COMMENT #14).
15. WE ENCOURAGE YOU TO INCLUDE AN INTRODUCTORY SECTION OR OVERVIEW TO YOUR
MANAGEMENT'S DISCUSSION AND ANALYSIS. THIS OVERVIEW SECTION SHOULD PROVIDE
INVESTORS WITH AN EXECUTIVE LEVEL INTRODUCTION TO THE COMPANY, ITS PRODUCTS AND
SERVICES. AMONG OTHER THINGS, THE DISCUSSION SHOULD ALSO PROVIDE INSIGHT INTO
CHALLENGES, RISKS AND OPPORTUNITIES ON WHICH MANAGEMENT IS MOST FOCUSED FOR BOTH
THE SHORT- AND LONG-TERM, AND DISCUSS ANY ACTIONS BEING TAKEN TO ADDRESS THE
SAME. SEE SECTION III.A. OF RELEASE NO. 33-8350.
Response:
In response to this comment we have added a section titled "Introduction"
on page 34 marked (COMMENT #15).
PLAN OF OPERATION, PAGE 21
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16. WE NOTE YOUR REFERENCE TO AN ONGOING CONVERTIBLE NOTE PRIVATE PLACEMENT. WE
ALSO NOTE VARIOUS REFERENCES TO AN OFFERING MEMORANDUM ON YOUR WEBSITE. PLEASE
TELL US IN YOUR RESPONSE LETTER HOW YOU ARE IDENTIFYING POTENTIAL INVESTORS IN
THIS PRIVATE OFFERING.
Response:
We have indentified potential investors in our private offering though
referrals of friends and family. We have not used a third party to raise the
funds. We have answered this comment on page 36 where marked (COMMENT #16).
LIQUIDITY AND CAPITAL RESOURCES, PAGE 23
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17. PLEASE PROVIDE A MORE DETAILED DISCUSSION OF YOUR ABILITY TO MEET YOUR
LONG-TERM LIQUIDITY NEEDS AND PROVIDE GREATER INSIGHT INTO THE LENGTH OF TIME
BEYOND 2008 THAT THE SUFFICIENCY OF THE PROCEEDS FROM YOUR FINANCING ACTIVITIES
WILL EXTEND. WE CONSIDER "LONG-TERM" TO BE THE PERIOD IN EXCESS OF THE NEXT 12
MONTHS. SEE SECTION III.C. OF RELEASE NO. 33-6835 AND FOOTNOTE 43 OF RELEASE NO.
33-8350. IN ADDITION, REVISE TO QUANTIFY YOUR MATERIAL LONG-TERM LIQUIDITY
REQUIREMENTS, TO THE EXTENT PRACTICABLE.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 7 of 11
Response:
We have provided greater details on our ability to meet our long-term
liquidity needs not only over the next 12-month period but over the next
36-month period in response to your comment. We have included disclosure as to
our plans for additional financing. This disclosure can be found on page 38
marked (COMMENT #17).
18. DISCLOSE THE AMOUNT OF INTEREST AND PRINCIPAL PAID TO DATE ON THE
CONVERTIBLE NOTES. CONFIRM THAT THE COMPANY IS NOT IN DEFAULT ON PAYMENTS ON THE
NOTES.
Response:
We have included disclosure stating that no interest on principal has been
paid to date on the convertible notes and that the Company is not in default on
the payments on the notes in both the liquidity and capital discussions on pages
38 and 40 marked as (COMMENT #18).
19. WE NOTE THAT YOU INTEND TO DEPLOY YOUR BUSINESS THROUGH OPERATING COMPANIES
IN THE PRC. IN YOUR DISCUSSION, PLEASE DESCRIBE ANY LEGAL OR ECONOMIC
RESTRICTIONS ON THE ABILITY OF YOUR SUBSIDIARIES OR OPERATING COMPANIES IN THE
PRC TO PAY DIVIDENDS OR EFFECT DISTRIBUTIONS TO YOU, AND THE IMPACT, IF ANY, OF
SUCH RESTRICTIONS ON YOUR ABILITY TO MEET YOUR CASH OBLIGATIONS.
Response:
Please see page 6 responsive to your comment marked (COMMENT #19).
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK, PAGE 27
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20. IN LIGHT OF YOUR DISCLOSURE ON PAGE 16, IT APPEARS THAT YOU WILL BE SUBJECT
TO FOREIGN CURRENCY EXCHANGE RISK BECAUSE YOU EXPECT TO GENERATE REVENUES AND
INCUR EXPENSES AND LIABILITIES IN BOTH CHINESE RENMINBI AND U.S. DOLLARS. ALSO,
WE NOTE THAT YOU MAY BE EXPOSED TO INTEREST RATE RISK ON THE INTEREST INCOME
GENERATED BY YOUR CASH HOLDINGS. PLEASE PROVIDE ALL THE INFORMATION REQUIRED BY
ITEM 305 OF REGULATION S-K WITH RESPECT TO FOREIGN CURRENCY EXCHANGE AND
INTEREST RATE RISK, AS WELL AS ANY OTHER RELEVANT MARKET RISK.
Response:
We have disclosure as to the risks regarding foreign currency translations
on page 44 marked (COMMENT #20). We have not added any disclosure as to interest
rate risk on interest income, since our cash holdings at this time do not
generate interest income. Our cash holdings are held in a non-interest bearing
bank account.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 8 of 11
CONFLICTS OF INTEREST, PAGE 31
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21. PLEASE PROVIDE US WITH ADDITIONAL INFORMATION ON THE AGREEMENT BY THE BOARD
OF DIRECTORS REGARDING POTENTIAL BUSINESS OPPORTUNITIES THAT MAY BECOME
AVAILABLE TO COMPANIES WITH WHICH YOUR DIRECTORS AND EXECUTIVE OFFICERS MAY BE
AFFILIATED. IN YOUR RESPONSE, PLEASE LIST THE NAMES OF SUCH COMPANIES TO DATE
AND THE DATES IN WHICH THOSE COMPANIES REGISTERED SECURITIES UNDER THE
SECURITIES EXCHANGE ACT OF 1934.
Response:
We have not provided additional information on any agreements or policies
effected by the board of directors regarding potential business opportunities
with which directors and officers may be affiliated, since we do not have any
such agreements or polices in effect.
ITEM 6. EXECUTIVE COMPENSATION
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SUMMARY COMPENSATION TABLE, PAGE 33
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22. PLEASE PROVIDE FOOTNOTE DISCLOSURE DESCRIBING THE AMOUNTS REPORTED UNDER THE
ALL OTHER COMPENSATION COLUMN.
Response:
Footnotes have been inserted to accompany the Summary Compensation Table.
Please see page 50 where marked (COMMENT #22).
23. IN LIGHT OF YOUR DISCLOSURE ON PAGE 33 REGARDING YOUR EMPLOYMENT AGREEMENTS
WITH MESSRS. RABINOFF AND HARRIS, PLEASE CONFIRM THAT THEY DID NOT EARN A SALARY
FOR 2007.
Response:
Messrs. Rabinoff and Harris did not earn a salary during 2007. Please refer
to the footnotes accompanying the Summary Compensation Table on page 50 where
marked (COMMENT #23).
24. WE NOTE THE AMOUNTS REPORTED UNDER THE STOCK AWARDS COLUMN FOR YOUR 2007
FISCAL YEAR. HOWEVER, YOUR DISCLOSURE UNDER "- OPTION/SAR GRANTS IN THE LAST
FISCAL YEAR" INDICATES THAT NO STOCK OPTIONS WERE GRANTED IN 2007. PLEASE REVISE
AS APPROPRIATE.
Response:
We have revised the section "Option/SAR Grants in the Last Fiscal Year" to
comply with this comment. Please see page 51 where marked (COMMENT #24).
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 9 of 11
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS, PAGE 33
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25. PLEASE EXPAND THE DISCLOSURE OF YOUR EMPLOYMENT AGREEMENTS WITH MESSRS.
RABINOFF AND HARRIS TO PROVIDE A DESCRIPTION OF ALL MATERIAL TERMS. ALSO, WE
NOTE THAT THE EMPLOYMENT AGREEMENTS DO NOT APPEAR AS EXHIBITS TO THE
REGISTRATION STATEMENT. HOWEVER, ITEM 601(B)(10)(III)(A) OF REGULATION S-K
REQUIRES THEIR FILING AS MATERIAL CONTRACTS. PLEASE FILE.
Response:
Please see inserted text under "Employment Agreements and Termination of
Employment and Change-In-Control Arrangements" on page 51 where marked (COMMENT
#25). We have also included two employment agreements as Exhibits #10.2 and
#10.3.
STOCK OPTION AWARD AND COMPENSATION PLAN, PAGE 34
26. PLEASE FILE YOUR INCENTIVE STOCK OPTION PLAN AS AN EXHIBIT TO THE
REGISTRATION STATEMENT. SEE ITEM 601(B)(10)(III)(A) OF REGULATION S-K.
Response:
We have included the 2008 China Wi-Max Communications, Inc. Stock Option
Award and Compensation Plan as Exhibit 10.5 to comply with your comment.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS, PAGE 36
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27. TO AID INVESTOR UNDERSTANDING, PLEASE DISCLOSE THE REASONS FOR FILING THIS
REGISTRATION STATEMENT AND WHETHER YOU INTEND TO HAVE YOUR COMMON STOCK APPROVED
FOR QUOTATION IN AN OVER-THE-COUNTER MARKET.
Response:
We have updated the first paragraph of this section on page 56. Please see
the paragraph marked (COMMENT #27).
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES, PAGE 37
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28. PLEASE PROVIDE ALL THE INFORMATION REQUIRED BY ITEM 701(D) OF REGULATION S-K
REGARDING THE BASIS OF THE EXEMPTION FROM REGISTRATION CLAIMED.
Response:
We have added language to page 68 where marked (COMMENT #28) to satisfy
this comment.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 10 of 11
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED, PAGE 47
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29. PLEASE PROVIDE ALL THE INFORMATION REQUIRED BY ITEM 202(A)(5) OF REGULATION
S-K REGARDING PROVISIONS IN YOUR CHARTER OF ARTICLES OF INCORPORATION THAT MAY
HAVE THE EFFECT OF DELAYING OR PREVENTING A CHANGE IN CONTROL OF THE COMPANY,
INCLUDING THE AVAILABILITY OF AUTHORIZED BUT UNISSUED PREFERRED STOCK.
Response:
Please see the last paragraph added on page 69 under "Common Stock" to
satisfy this comment. We have marked the paragraph with (COMMENT #29)
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, PAGE 49
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UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. SHAREHOLDERS DEFICIT
- -------------------------------------------
STOCK OPTION PLAN, PAGE 73
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30. WE NOTE THAT YOUR SHAREHOLDERS HAVE YET TO RATIFY THE STOCK OPTION AWARD AND
COMPENSATION PLAN. TELL US HOW YOU HAD A GRANT DATE/MEASUREMENT DATE CONSIDERING
THAT YOUR PLAN IS SUBJECT TO SHAREHOLDER APPROVAL. REFER TO SFAS 123(R),
SPECIFICALLY THE DEFINITION OF GRANT DATE IN APPENDIX E.
Response:
Although our shareholders have not yet ratified the Stock Option Award and
Compensation Plan, we believe that shareholder approval is essentially a
formality, since management and the members of the board of directors control
enough votes to approve the arrangement (they control approximately 59.5% of the
Company's outstanding voting common stock). Therefore, we believe that the
awards were granted pursuant to the definition of Grant Date in SFAS No. 123(R),
Appendix E.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS, PAGE 75
31. PLEASE REFER TO ITEM 601(B) OF REGULATION S-K FOR A LIST OF THE EXHIBITS
REQUIRED TO BE FILED WITH A FORM 10 AND REVISE YOUR FILING AS NECESSARY. ALSO,
PLEASE ENSURE ALL EXHIBITS FILED ARE IN LEGIBLE FORMAT.
Response:
We have included additional exhibits to this amended Registration
Statement. Please refer to page 95. We are also re-filing the Articles of
Incorporation (Exhibit 3.1) and Certificate of Amendment (Exhibit 3.2) in a
legible format.
September 25, 2008
China Wi-Max Communication, Inc.
Amendment No. 1 to Form 10
File No. 000-53268
Page 11 of 11
32. WE NOTE THAT SOME OF YOUR EXHIBITS ARE IN CHINESE. PLEASE REFER TO RULE 306
OF REGULATION S-T REGARDING FILING OR SUBMISSION OF DOCUMENTS IN A FOREIGN
LANGUAGE AND REVISE YOUR FILING AS NECESSARY.
Response:
We have removed these maps as exhibits to the document due to the
difficulty in getting such items translated to English. The information provided
by the maps is discussed on page 8.
If you can review the amendment, and let us know if it is satisfactory and
in compliance with your comments, we would appreciate it. If you have any
questions, please let me know.
Thank you for your attention.
Sincerely,
/s/Michael A. Littman
Michael A. Littman
MAL:cc
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF
SECURITIES Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
CHINA WI-MAX COMMUNICATIONS, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 61-1504884
- ---------------------------------- ------------------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
1905 Sherman Street, Suite 335, Denver, Colorado 80203
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
303-668-0199
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so Name of each exchange
registered on which each class is
to be registered
- ---------------------------------- ------------------------
Not Applicable Not Applicable
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
------------
(Title of class)
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
- ------------------------------- ------- ------------------------------ ---------
Large accelerated filer [___] Accelerated filer [___]
- ------------------------------- ------- ------------------------------ ---------
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
- ------------------------------- ------- ------------------------------ ---------
TABLE OF CONTENTS
TITLE PAGE NUMBER
----------------------------------------------------------------------------- ---------------
Item 1 BUSINESS 3
Item 1A RISK FACTORS 18
Item 2 FINANCIAL INFORMATION 34
Item 3 PROPERTIES 44
Item 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 44
Item 5 DIRECTORS AND EXECUTIVE OFFICERS 46
Item 6 EXECUTIVE COMPENSATION 50
Item 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 54
Item 8 LEGAL PROCEEDINGS 56
Item 9 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED 56
STOCKHOLDER MATTERS
Item 10 RECENT SALES OF UNREGISTERED SECURITIES 57
Item 11 DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED 68
Item 12 INDEMNIFICATION OF DIRECTORS AND OFFICERS 69
Item 13 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 70
Item 14 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 96
DISCLOSURE
Item 15 FINANCIAL STATEMENTS AND EXHIBITS 96
ITEM 1. BUSINESS
CHINA WI-MAX COMMUNICATIONS, INC.
China Wi-Max Communications, Inc. ("China Wi-Max" or "the Company"),
incorporated in the state of Nevada on July 5, 2006, is a development-stage
telecommunications broadband provider focused on providing commercial customers,
specifically in first and second tier markets in China with high-bandwidth
connections through subsidiary companies. Through these 50% and 100% owned
subsidiaries, China Wi-Max intends to build, own, and operate metropolitan area
Internet Protocol (IP) based broadband networks, using both owned optical fiber
and licensed Wi-Max capable wireless spectrum.
China Wi-Max networks will be designed to provide the reliability, redundancy,
scalability, and other features expected of a carrier class network. China
Wi-Max believes it can bypass the local loop facilities of the local exchange
carrier to connect enterprise customers directly to the global communications
network. At this time, China Wi-Max has three full-time and two part- time
employees in the United States, augmented by a number of contract personnel and
professional services organizations. (COMMENT #8)
China Wi-Max is not a reporting company at this time. There is no trading market
for China Wi-Max's common stock. We will be subject to the reporting
requirements under the Securities and Exchange Act of 1934, Section 13a, after
the effectiveness of this offering, pursuant to Section 15d of the Securities
Act and we intend to be registered under Section 12(g). As a result,
shareholders will have access to the information required to be reported by
publicly held companies under the Exchange Act and the regulations thereunder.
We intend to provide our shareholders with quarterly unaudited reports and
annual reports containing financial information prepared in accordance with
generally accepted accounting principles and audited by independent registered
public accounting firm which will be accessible at the SEC website
(www.sec.gov), and intend to register under the Securities Exchange Act, Section
12(g). (COMMENT #9)
CHINA WI-MAX STRATEGY
China Wi-Max is focused on creating a carrier class telecommunications network
by combining a set of assets within China through the acquisition and deployment
of fiber optics and wireless connectivity. The Company is establishing a set of
what will be two wholly-owned (100%) and one partially-owned (50%) subsidiary
companies in China through which China Wi-Max intends to operate in China.
(Refer to the following section and Appendix A - Exhibit 99.1 - regarding
Corporate Structure). At the direction of, and with funding from, China Wi-Max,
optical fiber and spectrum licenses were purchased in Beijing and Hangzhou. The
Company has accounted for these transactions as non-refundable deposits, as
there could be a question as to recoverability if the acquisition of the
subsidiary companies (later referred to as Beijing Gao Da Yang Guang
Communication Technology Ltd., which holds the wireless licenses, and Beijing
Yuan Shan Shi Dai Technology CO, Ltd., which holds the fiber optic cable assets)
who control these assets is not completed. (COMMENT #5) The primary party
controlling these assets--currently reflected as non-refundable deposits--also
owns approximately 7.4% of China Wi-Max stock. Upon receipt of an additional $5
million of funding which China Wi-Max is seeking, China Wi-Max intends to
acquire additional wireless spectrum and optical fiber assets in eight markets
in 2008 and 2009.
3
Starting in January 2008, China Wi-Max began a Convertible Promissory Note
offering. As a result of such offering, China Wi-Max received $1,015,000, to
date (see page 36). The funds raised to date from this offering have been used
to purchase the optical fiber and spectrum licenses in Beijing and Hangzhou and
complete the initial deployment of the fiber optics connectivity in Beijing
during the 3rd quarter of 2008.
In order to fully complete the China Wi-Max business plan as described on page
14, China Wi-Max will need to raise at least a second round of $5 million
dollars through equity, debt, or a combination thereof during the first half of
2009. (COMMENT #2)
OVERVIEW OF CORPORATE STRUCTURE
The following chart represents an overview of the corporate structure that will
be employed by China Wi-Max to execute its business plan: (COMMENT #3)
Please refer to Exhibit 99.1 - Appendix A
Beijing Yuan Shan Da Chuan Business Development Ltd. is in the process of being
established as a wholly owned foreign entity. Beijing Gao Da Yang Guang
Communication Technology Ltd., and Beijing Yuan Shan Shi Dai Technology CO, Ltd.
have been established in China as locally owned Chinese companies, with the
intent of being acquired by China Wi-Max. Currently, there is activity in
Beijing Gao Da Yang Guang Communication Technology Ltd., which has been funded
by deposits delivered by China Wi-Max and has eight full-time employees. Any
portion of the deposited funds that have been used for expense purposes have
been recorded as such in China Wi-Max financial statements. China Wi-Max has
filed documents to purchase 100% of the outstanding shares of Beijing Yuan Shan
Shi Dai Technology CO, Ltd. and is awaiting government approval of the purchase,
which is expected in about four to eight weeks. The establishment of Beijing
Yuan Shan Da Chuan Business Development Ltd. as a wholly owned foreign entity is
in process and is expected to be completed in four to six weeks. China Wi-Max
has deferred the acquisition of 50% of the outstanding shares of Beijing Gao Da
Yang Guang Communication Technology Ltd., pending approval of Beijing Gao Da
Yang Guang Communication Technology Ltd.'s Beijing ISP license application.
After establishment or acquisition, each company will possess the following
attributes: (COMMENT #4)
Beijing Yuan Shan Shi Dai Technology CO, Ltd. is to be 100% owned by China
Wi-Max and will hold fiber optic cable assets and other such assets as are
needed in order to establish and operate the networks to be deployed. Beijing
Yuan Shan Shi Dai Technology CO, Ltd. currently holds the fiber optic cable
deeds for Beijing and Hangzhou and has issued a Declaration of Trust to China
Wi-Max as Beneficiary, until such time as the acquisition of 100% of Beijing
Yuan Shan Shi Dai Technology CO, Ltd.'s shares is approved by the Beijing
governmental authority (see Exhibit 9.4). (COMMENT #5) Beijing Yuan Shan Shi Dai
Technology CO, Ltd. will enter into a contractual arrangement whereby Beijing
Gao Da Yang Guang Communication Technology Ltd., and Beijing Yuan Shan Da Chuan
Business Development Ltd. will have the right to use these assets to provide
value-added data services. Beijing Yuan Shan Shi Dai Technology CO, Ltd.'s Board
of Directors and management will be appointed by China Wi-Max.
4
Beijing Gao Da Yang Guang Communication Technology Ltd. is to be 50% owned by
China Wi-Max will hold ISP license(s) and all wireless spectrum licenses.
Beijing Gao Da Yang Guang Communication Technology Ltd., currently holds the
spectrum licenses for Beijing, Hangzhou and Shanghai. Beijing Gao Da Yang Guang
Communication Technology Ltd., has issued a Declaration of Trust to China Wi-Max
as Beneficiary, until such time as the acquisition of 50% of Beijing Gao Da Yang
Guang Communication Technology Ltd.'s shares is approved by the Beijing
governmental authority (see Exhibit 9.4) Beijing Gao Da Yang Guang Communication
Technology Ltd., will have the right to contractually use the assets held by
Beijing Yuan Shan Shi Dai Technology CO, Ltd. to deliver value-added services to
customers. The acquisition of Beijing Gao Da Yang Guang Communication Technology
Ltd. will begin after Beijing Gao Da Yang Guang Communication Technology Ltd.
has received an ISP license for Beijing. After acquisition of 50% of the shares
of Beijing Gao Da Yang Guang Communication Technology Ltd., and based on
discussions with the current owner of Beijing Gao Da Yang Guang Communication
Technology Ltd., China Wi-Max expects to control a majority of the Board of
Director seats of Beijing Gao Da Yang Guang Communication Technology Ltd.,
post-acquisition.
Beijing Yuan Shan Da Chuan Business Development Ltd., to be 100% owned by China
Wi-Max as a wholly owned foreign entity, will be the primary interface with end
customers through a "Professionally Managed Outsourcing Service Provider
Contract" to be executed between it and Beijing Gao Da Yang Guang Communication
Technology Ltd., and Beijing Yuan Shan Shi Dai Technology CO, Ltd. Beijing Yuan
Shan Da Chuan Business Development Ltd.'s Board of Directors and management will
be appointed by China Wi-Max.
After acquisition of 100% of the shares of Beijing Yuan Shan Shi Dai Technology
CO, Ltd., and establishment of Beijing Yuan Shan Da Chuan Business Development
Ltd. as a 100% owned foreign entity, the three companies are expected to enter
into a "Professionally Managed Outsourcing Service Provider Contract," whereby
Beijing Yuan Shan Da Chuan Business Development Ltd. will operate all aspects of
the networks and business on behalf of Beijing Gao Da Yang Guang Communication
Technology Ltd. and Beijing Yuan Shan Shi Dai Technology CO, Ltd. This will
include, but not be limited to: sales, marketing, customer service, customer
billing, collection, network management, equipment specification, other
engineering services, etc. All customer payments will remain with Beijing Yuan
Shan Da Chuan Business Development Ltd. The "Professionally Managed Outsourcing
Service Provider Contract" will determine the amount to be paid from Beijing
Yuan Shan Da Chuan Business Development Ltd. to Beijing Gao Da Yang Guang
Communication Technology Ltd.,and the associated terms of such payments. All end
customers will be customers of Beijing Gao Da Yang Guang Communication
Technology Ltd., serviced by Beijing Yuan Shan Da Chuan Business Development
Ltd. Until such time as Beijing Gao Da Yang Guang Communication Technology Ltd.
receives an ISP license, a contract has been entered into to use the ISP license
of another Beijing Company. This Cooperation Agreement is with Beijing Gao Da
Yang Guang Communication Technology Ltd. and will be assigned to Beijing Yuan
Shan Da Chuan Business Development Ltd., as soon as the establishment of the
Beijing Yuan Shan Da Chuan Business Development Ltd. is complete.
After the establishment of Beijing Yuan Shan Da Chuan Business Development Ltd.
and acquisitions of 50% of Beijing Gao Da Yang Guang Communication Technology
Ltd., and 100% of Beijing Yuan Shan Shi Dai Technology CO, Ltd., China Wi-Max
intends to account for investments in the individual companies primarily as
notes/loans receivable. In the early years, it is expected that money to build
the business in China will flow from China Wi-Max to various subsidiary
companies as necessary to meet requirements of the China Wi-Max business plan.
5
Currently, there are no legal impediments that would hinder future repayment of
these loans to the parent company. Additionally, there are no existing
impediments to paying the equivalent of dividends to the parent company, China
Wi-Max, after the appropriate in-country (China) taxes are paid. The current
business plan does not contemplate any funds returned from China to China Wi-Max
for successful execution. (COMMENT #19)
The preceding description of corporate structure will provide China Wi-Max with
the basis to operate a value-added telecommunications service business in China
that meets legal and regulatory requirements, while at the same time giving the
corporate parent significant direct and indirect control over subsidiary
companies. In the described structure, China Wi-Max`s lowest equity ownership is
50%. In the case of Beijing Gao Da Yang Guang Communication Technology Ltd.
China Wi-Max expects to have disproportionate Board representation, though
control risks will remain that would not exist if China Wi-Max could own more
than 50% of Beijing Gao Da Yang Guang Communication Technology Ltd. some of this
risk can be mitigated through a "Professionally Managed Outsourcing Service
Provider Contract." The contract's renewal provisions, in addition to other
provisions would be included to compensate for disproportionate Board
representation and supermajority voting requirements. (COMMENT #4)
LICENSES AND AGREEMENTS
The Cooperation Agreement by and between Beijing Gao Da Yang Guang Communication
Technology, Ltd. (a subsidiary of China Wi-Max) and Beijing Long Ten Jia Xun Net
Technology, Ltd. provides for both parties to use each other's existing fiber
network and related infrastructures to develop their services in Beijing. The
Cooperation Agreement further provides for Beijing Long Ten Jia Xun Net
Technology, Ltd. to contract with Beijing Yuan Shan Da Chuan Commerce Developing
Co., Ltd. (a subsidiary of China Wi-Max) for the execution of the collection of
fees and issuing invoices to customers. The Cooperation Agreement provides for
Beijing Gao Da Yang Guang Communication Technology to pay on a quarterly basis
3% of the revenue received from the services provided by all parties.
China Wi-Max has deposits on three city 5.8GHz frequency licenses which were
granted from MII office of Beijing, Hangzhou and Shanghai. The coverage is the
administrative area of each city government. The frequency range of the licenses
is from 5725MHz-5850MHz.
According to the National Radio Stations Frequency Occupation Charging Standard:
o For microwave station frequencies below 10 GHz, the charge is 40 yuan
per station per MHz (launch) per year. For example: If the base
station working frequency is 4MHzx40RMB/Year or 8MHzx40RMB/Year. In
Beijing: x1(yr), Shanghai: x3(yr); Hangzhou:x2(yr)
THREE LICENSE USAGE PERIOD:
Beijing: January 7, 2008 "C Dec.31, 2008
Hangzhou: November 1, 2007 "C Oct.30, 2009
Shanghai: June 1, 2008 "C May 31, 2011
6
ACCORDING TO NATIONAL RADIO FREQUENCY USAGE REGULATION:
During the license-effective period, China Wi-Max can set up base stations and
has to register them in local MII offices. One month before the expiration date
of each license, China Wi-Max will need to apply for annual inspection and
submit the renewal fee for each station. It is not necessary to reapply for
licenses and no limitation exists on the number of base stations set up.
Whereas public Wi-Fi (Wi-Fi existing outside of a structure) requires
registration and associated fees, Wi-Fi existing within a structure is exempted
from said requirements.
SERVICES AND SERVICE DELIVERY
China Wi-Max intends to deploy optical fiber and wireless networks via its
planned 50% and 100% owned subsidiaries. This deployment is to be staged
initially in Beijing, where the Company intends to validate network performance.
Service to customers is to be provided through direct connections to the optical
fiber or transmissions over licensed radio spectrum. Services to be offered to
customers include high speed broadband Internet access, Voice-over Internet
Protocol, or VoIP, bandwidth on demand, bandwidth redundancy, virtual private
networks, or VPNs, disaster recovery, bundled data, and video services. Reviews
of, and testing with, multiple equipment vendors to determine performance,
availability, price, and ability to scale within each market and across multiple
markets is currently in process. The launch of the first network in Beijing is
currently planned for the second half of 2008. China Wi-Max intends to use
proceeds it is currently attempting to raise through a $1.0 million convertible
bridge loan for setting up the initial Beijing network. The Board has authorized
for up to a 50% oversubscription, and the $1.0 million convertible bridge loan
is expected to be completed or otherwise closed in the third quarter of 2008.
The initial cost of equipment and installation of the base network is expected
to be approximately $250,000. China Wi-Max is in the process of seeking an
Investment Advisor to assist it in raising an additional $5 million dollars
planned for the fourth quarter of 2008 and another $5 million dollars through
equity, debt or a combination thereof during the first half of 2009 Failure of
the Company to secure the convertible bridge loan and then an additional $5
million dollars will negatively affect the Company's ability to meet its
business plan and could force slowdown or discontinuance of operations (refer to
Appendix B - Exhibit 99.2 - for Network Overview).
China Wi-Max plans to tailor and deliver its service offerings to satisfy
customer needs based principally upon size through its subsidiary companies. For
small businesses, the China-Wi-Max plans to offer connection packages ranging
from 1,500,000 bits per second (the speed of a traditional T-1 telephone line)
to 5,000,000 bits per second. For medium sized businesses, packages ranging from
5,000,000 bits per second to 10,000,000 bits per second are planned. Large
businesses will be offered connection packages ranging from 10,000,000 bits per
second to 1,000,000,000 bits per second. It will be possible for client
companies to increase their bandwidth at any time in a variety of bits per
second increments to meet the demands of these respective businesses. Such
upgrades should oftentimes be possible without necessitating additional
installation or equipment charges. Furthermore, regardless of business size and
connection package, China Wi-Max will seek to guarantee uptime, latency, and
throughput that meets or exceeds local industry standards.
To facilitate speed to market and to capitalize on existing distribution
channels, China Wi-Max is assessing the potential to acquire incumbent
value-added resellers in each market. This could be a key enabler to rapid
market penetration while also providing an immediate positive impact on revenue
and earnings. As of this time, no targets have been identified.
7
In addition, China Wi-Max is considering the purchase of a high-bandwidth
optical fiber backbone that would provide internally-owned interconnection
between metropolitan markets where it is currently acquiring fiber and licensed
spectrum. These assets, if acquired, will be held by Beijing Yuan Shan Shi Dai
Technology CO, Ltd., which is to become a wholly-owned subsidiary.
INITIAL TARGET MARKETS
China Wi-Max's initial ten target markets represent approximately eight percent
of the population of China. The initial municipal market areas are:
APPROXIMATE MARKET POPULATION
METROPOLITAN AREA POPULATION
----------------- -------------------
Beijing 16,000,000
Hangzhou 6,600,000
Shanghai 17,100,000
Chongqing 12,000,000
Shenzhen 9,000,000
Dalian 5,800,000
Qingdao 7,000,000
Guangzhou 13,500,000
Xi'an 4,000,000
Tianjin 7,200,000
-------------------
TOTALS 98,200,000
===================
CHINA WI-MAX NETWORKS
China Wi-Max plans to establish fiber optic and wireless networks in each of the
markets it will serve by purchasing existing fiber and by installing antennae on
towers, building rooftops or other structures to send and receive wireless
signals that will connect to the Company's fiber network. China Wi-Max will
connect the customer to its fiber optic and wireless networks, which are
designed to have no single point of failure. The optical fiber will be fed by
two or more lead Internet providers located at various points within its service
cities. In new markets, China Wi-Max generally plans to activate new customers
in two to ten business days of receiving an order. China Wi-Max's coverage area
can be accessed by customers on its fiber network and within approximately ten
miles of the Company's installed base stations, depending upon location and line
of sight access.
8
MARKET COVERAGE
China Wi-Max intends to grow its business by deploying the Company's service
more broadly in each metro market it enters and plans to rapidly increase its
subscriber base. China Wi-Max intends to deploy the Company's fiber optic and
wireless broadband network broadly in terms of geography and of
commercial/business subscribers. China Wi-Max currently intends to increase the
number of geographic markets it will serve to ten, taking advantage of a staged
roll-out model to deploy the Company's services throughout these major Chinese
markets. China Wi-Max also plans to service a wide a range of commercial
subscribers, from small businesses to large enterprises.
The identification of which geographic markets China Wi-Max would enter was
determined by assessment of specific criteria spanning four broad categories:
- (i) evaluation of the Company's ability to deploy its services in a
given market, considering the Company's optical fiber and spectrum
position,
- (ii) the market, as assessed by evaluating the number of competitors,
existing price points, demographic characteristics, and distribution
channels,
- (iii) economic potential of the market, focusing on the size of the
market and capital requirements, and
- (iv) the distances between markets to encourage more cost-effective
operational strategies, such as combining offices and/or
sales/marketing efforts to streamline business operations in emerging
markets.
SALES AND MARKETING
China Wi-Max subsidiary companies, referred to on page 4, will hire sales people
to sell services directly to large subscribers in China, but the plan relies
primarily on indirect channels of distribution in the first stages of market
entry.
Indirect sales channels will include a variety of sales representatives, such as
direct agents, resellers, online operators, and building owners. In many cases,
the Company expects authorized representatives to assist in developing awareness
of and demand for its services by promoting the Company's services and brands as
part of its own advertising and direct marketing campaigns. Such representatives
will normally be compensated either on a one-time referral fee basis or through
the payment of a residual of between 5% and 20% of revenue referred by such
representatives, based on volume and other relevant factors.
To facilitate speed to market and to capitalize on existing distribution
channels, China Wi-Max is assessing the potential to acquire incumbent
value-added resellers in each market. This can be a key enabler to rapid market
penetration while also providing an immediate positive impact on revenue and
earnings. The Company expects to slowly increase its direct sales force to focus
on large enterprise accounts as it becomes better established in each new
market.
CUSTOMERS
None.
9
COMPETITION
The market for broadband services is highly competitive, and includes companies
that offer a variety of services using a number of distinctly different
technological platforms, such as cable networks, DSL, third-generation cellular,
satellite, wireless Internet service, and other emerging technologies. China
Wi-Max competes with these companies on the basis of the portability, ease of
use, speed, and respective price of services. Competitors to the Company's
optical fiber and wireless broadband services include:
Local telecom carriers offering non-cable internet services. These companies,
like China Netcom (a telecom carrier), are dominant broadband service providers
in most of China Wi-Max's target cities. In this sense, local telecom broadband
service providers represent China Wi-Max's major competitors for its broadband
services.
While telecom carriers hold "last mile access," like fixed phone lines to most
urban households, the Company believes that cable operators enjoy a greater
competitive advantage by owning last mile connections of a much larger
bandwidth. In urban areas targeted by China Wi-Max, a large number of households
have both fixed phone line and cable television access. Many of these homes
currently have phone line based internet access.
Cable operators in China have to purchase internet connections from telecom
carriers. Local telecom carriers which China Wi-Max competes with, however, do
not need to pay for internet connection bandwidth which increases their profit
margins in this sector over broadband service providers.
Local telecom carriers are actively marketing broadband services on national and
provincial, as well as local levels in China. China Wi-Max believes, however,
that the ability for cable operators to bundle broadband cable with digital
set-top box marketing efforts will help increase penetration of cable broadband
service. China Wi-Max believes that it could easily add Voice-over Internet
Protocol telephony service (known as "VOIP"), with limited added costs to the
Company or the end user. While China Wi-Max does not have current plans to
provide VOIP service in the near future, the Company anticipates that, should it
ever wish to enter into this business, it would do so with a strategic partner
(and subsequent to PRC regulatory approval). China Wi-Max estimates that
expansion of their services to include this feature would take 9 to 12 months
should it be deemed worthwhile in the future.
INCUMBENT TELEPHONE COMPANIES
The Company faces competition from traditional wireline operators in terms of
price, performance, discounted rates for bundles of services, breadth of
service, reliability, network security, and ease of access and use. In
particular, China Wi-Max faces competition from traditional wireline companies
like China Telecom, China Tietong and China Netcom.
CABLE MODEM AND DSL SERVICES
China Wi-Max competes with companies that provide Internet connectivity through
cable modems or DSL. Principal competitors include cable companies, such as
China Cable Television Network and Shanghai Cable TV, although the broadband
competition from cable has not been nearly as robust as from DSL. There are many
cable companies, but most have a relatively small number of users. Incumbent
10
telephone companies, such as China Telecom, China Tietong and China Netcom have
been aggressively adding capacity and upgrading the speed of their DSL networks.
Both the cable and telephone companies deploy their services over wired networks
initially designed for voice and one-way data transmission that have
subsequently been upgraded to provide for additional services.
CELLULAR AND PCS SERVICES
Cellular carriers are seeking to expand their capacity to provide data and voice
services that are superior to China Wi-Max. These providers have substantially
broader geographic coverage than China Wi-Max currently has (and expects to have
in the foreseeable future). If one or more of these providers can deploy
technologies that compete effectively with China Wi-Max services, the mobility
and coverage offered by these carriers will provide even greater competition
than China Wi-Max currently faces. The Chinese government has not yet set a
timetable for distribution of third generation (3G) cellular licenses, which
will limit the data capacity that can be delivered via cellular technology.
Today's more advanced cellular technologies, such as 3G currently offer
broadband service with data packet transfer speeds of up to 2,000,000 bits per
second for fixed applications, and slower speeds for mobile applications. It is
difficult to determine when the Chinese government may ultimately distribute 3G
licenses, so China Wi-Max does not believe the cellular providers will be a
major short term threat to its business.
WIRELESS BROADBAND SERVICE PROVIDERS
China Wi-Max also faces competition from other wireless broadband service
providers that use licensed and unlicensed spectrum. In addition to these
commercial operators, many local governments, universities, and other
governmental or quasi-governmental entities are providing or subsidizing "Wi-Fi"
networks. There are numerous small urban wireless operations offering local
services that could compete with China Wi-Max in some of its present or planned
geographic markets.
SATELLITE
Satellite providers, such as China Telecom Distant Communication and China
Satcom, offer broadband data services that address a niche market, mainly less
densely populated areas that are unserved or underserved by competing service
providers. Although satellite offers service to a large geographic area, latency
caused by the time it takes for the signal to travel to and from the satellite
may challenge satellite providers' ability to provide some services, such as
VoIP and online gaming, which reduces the size of the addressable market.
OTHER
China Wi-Max believes other emerging technologies may also seek to enter the
broadband services market. For example, China Wi-Max is aware that several power
generation and distribution companies are seeking to develop or have already
offered commercial broadband Internet services over existing electric power
lines.
COMPETITIVE STRENGTHS
Despite facing substantial existing and prospective competition, China Wi-Max
believes that it will possess several competitive advantages that will allow it
to attract new customers and retain these customers over time. These advantages
include:
11
RELIABILITY
Compared to cellular, cable and DSL networks that generally rely on an
infrastructure originally designed for non-broadband purposes, the China Wi-Max
network was designed specifically to support optical fiber and wireless
broadband services. When the networks are deployed, China Wi-Max intends to
connect the customer to its optical network, which will connect at several
Carrier interconnection points along its network, thereby eliminating single
points of failure. China Wi-Max believes that it will be one of the few
broadband providers to offer Separate Egress for true redundancy. The Company
intends that its network to deliver at least 99% reliability rates.
VALUE
Since China Wi-Max plans to own its entire fiber and wireless network,
it believes it will be more price competitive than many competitors. China
Wi-Max does not plan to pass along a local loop charge to its customers, since
it will not have to buy a local loop from the telephone company.
ECONOMIC MODEL
After initially bringing the fiber optic network into operation, China
Wi-Max plans to utilize what it considers a "Success Based Capital Approach,"
which will enable it to acquire capital assets to install as it adds to its
customer basis. There is no need for China Wi-Max to pre-build an extensive
network before it provides service to a broad area. China Wi-Max will own its
entire network, dispensing with the costs involved in using lines owned by
telephone or cable companies and its system is expandable and covers an area up
to several miles away from each wireless base station that will be installed
along China Wi-Max fiber network. This should enable China Wi-Max to realize
incremental savings in its build-out costs as China Wi-Max's subscriber base
grows.
PRINCIPAL CHINESE GOVERNMENT REGULATIONS (COMMENT #7)
China Wi-Max's operations in China will be carried out by subsidiary companies
as follows:
- Beijing Yuan Shan Da Chuan Business Development Ltd.,
- Beijing Gao Da Yang Guang Communication Technology Ltd., and
- Beijing Yuan Shan Shi Dai Technology CO, Ltd.
Beijing Yuan Shan Da Chuan Business Development Ltd. is being established as a
wholly owned foreign subsidiary and will be governed by laws including the LAW
OF THE PEOPLE'S REPUBLIC OF CHINA ON FOREIGN CAPITAL ENTERPRISES and related
regulations.
Beijing Gao Da Yang Guang Communication Technology Ltd. and Beijing Yuan Shan
Shi Dai Technology CO, Ltd. will be acquired through share purchases, and will
be governed by the CHINESE ADMINISTRATIVE REGULATION ON FOREIGN INVESTMENT IN
TELECOMMUNICATION ENTERPRISE, REGULATIONS FOR MERGER WITH AND ACQUISITION OF
DOMESTIC ENTERPRISES BY FOREIGN INVESTOR, and LAW OF THE PEOPLE'S REPUBLIC OF
CHINA ON CHINESE-FOREIGN EQUITY JOINT VENTURES and other related laws and
regulations.
12
The Regulations set forth the requirements for establishing wholly owned foreign
entities, acquiring Chinese companies, operating as a value-added
telecommunications enterprise and identify the limits of ownership, types of
asset that may be owned based on ownership interest, licensing requirements,
capital requirements, etc. As an example, to provide regional value-added
telecommunications services, a company must have a minimum registered capital of
one million RMB. China Wi-Max retained legal council in China to assist with the
development of its operating plan and corporate structure. China Wi-Max has been
assured by legal council that the current corporate structure, operating plan,
and associated licensing will enable China Wi-Max's subsidiary companies to
deliver value-added telecommunications services in China, and more specifically
Beijing (initially).
INTELLECTUAL PROPERTY AND OTHER AGREEMENTS
China Wi-Max is not a party to any royalty agreements, labor contracts, or
franchise agreements and, other than the Company's right to own and operate
providers of value-added telecommunication services, the Company does not
currently own any trademarks. China Wi-Max intends to apply for trademarks for
the regions in which the Company operates, including, but not limited to, the
business logo and service description tagline.
DEVELOPMENT ACTIVITIES
In China Wi-Max's acquisitions of interests in Beijing Gao Da Yang Guang
Communication Technology Ltd., and Beijing Yuan Shan Shi Dai Technology CO, Ltd.
it spent approximately $440,000 in 2007 and $420,000 in 2008 in the acquisition
of fiber optic cable and wireless license access. China Wi-Max has invested
$50,000 into the business of Beijing Gao Da Yang Guang Communication Technology
Ltd. and does not foresee expending material sums on research and development in
the near future.
INDUSTRY STRUCTURE AND GOVERNMENT REGULATION
There are various barriers to entry into the cable or internet service provider
business in China, and to expansion of China Wi-Max's value-added services.
These barriers stem from both industry barriers and government regulation. The
rates charged and services provided by China Wi-Max are subject to government
regulation and approval.
INDUSTRY BARRIER
The radio and television broadcasting industries are highly regulated in China.
Local broadcasters including national, provincial, and municipal radio and
television broadcasters are 100% state-owned assets. The State Administration of
Radio, File and Television (China) ("SARFT") regulates the radio and television
broadcasting industry. In China, the radio and television broadcasting
industries are designed to serve the needs of government programming first, with
profit relegated to a secondary consideration. The SARFT interest group controls
broadcasting assets and broadcasting contents in China.
MII (Ministry of Information Industry) regulates the telecom industry. As
China's telecom industry is subject to less regulation than the broadcasting
industry, MII has always been pushing the metaphorical envelope of content
control (as dictated by SARFT) by trying to launch more telecom value-added
services ranging in nature from IPTV to broadband TV, etc. While China's telecom
industry has substantial financial backing, SARFT, and its regulator, the
13
Propaganda Ministry under China's Communist Party Central Committee, never
relinquished ultimate regulatory control over content and broadcasting.
With respect to the Internet, the prime regulatory barrier for cable operators
seeking to migrate into multiple-system operators and offer telecom services is
the license barrier. Very few independent cable operators in China acquired full
and proper broadband connection licenses from MII. The licenses, while awarded
by MII, are given on fragmented regional market levels. With cable operators
holding the last mile to access end users, SARFT cable operators pose a
competitive threat to local telecom carriers. While Internet connection licenses
are deregulated in the local private sector, MII still tries to utilize the
license barrier to exclude threats from cable operators that fall under the
SARFT interest group.
China Wi-Max's business is highly regulated. China Wi-Max will be required to
obtain government approval from the Ministry of Commerce of the People's
Republic of China (commonly referred to as MOFCOM) in connection with its
business transactions, such as China Wi-Max's potential acquisition of control
over any telecom company. Additionally, foreign ownership of certain businesses
and assets in China is not permitted without specific governmental approval of
other agencies. For this reason, China Wi-Max will acquire only 50% of Beijing
Gao Da Yang Guang Communication Technology Ltd., with the remaining 50% owned by
the selling agency. Revenue sharing and voting control will be governed by
written agreements between the parties.
China Wi-Max does not have plans to provide additional value-added services
beyond Internet connectivity to China Wi-Max's network users and intends to
expand by increasing the number of regions in which China Wi-Max is licensed to
operate.
LACK OF ECONOMIES OF SCALE
Up until 2005, China had over 2,000 independent cable operators on different
levels. While SARFT pushed hard from the national level for consolidation of
cable networks into one singular national entity, current consolidation occurs
mostly on a provincial platform. Among the 30 provinces, consolidation practices
remain highly variable with respect to specific efforts and processes. Most
cable operators in China still lack the economies of scale to systematically
introduce value-added services that can significantly upgrade ARPU.
SARFT has taken various steps to implement a separation scheme to achieve
economies of scale in the value-added service and cable operation sector. First,
SARFT has been separating cable network assets from broadcasting assets and
currently allows state-owned-enterprises to hold up to 49% in the cable network
infrastructure assets. Second, SARFT is separating the value-added services
segment from the network infrastructure, which tends to increase private
investments.
LACK OF MANAGEMENT EXPERTISE
Current monthly cable sales in China are low, with small profit margins if any.
As a result, China Wi-Max believes that the cable operators in China lack the
management and marketing expertise to promote and launch more sophisticated
forms of value-added services like cable Internet broadband service.
14
LACK OF STRATEGIC INDUSTRY FOCUS
The radio and broadcasting industry in China is highly regulated and as a result
does not have the same financial resources as the deregulated telecom industry
in China. This lack of financial resources has resulted in priorities and goals
of the Chinese radio and broadcasting industry are different from those of the
Chinese telecom industry.
SARFT and its broadcasters are currently focusing on increasing subscription
revenues by converting average Chinese television viewers from "analog"
customers into "digital" (pay TV) customers. The financial resources and
strategic focus are being channeled towards the massive digitalization efforts
and on set-top boxes to be given away free of charge with digital television
service bundles in most regions. Due to the lack of financial resources, the
rollout of cable broadband services and other value-added services has been
moved lower on the SARFT priority list.
OTHER BARRIERS TO ENTRY
China Wi-Max believes it is in a favorable position to acquire the network
assets it seeks at attractive prices. This belief has been substantiated to an
extent by successful purchases of optical fiber and wireless licenses in Beijing
and Hangzhou, made on behalf of China Wi-Max. China Wi-Max is confident of its
advantage over some competitors, having spent the past several years cultivating
relationships deemed to be essential to the Company's business prospects in
China. In China specifically, bureaucratic obstacles can represent significant
inhibitors to a fledging corporation. Other more generic concerns include the
acquisition of materials and the establishment of a technological platform from
which to operate. Generally, these opportunities and entities from which to
purchase installed fiber in China are limited. Just as in the United States,
wire-line companies do not normally sell their fiber assets to potential
competitors, minimizing non-government purchasing opportunities. Alternatively,
there exist, clear opportunities to build fiber networks, however, such an
undertaking would require several years of procuring approvals, rights of way,
and construction, which would be prohibitively expensive in metropolitan areas
that are already densely developed. China Wi-Max's careful cultivation of
relationships within China aids in effectively navigating these concerns.
Finally, China Wi-Max is acquiring significantly broad blocks of spectrum,
leaving smaller blocks available for potential competitors. China Wi-Max
believes if it effectively implements and utilizes this spectrum, it will be
able to retain a large block of bandwidth for a significant period of time.
EXIT STRATEGY
China Wi-Max intends to be a publicly traded entity during 2008. This may
provide a degree of investor liquidity, as well as an external indication of
value. In addition, when China Wi-Max aggregates its entire network, it believes
it will be a very attractive acquisition target for any large foreign Telco that
wishes to enter the Chinese market. Another potential acquirer would be a
cellular company, where the China Wi-Max network could provide an immediate
backhaul covering a significant portion of a premium customer demographic. Other
possibilities include content providers such as cable television operators,
where a wired backbone network is not readily available and expensive to build.
China Wi-Max believes the high speed and high capacity fiber core and last-mile
high-capacity wireless connections delivered by China Wi-Max, utilizing
technologically advanced optical and wireless standards, will be in high demand
in the future.
15
PLAN OF OPERATIONS
FUNDING REQUIREMENTS
China Wi-Max is raising capital to acquire the fiber and licensed wireless
spectrum in the initial ten target municipalities and begin initial network
installations. This will initially require an additional $5 million dollars in
the fourth quarter of 2008, first quarter of 2009. After the previously
referenced $5 million dollars is raised and operational goals are met, China
Wi-Max will require an additional $10 to $20 million dollars to begin purchasing
fiber and wireless assets in its targeted second set of markets. Purchasing of
the second set of markets will occur concurrently with the initial stages of
deploying networks in the first ten markets. China Wi-Max expects to use between
50 and 60% of all funds raised for asset purchases to expand the basic fiber and
licensed wireless spectrum footprint and to build the networks for customer
access, with the balance used for marketing and operations.
The following table reflects the anticipated expenses and capital expenditures
for the period July 1, 2008 to June 30, 2009 required to acquire optical fiber
and wireless licenses in 10 cities and the associated capital costs to activate
and add customers to four of these cites during this period:
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
16
EXPENDITURE BUDGET THIRD QUARTER 2008 THROUGH SECOND QUARTER 2009
3RD TWELVE MONTHS
QUARTER 1ST QUARTER 2ND QUARTER JULY 2008 TO
2008 4TH QUARTER 2008 2009 2009 JUNE 2009
------------ ----------------- --------------- --------------- ----------------
EXPENSE
Accounting & Professional ($15,000) ($9,000) ($23,000) ($30,000) ($77,000)
Bank Service Fee's ($300) ($300) ($300) ($300) ($1,200)
Consulting Fee's ($60,000) ($60,000) ($60,000) ($60,000) ($240,000)
Consulting - Investment Banking ($500,000) ($500,000)
Depreciation ($6,717) ($18,517) ($36,067) ($59,417) ($120,718)
Dues and Subscriptions ($900) ($900) ($900) ($900) ($3,600)
Insurance - D & O ($5,100) ($5,100) ($5,100) ($5,100) ($20,400)
Interest & Finance Charges ($55,500) ($55,500) ($55,500) ($55,500) ($222,000)
Legal Fee's ($9,000) ($6,000) ($6,000) ($6,000) ($27,000)
Licensing & Permits ($450) ($450) ($450) ($450) ($1,800)
Misc. Expenses ($3,000) ($3,000) ($3,000) ($3,000) ($12,000)
Office Rent - US ($3,600) ($3,600) ($3,600) ($3,600) ($14,400)
Office Rent China ($9,000) ($9,000) ($9,000) ($9,000) ($36,000)
Office Supplies ($1,200) ($1,200) ($1,200) ($1,200) ($4,800)
Postage/Shipping & Handling ($750) ($750) ($750) ($750) ($3,000)
Telephone & Communications ($1,200) ($1,200) ($1,200) ($1,200) ($4,800)
TRAVEL & ENTERTAINMENT EXPENSES
Airfare Expenses ($14,000) ($18,000) ($18,000) ($18,000) ($68,000)
Lodging ($13,000) ($15,000) ($15,000) ($15,000) ($58,000)
Meal & Entertainment with
Guest ($5,500) ($7,500) ($7,500) ($7,500) ($28,000)
TRAVEL & ENTERTAINMENT
EXPENSES - Other ($1,500) ($1,500) ($1,500) ($1,500) ($6,000)
Wages, benefits and taxes -
China ($24,700) ($59,200) ($92,700) ($122,700) ($299,300)
Wages, benefits and taxes - US ($239,120) ($290,360) ($344,040) ($344,040) ($1,217,560)
------------ ----------------- --------------- --------------- ----------------
TOTAL EXPENSE ($469,537) ($1,066,077) ($684,807) ($745,157) ($2,965,578)
------------- ============ ================= =============== =============== ================
CITY BUILD - CAPITAL EXPENDITURES BEIJING HANGZHOU SHANGHAI TIANJIN
- ---------------------------------------------- ------------ ----------------- --------------- ---------------
Capital expenditures Fiber Ring Connections-
China 5 year life $200,000 $200,000 $200,000 $200,000
Capital expenditures Customer Premise Equip-
China 5 year life $3,000 $66,000 $192,000 $297,000
------------ ----------------- --------------- ---------------
MONTHLY $203,000 $266,000 $392,000 $497,000
============ ================= =============== ===============
CUMULATIVE $203,000 $469,000 $861,000 $1,358,000
CASH REQUIREMENTS FOR ABOVE OPERATION
Wireless Licenses $0 $140,000 $140,000 $0 $280,000
Fiber Purchases $0 $900,000 $600,000 $0 $1,500,000
Capital for operating costs, no interconnect $469,537 $1,066,077 $684,807 $745,157 $2,965,578
Equipment purchases $203,000 $266,000 $392,000 $497,000 $1,358,000
------------ ----------------- --------------- --------------- ----------------
Total Quarterly Cash requirements $672,537 $2,372,077 $1,816,807 $1,242,157 $6,103,578
============ ================= =============== =============== ================
Total Cash requirements - Cumulative $672,537 $3,044,614 $4,861,421 $6,103,578
CAPITAL REQUIRED TO BUY AND RUN 4 CITIES WITH NO REVENUE, PLUS BUY 6 ADDITIONAL CITIES
- --------------------------------------------------------------------------------------
Total capital, no revenue for 4 cities $6,103,578
Fiber and wireless licenses for 6 additional cities 2,900,000
----------------
TOTAL CAPITAL REQUIRED $9,003,578
================
17
MATERIAL CONTRACTS
On June 18, 2008, a Shares Transfer Agreement (Exhibit 10.1), by and between
Zhouwei and shareholders of Beijing Yuan Shan Shidai Technology Development,
LTD. ("Seller") and China Wi-Max was executed. The Shares Transfer Agreement has
the following terms:
1. provides a $55,000 transfer price;
2. requires approval by authorities;
3. apparently only assets are optical fiber deeds and a business license;
4. payment was made; and
5. approval by Chinese authorities is pending.
ITEM 1A. RISK FACTORS (COMMENT #10)
FORWARD LOOKING STATEMENTS
This registration statement includes forward-looking statements, including,
without limitation, statements relating to China Wi-Max's plans, strategies,
objectives, expectations, intentions and adequacy of resources. These
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause China Wi-Max's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. These
factors include, among others, the following: ability of China Wi-Max to
implement its business strategy; ability to obtain additional financing; China
Wi-Max's limited operating history; unknown liabilities associated with future
acquisitions; ability to manage growth; significant competition; ability to
attract and retain talented employees; and future government regulations; and
other factors described in this registration statement or in other of China
Wi-Max filings with the Securities and Exchange Commission. China Wi-Max is
under no obligation, to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
RISK FACTORS
GENERAL BUSINESS RISK FACTORS
CHINA WI-MAX IS A DEVELOPMENT STAGE COMPANY AND UNPROVEN AND THEREFORE SHOULD BE
CONSIDERED SPECULATIVE AND HIGHLY RISKY TO INVESTORS.
China Wi-Max has only very recently embarked on the business plan described
herein. Potential investors should be aware of the risk and difficulties
encountered by a new enterprise in the wired and wireless communications
business in China, especially in view of the intense competition from existing
businesses in the industry.
CHINA WI-MAX HAS A LACK OF REVENUE HISTORY AND INVESTORS CANNOT VIEW CHINA
WI-MAX PAST PERFORMANCE SINCE IT IS A START-UP COMPANY.
China Wi-Max Communications, Inc. was formed on July 5, 2006 for the purpose of
engaging in any lawful business and has adopted a plan to take advantage of the
expanding broadband communications needs in China through fiber optic and
18
wireless delivery. China Wi-Max has had no revenues in the last five years.
There is no assurance that China Wi-Max's intended activities will be successful
or result in revenue or profit to the Company. China Wi-Max faces all risks that
are associated with any new business, such as under-capitalization, insufficient
cash flow and personnel, financial and resource limitations, as well as special
risks associated with its proposed operations. There is no assurance that it
will be successful in implementing its business plan described herein.
CHINA WI-MAX HAS NO OPERATING HISTORY OR REVENUE AND MINIMAL ASSETS WHICH MAY
IMPAIR ITS ABILITY TO RAISE CAPITAL, TO SUSTAIN OPERATIONS, WHICH COULD CAUSE
FAILURE OF THE COMPANY.
China Wi-Max is considered a "start-up" operation, and as such, it has no
operating history, nor any revenues or earnings from operations. China Wi-Max
has minimal assets and limited financial resources. China Wi-Max will continue
to sustain operating expenses without corresponding revenues, at least until it
acquires or develops operating companies in The Peoples Republic of China
("PRC"), which is not expected to occur until it receives sufficient proceeds
from additional Offerings to continue such acquisitions. This has resulted in
China Wi-Max incurring a net operating loss that will continue until China
Wi-Max has more fully implemented its business plan. There can be no assurance
that China Wi-Max's operations will become profitable in the near future, or at
all.
CHINA WI-MAX'S AUDITORS HAVE ISSUED A "GOING CONCERN" QUALIFICATION TO ITS
OPINION WHICH INDICATES THAT THE COMPANY DOES NOT HAVE ADEQUATE CASH RESOURCES
OR CASH FLOW BASED ON ITS FINANCIAL STATEMENTS TO INSURE ITS CONTINUATION IN
BUSINESS.
China Wi-Max's independent registered public accounting firm's report on the
Company's financial statements as of December 31, 2007 and December 31, 2006,
and for the periods then ended, includes an explanatory paragraph expressing
substantial doubt about China Wi-Max's ability to continue as a going concern.
As a result of this going concern modification in the Company's auditor's report
on China Wi'Max's financial statements, the Company may have a difficult time
obtaining significant additional financing. If China Wi-Max is unable to secure
significant additional financing, the Company may be obligated to seek
protection under the bankruptcy laws and China Wi-Max shareholders may lose
their investment.
CHINA WI-MAX CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY TO CHINA WI-MAX
INVESTORS.
There is no assurance that China Wi-Max will ever operate profitably. There is
no assurance that China Wi-Max will generate revenues or profits, or that any
market price of its common stock will ever develop or that a share price will be
increased thereby.
CHINA WI-MAX MAY HAVE A SHORTAGE OF WORKING CAPITAL IN THE FUTURE WHICH COULD
JEOPARDIZE ITS ABILITY TO CARRY OUT THE BUSINESS PLAN.
China Wi-Max's capital needs consist primarily of operating overhead and funds
for the purchase of fiber and spectrum in additional cities in China, herein
identified, and could exceed $5,000,000 in the next twelve months. Such funds
are not currently committed, and China Wi-Max has cash as of the date of this
Registration Statement of approximately $150,000.
China Wi-Max has no operating history and no revenue and it may be unlikely that
China Wi-Max will raise that additional working capital from any source.
19
CHINA WI-MAX WILL NEED ADDITIONAL FINANCING FOR WHICH IT HAS NO COMMITMENTS, AND
THIS MAY JEOPARDIZE EXECUTION OF THE BUSINESS PLAN. (COMMENT #12)
China Wi-Max has limited funds, and such funds may not be adequate to carryout
the business plan in the Chinese market. The Company's ultimate success depends
upon its ability to raise additional capital. China Wi-Max has not investigated
the availability, sources, or terms that might govern the acquisition of
additional capital and will not do so until it determines a need for additional
financing. If the Company needs additional capital, it has no assurance that
funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, China Wi-Max
operations will be limited to those that can be financed with the Company's
modest capital.
CHINA WI-MAX MAY IN THE FUTURE ISSUE MORE SHARES WHICH COULD CAUSE A LOSS OF
CONTROL BY THE COMPANY'S PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS.
China Wi-Max may issue further shares as consideration for the cash or assets or
services out of its authorized but unissued common stock that would, upon
issuance, represent a majority of the voting power and equity of the Company.
The result of such an issuance would be those new stockholders and management
would control the Company, and persons unknown could replace China Wi-Max
management at this time. Such an occurrence would result in a greatly reduced
percentage of ownership of the Company by China Wi-Max current shareholders,
which could present significant risks to investors.
CHINA WI-MAX IS NOT DIVERSIFIED AND IT WILL BE DEPENDENT ON ONLY ONE BUSINESS
WHICH INCREASES RISKS OF LOSS TO INVESTORS.
Because of the limited financial resources that the Company has, it is unlikely
that China Wi-Max will be able to diversify its operations. The Company's
probable inability to diversify its activities into more than one area will
subject the Company to economic fluctuations within the telecommunications
industry in China and therefore increase the risks associated with its
operations due to lack of diversification.
CHINA WI-MAX WILL DEPEND UPON FULL AND PART-TIME MANAGEMENT AND MINORITY
SHAREHOLDERS WILL HAVE NO DIRECT PARTICIPATION IN MANAGEMENT AND VERY LIMITED
ABILITY TO INFLUENCE.
As of September 25, 2008, China Wi-Max has five individuals who are serving as
its officers, directors and managers. Dr. Allan Rabinoff, Chairman, and George
E. Harris, President, are working full-time for the Company while the other
officers, managers and consultants typically work 10 to 30 hours per week, each
on a part-time basis. Two directors are also acting as Company officers. China
Wi-Max will be heavily dependent upon their skills, talents, and abilities, as
well as several consultants to the Company, to implement its business plan. The
inability of the officers, directors and consultants to devote their full-time
attention to the business may result in slower progress implementing the
Company's business plan. Once China Wi-Max receives the proceeds from the
offering, additional staff and other consultants may be employed on a full or
part-time basis as required. Investors will not be able to directly manage the
Company's business. As such, they should critically assess all of the
information concerning the Company's officers and directors. A portion of China
Wi-Max's officers and directors are not employed full-time by the Company, which
could be detrimental to the business.
20
Some China Wi-Max directors and officers are, or may become in their individual
capacities, officers, directors, controlling shareholders and/or partners of
other entities engaged in a variety of businesses. Thus, the Company's part-time
officers and directors may have potential conflicts including the amount of
their time and effort provided to China Wi-Max due to their time commitment to
other business entities. Some officers and directors of the Company's business
are engaged in business activities outside of the Company's business and the
amount of time they devote as officers and directors to China Wi-Max business
may be limited.
China Wi-Max does not know of any reason other than outside business interests
that would prevent the current part-time officers and directors from devoting
full-time to the Company, when the business may demand such full-time
participation.
CHINA WI-MAX OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS AS TO
CORPORATE OPPORTUNITIES WHICH THE COMPANY MAY NOT BE ABLE OR ALLOWED TO
PARTICIPATE IN WHICH IS A RISK TO INVESTORS BECAUSE THE OFFICERS AND DIRECTORS
MAY NOT DEVOTE THEIR EXCLUSIVE EFFORTS TO THE COMPANY.
Presently there is no requirement contained in the Company's Articles of
Incorporation, Bylaws, or minutes which requires officers and directors of the
Company's business to disclose to the Company business opportunities which come
to their attention. China Wi-Max officers and directors do, however, have a
fiduciary duty of loyalty to China Wi-Max to disclose to the Company any
business opportunities which come to their attention, in their capacity as an
officer and/or director or otherwise. Excluded from this duty would be
opportunities which the person learns about through his involvement as an
officer and director of another company. China Wi-Max has no intention of
merging with or acquiring business opportunities from any affiliate or officer
or director. (See "Conflicts of Interest" at page 48).
CHINA WI-MAX MAY ISSUE DEBT HAVING PRIORITY, WHICH, IF FORECLOSED, COULD CAUSE
LOSS OF SOME OR ALL OF THE COMPANY'S ASSETS OR BUSINESS. (COMMENT #13)
While management has no immediate plans to issue any securities that would have
a higher priority in terms of repayment than the Notes offered, these plans may
change in the future. In the event of China Wi-Max default on its obligations to
repay all sums due pursuant to the Notes, investors herein will have the same
rights as any of the Company's other unsecured creditors and the assets of the
Company at that time may be insufficient to repay all of its creditors in full.
CHINA WI-MAX'S PROPOSED OPERATIONS ARE DEPENDENT UPON IMPLEMENTATION OF ITS
BUSINESS PLAN IN CHINA, AND FAILURE TO SUCCESSFULLY EXECUTE THE PLAN COULD
JEOPARDIZE INVESTORS IN THE COMPANY.
A substantial portion of the future capital raising will be allocated for the
capital necessary to form partially or wholly owned foreign enterprises in China
and on proposed asset acquisitions for these companies in The Peoples Republic
of China. The success of China Wi-Max proposed plan of operation will depend, to
a great extent, on China Wi-Max ability to acquire interests in companies and
assets in China and may entail unforeseen circumstances that cannot be
specifically cited as of the date of this Registration Statement. Unless China
Wi-Max successfully consummates offerings of its common stock or other
financings to successfully commence and grow China Wi-Max business operations
described herein, investors may lose all or a substantial portion of their
investment herein.
21
CHINA WI-MAX MAY NOT BE ABLE TO MANAGE ITS GROWTH EFFECTIVELY, WHICH COULD
ADVERSELY AFFECT THE COMPANY'S OPERATIONS AND FINANCIAL PERFORMANCE.
The ability to manage and operate the Company's business as it executes its
development and growth strategy will require effective planning. Significant
rapid growth could strain China Wi-Max internal resources, and exacerbate other
problems that could adversely affect China Wi-Max financial performance. China
Wi-Max expects that its efforts to grow will place a significant strain on its
personnel, management systems, infrastructure and other resources in the
immediate future. The ability to manage future growth effectively will also
require the Company to successfully attract, train, motivate, retain, and manage
new employees, and continue to update and improve the Company's operational,
financial, and management controls and procedures. If China Wi-Max does not
manage its growth effectively, its operations could be adversely affected,
resulting in slower growth and a failure to achieve or sustain profitability.
CHINA WI-MAX MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY NOT BE AVAILABLE ON
REASONABLE TERMS AND AS NEEDED.
To supplement the business experience of its officers and directors, the Company
may be required to employ accountants, technical experts, appraisers, attorneys,
engineers, or other consultants or advisors. Management, without any input from
stockholders, will make the selection of any such advisors. Furthermore, China
Wi-Max anticipates that such persons will be engaged on an "as needed" basis
without a continuing fiduciary or other obligation to the Company. In the event
China Wi-Max considers it necessary to hire outside advisors, it may elect to
hire persons who are affiliates, if they are able to provide the required
services.
CHINA WI-MAX MAY NOT VOLUNTARILY IMPLEMENT VARIOUS CORPORATE GOVERNANCE
MEASURES, IN THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE REDUCED PROTECTIONS
AGAINST INSIDER DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND OTHER MATTERS.
At this time, China Wi-Max is not subject to any law, rule or regulation
requiring that it adopt any of the corporate governance measures that are
required by the rules of national securities exchanges or NASDAQ, such as
independent directors and audit committees. It is possible that, if the Company
were to adopt some or all of the corporate governance measures, stockholders
would benefit from somewhat greater assurances that internal corporate decisions
were being made by disinterested directors and that policies had been
implemented to define responsible conduct. Prospective investors should bear in
mind China Wi-Max's current lack of corporate governance measures in formulating
their investment decisions.
CHINA WI-MAX WILL BE MATERIALLY RELIANT ON REVENUES FROM OPERATIONS IN THE
PEOPLES REPUBLIC OF CHINA (PRC). THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH
DOING BUSINESS IN THE PRC THAT MAY CAUSE AN INVESTOR TO LOSE THE ENTIRE
INVESTMENT IN THE COMPANY.
If China Wi-Max is successful in implementing its business plan, of which there
is no assurance, the Company's growth and success will be tied to operations of
companies acquired by the Company in the PRC. Therefore, a downturn or
stagnation in the economic environment of the PRC could have a materially
adverse effect on the Company's financial condition that could result in a
significant loss of revenues and liquidity in future periods.
22
CHINA WI-MAX CANNOT ASSURE THAT THE CURRENT CHINESE POLICIES OF ECONOMIC REFORM
WILL CONTINUE, AND DUE TO THIS UNCERTAINTY, THERE ARE SIGNIFICANT ECONOMIC RISKS
ASSOCIATED WITH DOING BUSINESS IN CHINA.
Although the majority of productive assets in China are owned by the Chinese
government, in the past several years the government has implemented economic
reform measures that emphasize decentralization and encourage private and
foreign business ownership and operation. In keeping with these economic reform
policies, the PRC has been openly promoting business development in order to
bring more foreign businesses into the PRC. Because these economic reform
measures may be inconsistent or ineffectual, there are no assurances that:
o the Chinese government will continue its pursuit of economic reform
policies
o the economic policies, even if pursued, will be successful
o economic policies will not be significantly altered from time to time;
and
o business operations in China will not become subject to the risk of
nationalization
Even if the Chinese government continues its policies of economic reform, China
Wi-Max may be unable to take advantage of these opportunities in a fashion that
will provide financial benefit to the Company. China Wi-Max's inability to
sustain its proposed operations in China could result in a significant reduction
in the Company's revenues that would result in escalating losses and liquidity
concerns.
China's economy has experienced significant growth in the past decade, but such
growth has been uneven across geographic and economic sectors and has shown
recent slowing. There can be no assurance that relative growth rates will not
further decrease or that any economic slowdown will not have a negative effect
on the Company's proposed business. The Chinese economy is also experiencing
deflation which may continue in the future. China Wi-Max cannot assure that it
will be able to capitalize on these economic reforms, assuming the reforms
continue. Given that China Wi-Max will be materially reliant on its proposed
operations in the PRC, any failure on the Company's part to take advantage of
the growth in the Chinese economy will have a materially adverse effect on the
results of its operations and liquidity in future periods.
CHINA WI-MAX WILL BE SUBJECT TO RISKS ASSOCIATED WITH THE CONVERSION OF CHINESE
RMB INTO U.S. DOLLARS, OVER WHICH IT HAS NO CONTROL, AND THE CHINESE GOVERNMENTS
ARTIFICIAL CONTROL OF THE EXCHANGE RATE MAY CAUSE THE COMPANY LOSSES OF VALUE
WHEN GAUGED IN U.S. DOLLARS.
If China Wi-Max is successful in implementing its business plan, of which there
is no assurance, it will generate revenues and incur expenses and liabilities in
both Chinese Renminbi (RMB) and U.S. dollars. Since 1994, the official exchange
rate for the conversion of Chinese RMB to U.S. dollars has generally been stable
and the Chinese RMB has appreciated slightly against the U.S. dollar. In the
past year, the RMB has appreciated quite rapidly against the dollar. China
Wi-Max has not entered into agreements or purchased instruments to hedge its
exchange rate risks, although it may do so in the future. China Wi-Max's results
of operations and financial condition may be negatively affected by changes in
the value of Chinese RMB.
23
CHINA WI-MAX IS DEPENDENT ON ITS ABILITY TO RAISE ADDITIONAL CAPITAL TO COMPLETE
ITS BUSINESS STRATEGY AND WITHOUT CAPITAL, THE COMPANY MAY NOT BE ABLE TO CARRY
OUT CHINA WI-MAX'S BUSINESS PLAN SUCCESSFULLY.
China Wi-Max is dependent upon its ability to raise capital to complete China
Wi-Max's business plan, which involves, among other strategies, growth through
acquisition. The Company's ability to raise capital would be greatly hindered if
China Wi-Max is not able to remain current with its reporting obligations.
Remaining current will depend on the Company's ability to obtain timely
financial information from the Company's Chinese investments. If China Wi-Max
does not raise capital, or if China Wi-Max is unable to become listed or remain
listed on a United States trading exchange or quotation system, the Company's
business will be adversely affected.
NO ASSURANCE CAN BE MADE THAT CHINA WI-MAX WILL BE ABLE TO SUCCESSFULLY
IMPLEMENT ITS BUSINESS PLAN.
China Wi-Max's operations in China are its sole business operations, at this
time. China Wi-Max is in the process of launching its operations. Additionally,
comparable broadband-cable businesses of other agencies in China are relatively
new with little or no reliable statistics or chronological financial information
available. Under China Wi-Max's current letters of intent to enter into new
territories, China Wi-Max will be responsible for the initial installation and
roll-out to customers. China Wi-Max has limited experience or "know-how" with
respect to operating in the high-bandwith market in China and little information
can be obtained on the subject. It cannot be assumed, therefore, that China
Wi-Max will be able to manage its business effectively.
CHINA WI-MAX DOES NOT CURRENTLY OWN ANY CHINESE SUBSIDIARY SUFFICIENTLY TO
CONTROL IT AND IF THEY OR THEIR ULTIMATE SHAREHOLDERS OR CONTROL PERSONS VIOLATE
CHINA WI-MAX CONTRACTUAL ARRANGEMENTS WITH THEM, THE COMPANY'S BUSINESS COULD BE
DISRUPTED, CHINA WI-MAX'S REPUTATION MAY BE HARMED, AND CHINA WI-MAX WILL HAVE
ONLY LIMITED RIGHTS AND ABILITY TO ENFORCE THE COMPANY'S RIGHTS AGAINST THESE
PARTIES.
The Company's operations are currently dependent upon the Company's contractual
relationships with Beijing Gao Da Yang Guang Communication Technology Ltd., and
Beijing Yuan Shan Shi Dai Technology CO, Ltd. The terms of these agreements are
often statements of general intent and do not detail the rights and obligations
of the parties. Some of these contracts provide that the parties will enter into
further agreements on the details of the services to be provided. Others contain
price and payment terms that are subject to monthly adjustment. These provisions
may be subject to differing interpretations, particularly on the details of the
services to be provided and on price and payment terms. It may be difficult for
China Wi-Max to obtain remedies or damages from these companies or their
ultimate shareholders for breaching the Company's agreements. Because China
Wi-Max relies significantly on these companies for its business, the realization
of any of these risks may disrupt China Wi-Max's operations or cause degradation
in the quality and service provided by, or a temporary or permanent shutdown of,
the Company. China Wi-Max's initial Exclusive Cooperation Agreement that enables
the Company to operate it's value-added services, business, and the Exclusive
Service Agreement in which the parties will cooperate and provide each other
with technical services related to their businesses, is for a term of 20 years.
If China Wi-Max is unable to renew these agreements on favorable terms, or to
enter into similar agreements with other parties, the Company's business may not
expand and China Wi-Max operating expenses may increase.
24
CHINA WI-MAX FUTURE REVENUES DEPEND ON THE COMPANY'S ABILITY TO CONSISTENTLY BID
AND WIN NEW CONTRACTS AND RENEW EXISTING CONTRACTS AND, THEREFORE, ITS FAILURE
TO EFFECTIVELY OBTAIN FUTURE CONTRACTS COULD ADVERSELY AFFECT THE COMPANY'S
PROFITABILITY.
The Company's future revenues and overall results of operations require the
Company to successfully bid on new contracts and renew existing contracts.
Contract proposals and negotiations are complex and frequently involve a lengthy
bidding and selection process, which is affected by a number of factors, such as
market conditions, equipment availability, and required governmental approvals.
If negative market conditions arise, or if the required governmental approval is
not provided, China Wi-Max may not be able to pursue particular projects which
could adversely affect the Company's profitability.
THE SUCCESS OF CHINA WI-MAX'S BUSINESS IS DEPENDENT ON ITS ABILITY TO RETAIN THE
COMPANY'S EXISTING KEY EMPLOYEES AND TO ADD AND RETAIN SENIOR OFFICERS TO CHINA
WI-MAX'S MANAGEMENT.
China Wi-Max depends on the services of its existing key employees, in
particular Dr. Allan Rabinoff, Chairman, and George E. Harris, President. These
persons may also pursue other business opportunities. China Wi-Max's success
will largely depend on its ability to retain these key employees and to attract
and retain qualified senior and mid-level managers to its management team. China
Wi-Max also does not have a full-time internal Chief Financial Officer or
financial controller for the consolidated companies. China Wi-Max has recruited
executives and management in China to assist in its ability to manage the
business and to recruit and oversee employees. While China Wi-Max believes it
offers compensation packages that are consistent with market practice, China
Wi-Max cannot be certain that it will be able to hire and retain sufficient
personnel to support its broadband business. The loss of any of China Wi-Max's
key employees would significantly harm its business. China Wi-Max does not
maintain key person life insurance on any of its employees.
IF SHAREHOLDERS SOUGHT TO SUE CHINA WI-MAX'S OFFICERS OR DIRECTORS, IT MAY BE
DIFFICULT TO OBTAIN JURISDICTION OVER THE PARTIES AND ACCESS TO THE ASSETS
LOCATED IN THE PRC.
It may be difficult, if not impossible, to acquire jurisdiction over officers
and directors residing outside of the United States in the event that a lawsuit
is initiated against such officers and directors by shareholders in the United
States. It also is unclear if extradition treaties now in effect between the
United States and the PRC would permit effective enforcement of criminal
penalties of the federal securities laws. Furthermore, because a substantial
amount of China Wi-Max's assets are located in the PRC, it would be extremely
difficult to access those assets to satisfy an award entered against China
Wi-Max in a United States court. Moreover, China Wi-Max is not aware of any
treaties between the PRC and the United States providing for the reciprocal
recognition and enforcement of judgments of courts. As a result, it may not be
possible for investors in the U.S. to enforce their legal rights, to effect
service of process upon China Wi-Max's directors or officers, or to enforce
judgments of U.S. courts predicated upon civil liabilities and criminal
penalties of its directors and officers under Federal securities laws.
THE CHINESE GOVERNMENT COULD CHANGE ITS POLICIES TOWARD, OR EVEN NATIONALIZE,
PRIVATE ENTERPRISE, WHICH COULD REDUCE OR ELIMINATE THE INTERESTS HELD IN CHINA
WI-MAX.
Over the past several years, the Chinese government has pursued economic reform
policies, including the encouragement of private economic activities and
decentralization of economic regulation. The Chinese government may not continue
to pursue these policies or may significantly alter them to China Wi-Max's
detriment from time to time without notice. Changes in policies by the Chinese
25
government that result in a change of laws, regulations, their interpretation,
or the imposition of high levels of taxation, restrictions on currency
conversion or imports, and sources of supply could materially and adversely
affect China Wi-Max's business and operating results. The nationalization or
other expropriation of private enterprises by the Chinese government could
result in the total loss of China Wi-Max's investment in China.
RISK FACTORS RELATED TO DOING BUSINESS IN CHINA
THE CHINESE GOVERNMENT MAY NATIONALIZE CERTAIN BUSINESSES OR OTHERWISE ALTER ITS
POLICY WITH RESPECT TO FOREIGN INVESTMENT IN CHINA IN A WAY THAT WOULD PROHIBIT
OR GREATLY HINDER THE COMPANY'S ABILITY TO DO BUSINESS IN CHINA.
While the Chinese government currently advocates foreign investment into China,
socio-political changes, war or economic changes and shifts could result in a
change in China's policy with respect to investment from non-Chinese businesses.
The government agencies, for example, could prohibit ownership of businesses by
foreigners or revoke licenses granted that China Wi-Max is dependant on, or
otherwise alter the Company's revenue sharing model. While China Wi-Max does not
believe that the foregoing is likely in the near future, no assurance can be
made that such events, all of which would adversely affect the Company, will not
occur.
SINCE CHINA WI-MAX'S ASSETS AND OPERATING SUBSIDIARIES ARE LOCATED IN THE PRC,
ANY DIVIDENDS OR PROCEEDS FROM LIQUIDATION ARE SUBJECT TO THE APPROVAL OF THE
RELEVANT PRC GOVERNMENT AGENCIES. CHINA WI-MAX IS NOT LIKELY TO DECLARE
DIVIDENDS IN THE NEAR FUTURE.
China Wi-Max is dependent on dividends and other distributions from its
subsidiaries in order to recognize revenues. Because China Wi-Max's assets are
predominantly located inside the PRC, China Wi-Max will be subject to the law of
the PRC in determining dividends. Under the laws governing foreign invested
enterprises in the PRC, dividend distribution and liquidation are allowed but
subject to special procedures under the relevant laws and rules. Under current
Chinese tax regulations, dividends paid to China Wi-Max are not subject to
Chinese income tax, but tax authorities in China may require it to amend its
contractual arrangements with Beijing Gao Da Yang Guang Communication Technology
Ltd. and their respective shareholders or affiliates, and to enter into
different arrangements with other agencies in a manner that would materially and
adversely affect the ability of China Wi-Max's subsidiaries to pay dividends and
other distributions to China Wi-Max or that would prohibit China Wi-Max from
recording revenues or consolidating its financial statements in order to comply
with SEC reporting obligations.
In addition, Chinese legal restrictions permit payment of dividends only out of
net income as determined in accordance with Chinese accounting standards and
regulations. If China Wi-Max or its subsidiaries incur debt on its own behalf in
the future, the instruments governing the debt may restrict its ability to pay
dividends or make other distributions to China Wi-Max, which in turn would limit
China Wi-Max's ability to pay dividends on its common stock.
THE UNCERTAIN LEGAL ENVIRONMENT IN CHINA COULD LIMIT THE LEGAL PROTECTIONS
AVAILABLE TO CHINA WI-MAX.
The Chinese legal system is a civil law system based on written statutes. Unlike
common law systems, it is a system in which decided legal cases have little
value as precedent. In the late 1970s, the Chinese government began to
promulgate a comprehensive system of laws and regulations governing economic
26
matters. The overall effect of legislation enacted over the past 20 years has
significantly enhanced the protections afforded to foreign invested enterprises
in China. However, these laws, regulations, and legal requirements are
relatively recent and are evolving rapidly, and their interpretation and
enforcement involve uncertainties. These uncertainties could limit the legal
protections available to foreign investors such as China Wi-Max.
FLUCTUATION IN RENMINBI (RMB) EXCHANGE RATES COULD ADVERSELY AFFECT THE VALUE OF
CHINA WI-MAX'S STOCK AND ANY CASH DIVIDEND DECLARED FOR HOLDERS OF ITS COMMON
STOCK.
As China Wi-Max's operations are primarily in China, any significant revaluation
of the Chinese RMB may materially and adversely affect cash flows, revenues, and
financial condition. For example, to the extent that China Wi-Max needs to
convert United States dollars into Chinese RMB for operations, appreciation of
this currency against the United States dollar could have a materially adverse
effect on China Wi-Max's business, financial condition and results of
operations. Conversely, if China Wi-Max decides to convert Chinese RMB into
United States dollars for other business purposes and the United States dollar
appreciates against this currency, the United States dollar equivalent of the
Chinese RMB that China Wi-Max converts would be reduced.
China Wi-Max's ability to bid for and acquire businesses in new regions is
dependent on favorable exchange rates between the U.S. dollar and the Chinese
Renminbi. The value of the Renminbi may fluctuate according to a number of
factors. Since 1994, the exchange rate for RMB against the United States dollars
has remained relatively stable, generally in the region of RMB 8.00 to US $1.00.
However, in 2005, the Chinese government announced that would begin pegging the
exchange rate of the Chinese RMB against a number of currencies, rather than
just the U.S. dollar. Currently, exchange rates are approximately RMB 7.006 to
US $1.00 resulting in an increased price for Chinese products to U.S purchasers.
On July 21, 2005, as a result of the Renminbi rates being tied to a basket of
currencies, the Renminbi was revalued and appreciated against the U.S. dollar.
Additionally, global events and expenditures that deflate the value of the U.S.
dollar will result in more expensive purchase prices of China based entities.
There can be no assurance that such exchange rate will continue to remain stable
in the future. China Wi-Max's revenues will be primarily denominated in
Renminbi, and any fluctuation in the exchange rate of Renminbi may affect the
value of, and dividends, if any, payable on, China Wi-Max's shares in foreign
currency terms.
RESTRICTIONS ON CURRENCY EXCHANGE MAY LIMIT CHINA WI-MAX'S ABILITY TO RECEIVE
AND USE ITS REVENUES EFFECTIVELY.
Because almost all of China Wi-Max's future revenues may be in the form of
Renminbi, any future restrictions on currency exchanges may limit its ability to
use revenue generated in Renminbi to fund its business activities outside China
or to make dividend payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the Renminbi
for current account transactions, significant restrictions still remain. Current
account transactions include payments of dividends and trade and service-related
foreign exchange transactions.
In contrast, capital account transactions, which include foreign direct
investment and loans, must be approved by the State Administration for Foreign
Exchange, or SAFE. China Wi-Max cannot be certain that the Chinese regulatory
27
authorities will not impose more stringent restrictions on the convertibility of
the Renminbi, especially with respect to foreign exchange transactions.
RISKS RELATED TO THE TELECOMMUNICATIONS AND INTERNET INDUSTRIES
IN THE PEOPLE'S REPUBLIC OF CHINA (COMMENT #11)
INCREASED GOVERNMENT REGULATION OF THE TELECOMMUNICATIONS AND INTERNET
INDUSTRIES IN CHINA MAY RESULT IN THE CHINESE GOVERNMENT REQUIRING US TO OBTAIN
ADDITIONAL LICENSES OR OTHER GOVERNMENTAL APPROVALS TO CONDUCT THE COMPANY'S
BUSINESS WHICH, IF UNATTAINABLE, MAY RESTRICT CHINA WI-MAX'S OPERATIONS.
The telecommunications industry, including Internet content providers (ICP), is
highly regulated by the Chinese government with the main relevant government
authority being the Ministry of Information Industry (MII). Prior to China's
entry into the World Trade Organization (WTO), the Chinese government generally
prohibited foreign investors from operating, or taking equity ownership of,
telecommunications businesses. ICP services were--and still are--classified as
value-added telecommunications services and therefore fell within the scope of
this prohibition. This prohibition was partially lifted following China's entry
into the WTO allowing foreign investors to own interests in Chinese businesses.
In addition, foreign (and foreign invested) enterprises are currently not able
to apply for the required licenses for operating cable broadband services in
China.
China Wi-Max cannot be certain that it will be granted any of the appropriate
licenses, permits, or clearance that may be needed in the future. Moreover,
China Wi-Max cannot be certain that any local or national ICP or
telecommunications license requirements will not conflict with one another or
that any given license will be deemed sufficient by the relevant governmental
authorities for the provision of the Company's services.
China Wi-Max relies exclusively on contractual arrangements with its Chinese
partners and its approvals to operate as wi-max providers. China Wi-Max believes
that its present operations are structured to comply with Chinese law. However,
many Chinese regulations are subject to extensive interpretive powers of
governmental agencies and commissions. China Wi-Max cannot be certain that the
Chinese government will not take action to prohibit or restrict its business
activities. China Wi-Max is uncertain as to whether the Chinese government will
reclassify China Wi-Max's business as a media or retail company due to its
acceptance of fees for Internet advertising, online games, and wireless
value-added and other services as sources of revenues, or as a result of its
current corporate structure. Such reclassification could subject China Wi-Max to
penalties or fines or significant restrictions on its business. Future changes
in Chinese government policies affecting the provision of information services,
including the provision of online services, Internet access, e-commerce services
and online advertising, may impose additional regulatory requirements on China
Wi-Max or its service providers or otherwise harm its business.
CHINA WI-MAX MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS AND
ESTABLISHED INDUSTRY COMPETITORS.
The Chinese market for telecom access and services is intensely competitive and
rapidly changing. Barriers to entry are relatively minimal, and current and new
competitors can launch new websites at a relatively low cost. Many companies
offer competitive products or services including land line services, wireless
services, cable/fiber optic companies. In addition, as a consequence of China
28
joining the World Trade Organization, the Chinese government has partially
lifted restrictions on foreign-invested enterprises so that foreign investors
may hold in the aggregate up to approximately 50% of the total equity ownership
in any value-added telecommunications services business in China.
Currently, China Wi-Max's competition comes from standard telephone and cable
providers. Any of China Wi-Max's present or future competitors may offer
products and services that provide significant performance, price, creativity,
or other advantages over those offered by it and, therefore, achieve greater
market acceptance than China Wi-Max's.
Because many of China Wi-Max's existing and/or potential competitors have longer
operating histories in the Internet market, greater name and brand recognition,
better connections with the Chinese government, larger customer bases and
databases, and significantly greater financial, technical, and marketing
resources than China Wi-Max has, it cannot ensure that it will be able to
compete successfully against its current or future competitors. Any increased
competition could make it difficult for China Wi-Max to attract and retain
users, reduce or eliminate its market share, lower profit margins, and reduce
revenue.
UNEXPECTED NETWORK INTERRUPTION CAUSED BY SYSTEM FAILURES MAY REDUCE USER BASE
AND HARM CHINA WI-MAX'S REPUTATION.
Reliable access and consistent speeds while connecting to Internet services and
the performance and reliability of China Wi-Max's technical infrastructure are
critical to its reputation and the ability of its Internet services to attract
and retain users and advertisers. Any system failure or performance inadequacy
that causes interruptions or delays in the availability of China Wi-Max's
services or increases the response time of its services could reduce user
satisfaction and traffic, which would reduce the Internet service appeal to
users of "high speed" Internet access. As the number of users and traffic
increase, China Wi-Max cannot ensure that it will be able to scale its systems
proportionately. In addition, any system failures and electrical outages could
materially and adversely impact its business.
IF CHINA WI-MAX PROVIDERS OF BANDWIDTH AND COLLOCATION CUSTODY SERVICE FOR
SWITCHES, ROUTERS, AND SERVERS FAIL TO PROVIDE THESE SERVICES, ITS BUSINESS
COULD BE MATERIALLY CURTAILED.
China Wi-Max relies on partners to provide it with bandwidth and collocation
custody service for switches, routers, and servers for Internet users. If
partners fail to provide such services or raise prices for its services, China
Wi-Max may not be able to find a reliable and cost-effective substitute provider
on a timely basis, if at all. If this happens, China Wi-Max's business could be
materially curtailed.
RISK FACTORS RELATED TO CHINA WI-MAX STOCK
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY
AND LIQUIDITY WHICH WILL IMPAIR INVESTORS ABILITY TO SELL CHINA WI-MAX'S
SECURITIES.
China Wi-Max is a "penny stock" company. None of its securities currently trade
in any market and, if ever available for trading, will be subject to a
Securities and Exchange Commission rule that imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other than
established customers or accredited investors. For purposes of the rule, the
phrase "accredited investors" means, in general terms, institutions with assets
29
in excess of $5,000,000, or individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that, when
combined with a spouse's income, exceeds $300,000). For transactions covered by
the rule, the broker-dealer must make a special suitability determination of the
purchaser and receive the purchaser's written agreement to the transaction prior
to the sale. Effectively, this discourages broker-dealers from executing trades
in penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop, because
it imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because China Wi-Max's securities constitute "penny
stocks" within the meaning of the rules, the rules would apply to us and to
China Wi-Max's securities. The rules will further affect the ability of owners
of shares to sell their securities in any market that might develop for them
because it imposes additional regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, leaving investors with losses.
China Wi-Max management is aware of the abuses that have occurred historically
in the penny stock market. Although China Wi-Max does not expect to be in a
position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to the its securities.
CHINA WI-MAX HAS NO PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE AND
INVESTORS MAY NOT EXPECT A DIVIDEND AS A RETURN OF OR ON ANY INVESTMENT IN THE
COMPANY.
China Wi-Max has not paid dividends on its common stock and does not anticipate
paying such dividends in the foreseeable future.
NO PUBLIC MARKET EXISTS FOR CHINA WI-MAX'S COMMON STOCK AT THIS TIME, AND THERE
IS NO ASSURANCE OF A FUTURE MARKET.
There is no public market for China Wi-Max's common stock, and no assurance can
be given that a market will develop or that a shareholder ever will be able to
liquidate his investment without considerable delay, if at all. If a market
should develop, the price may be highly volatile. Factors such as those
discussed in the "Risk Factors" section may have a significant impact upon the
market price of the shares offered hereby. If there is a low price of China
Wi-Max's securities, many brokerage firms may not be willing to effect
transactions in the securities. Even if a purchaser finds a broker willing to
effect a transaction in China Wi-Max's shares, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs may
exceed the selling price. Further, most lending institutions will not permit the
use of China Wi-Max's shares as collateral for any loans.
30
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON CHINA WI-MAX'S
STOCK PRICE WHICH MAY CAUSE INVESTORS LOSSES.
All of the outstanding shares of common stock held by the present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. Officers, directors and affiliates will be able to sell their
shares if this Registration Statement becomes effective after meeting the
holding period requirements of Rule 144. Rule 144 provides in essence that a
person who is an affiliate or officer or director who has held restricted
securities for six months may, under certain conditions, sell every three
months, in brokerage transactions, a number of shares that does not exceed the
greater of 1.0% of a company's outstanding common stock or the average weekly
trading volume during the four calendar weeks prior to the sale. There is no
limit on the amount of restricted securities that may be sold by a nonaffiliate
after the owner has held the restricted securities for a period of six months if
the company is a current, reporting company under the '34 Act. A sale under Rule
144 or under any other exemption from the Act, if available, or pursuant to
subsequent registration of shares of common stock of present stockholders, may
have a depressive effect upon the price of the common stock in any market that
may develop.
CHINA WI-MAX'S INVESTORS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES
FOR VARIOUS CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to China Wi-Max's shareholders purchasing in
future offerings or issuances for other purposes as a result of future decisions
of the Board to issue shares without shareholder approval for cash, services, or
acquisitions.
THE STOCK WILL, IN ALL LIKELIHOOD, BE THINLY TRADED AND AS A RESULT INVESTORS
MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF THEY NEED TO LIQUIDATE
SHARES.
The shares of China Wi-Max's common stock, if listed, may be thinly-traded on
the OTC Bulletin Board, meaning that the number of persons interested in
purchasing China Wi-Max's common shares at or near ask prices at any given time
may be relatively small or non-existent. This situation is attributable to a
number of factors, including the fact that it is a small company which is
relatively unknown to stock analysts, stock brokers, institutional investors,
and others in the investment community that generate or influence sales volume,
and that even if China Wi-Max came to the attention of such persons, they tend
to be risk-averse and would be reluctant to follow an unproven, early stage
company such as China Wi-Max or purchase or recommend the purchase of any of
China Wi-Max Securities until such time as it became more seasoned and viable.
As a consequence, there may be periods of several days or more when trading
activity in China Wi-Max's Securities is minimal or non-existent, as compared to
a seasoned issuer which has a large and steady volume of trading activity that
will generally support continuous sales without an adverse effect on the
Securities price. China Wi-Max cannot give investors any assurance that a
broader or more active public trading market for its common securities will
develop or be sustained, or that any trading levels will be sustained. Due to
these conditions, China Wi-Max can give investors no assurance that they will be
able to sell their shares at or near ask prices or at all if they need money or
otherwise desire to liquidate their securities of China Wi-Max.
31
CHINA WI-MAX'S COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE
RISK THAT THE INVESTOR MAY NOT BE ABLE TO SELL SECURITIES AT OR ABOVE THE PRICE
THAT THE INVESTOR MAY PAY FOR THE SECURITY.
Because of the limited trading market expected to develop for China Wi-Max's
common stock and because of the possible price volatility, the investor may not
be able to sell their shares of common stock when the investor desires to do so.
The inability to sell securities in a rapidly declining market may substantially
increase the risk of loss because of such illiquidity and because the price for
China Wi-Max Securities may suffer greater declines because of China Wi-Max
price volatility.
The price of China Wi-Max's common stock that will prevail in the market after
this offering may be higher or lower than the price an investor pays. Certain
factors, some of which are beyond China Wi-Max's control, that may cause China
Wi-Max's share price to fluctuate significantly include, but are not limited to
the following:
o Variations in China Wi-Max quarterly operating results;
o Loss of a key relationship or failure to complete significant
transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect China Wi-Max
stock price, regardless of China Wi-Max operating performance. In the past,
class action litigation often has been brought against companies following
periods of volatility in the market price of those companies common stock. If it
becomes involved in this type of litigation in the future, it could result in
substantial costs and diversion of management attention and resources, which
could have a further negative effect on the investment in China Wi-Max's stock.
MANY OF CHINA WI-MAX'S SHARES OF COMMON STOCK WILL BE AVAILABLE FOR RESALE IN
THE FUTURE. ANY SALES OF THE COMPANY'S COMMON STOCK, IF IN SIGNIFICANT AMOUNTS,
ARE LIKELY TO DEPRESS THE MARKET PRICE OF CHINA WI-MAX'S SECURITIES.
Unrestricted sales of shares of stock by China Wi-Max stockholders could have a
significant negative impact on the share price, and the market for the
securities. Many of the notes outstanding have conversion features which require
issuance of common shares at $0.25 and $0.50 per share to the noteholders. Such
conversion will provide tradable shares to the noteholders, who may sell without
restriction in any market which could depress the price if the supply of shares
exceeds the demand.
CHINA WI-MAX'S NEW INVESTORS MAY SUFFER A DISPROPORTIONATE RISK AND THERE MAY BE
IMMEDIATE DILUTION OF PURCHASERS' INVESTMENTS.
China Wi-Max's present shareholders have acquired their securities at a cost
significantly lower than the price investors purchasing shares in the future may
pay for their stock holdings or at which future purchasers in the market may
pay. Therefore, new investors will bear most of the risk of loss. Further, an
investment in China Wi-Max common stock by a new purchaser may result in an
immediate dilution to the new purchaser based on the net tangible book value of
32
the common stock.
CHINA WI-MAX'S BUSINESS IS HIGHLY SPECULATIVE AND THE INVESTMENT IS THEREFORE
RISKY.
Due to the speculative nature of China Wi-Max's business, it is probable that
the investment in shares of China Wi-Max may result in a total loss to the
investor. Investors should be able to financially bear the loss of their entire
investment. Investment should therefore be limited to that portion of
discretionary funds not needed for normal living purposes or for reserves for
disability and retirement.
CHINA WI-MAX IS NOT A REPORTING COMPANY AT THIS TIME, BUT WILL BECOME ONE DUE TO
THIS REGISTRATION.
There is no trading market for China Wi-Max's common stock. China Wi-Max will be
subject to the reporting requirements under the Securities and Exchange Act of
1934, Section 13a, after the effectiveness of this offering, pursuant to Section
12(g). As a result, shareholders will have access to the information required to
be reported by publicly held companies under the Exchange Act and the
regulations there under. China Wi-Max intends to provide China Wi-Max
shareholders with quarterly unaudited reports and annual reports containing
financial information prepared in accordance with U.S. generally accepted
accounting principles audited by an independent registered public accounting
firm as required under the Securities Exchange Act, Section 12(g).
THERE ARE SUBSTANTIAL RISKS OF LACK OF LIQUIDITY AND VOLATILITY RISKS.
China Wi-Max's common stock is not yet quoted in the OTC Bulletin Board market
system. The liquidity of China Wi-Max's common stock is nonexistent due to no
trading market. The OTC Bulletin Board market is an inter-dealer market much
less regulated than the major exchanges, and is subject to abuses, volatilities,
and shorting. There is currently no broadly followed and established trading
market for China Wi-Max's common stock. An established trading market may never
develop or be maintained. Active trading markets generally result in lower price
volatility and more efficient execution of buy and sell orders. Absence of an
active trading market reduces the liquidity of the shares traded there.
The trading volume of China Wi-Max's common stock, if approved for trading, may
be limited and sporadic. As a result of such trading activity, the quoted price
for China Wi-Max's common stock on the OTC Bulletin Board may not necessarily be
a reliable indicator of its fair market value. In addition, if China Wi-Max's
shares of common stock cease to be quoted, holders would find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of its
common stock. As a result, the market value of China Wi-Max's common stock
likely would decline.
THERE IS NO ESTABLISHED PUBLIC TRADING MARKET FOR CHINA WI-MAX'S SECURITIES AND
ONE MAY NEVER DEVELOP. THIS COULD ADVERSELY AFFECT THE ABILITY OF INVESTORS IN
CHINA WI-MAX'S TO SELL THEIR SECURITIES IN THE PUBLIC MARKET.
China Wi-Max is currently not listed on the OTC Bulletin Board market system.
China Wi-Max cannot predict the extent to which a trading market will develop or
how liquid that market might become. Accordingly, holders of China Wi-Max's
common stock may be required to retain their shares for an indefinite period of
time.
33
The OTCBB is an inter-dealer, over-the-counter market that provides
significantly less liquidity than stock exchanges. Quotes for stocks included on
the OTCBB are not listed in the financial sections of newspapers, as are those
for the exchanges. Therefore, prices for securities traded solely on the OTCBB
may be difficult to obtain and holders of common stock may be unable to resell
their securities at or near their original acquisition price or at any price.
Market prices for China Wi-Max's common stock will be influenced by a number of
factors, including:
o the issuance of new equity securities pursuant to future offering;
o changes in interest rates;
o new services or significant contracts and acquisitions;
o variations in quarterly operating results;
o change in financial estimates by securities analysts;
o the depth and liquidity of the market for the Company's common stock;
o investor perceptions of us and of China-based investments and
companies generally; and
o general economic and other national and international conditions.
ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (COMMENT #14)
The following discussion is intended to provide an analysis of China Wi-Max's
financial condition and should be read in conjunction with China Wi-Max's
financial statements and the notes thereto set forth herein. The matters
discussed in these sections that are not historical or current facts deal with
potential future circumstances and developments. China Wi-Max actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below.
INTRODUCTION (COMMENT #15)
China Wi-Max plans to be a telecommunications broadband provider focused on
providing commercial customers with high bandwidth connections through first and
second tier markets in China through subsidiary companies. Through these 50% and
100% owned subsidiaries, China Wi-Max intends to build, own, and operate
metropolitan area Internet Protocol (IP) based broadband networks, using both
owned optical fiber and licensed Wi-Max capable wireless spectrum.
34
China Wi-Max networks are being designed to provide the reliability, redundancy,
scalability, and other features expected of a carrier class network. China
Wi-Max believes it can bypass the local loop facilities of the local exchange
carrier to connect enterprise customers directly to the global communications
network. At this time, China Wi-Max has three full-time and two part-time
employees in the United States, augmented by a number of contract personnel and
professional services organizations.
Service to customers is to be provided through direct connections to the optical
fiber or transmissions over licensed radio spectrum provided through China
Wi-Max's Chinese subsidiaries. Services are intended to be offered to customers
include high speed broadband Internet access, Voice-over Internet Protocol, or
VoIP, bandwidth on demand, bandwidth redundancy, virtual private networks, or
VPNs, disaster recovery, bundled data, and video services.
There are many challenges to establishing a successful foreign controlled
telecommunications provider business in China. Some of these challenges include
the legal and regulatory environment and an understanding of this environment,
limits on foreign ownership of certain types of businesses and licenses,
cultural and language differences, distance, access to influencers in
government, and senior management staffing. There are also well funded, very
large telecommunications providers already in the marketplace. There is an
abundance of high caliber technical and administrative staff to assist in
building the business. The Chinese telecommunications market is huge and
somewhat underserved, especially with regards to high quality services that
demand carrier grade performance. Establishing a carrier grade core network that
is cost effective, stable and upgradeable is extremely important as demand for
increased bandwidth explodes. Finally, acquiring sufficient capital to establish
and grow the business will be a continuing challenge, as will the recruitment of
high caliber managers who will effectively deliver business plan objectives in a
timely and fiscally responsible manner.
The primary focus in the near term is completing the obtaining of all necessary
business and telecommunication licenses and acquiring three subsidiary companies
mentioned in the first paragraph of this section. Of equal importance is raising
sufficient capital to enable execution of the business plan both short and long
term, as telecommunications is a capital intensive business. China Wi-Max
personnel and contract staff in China are currently evaluating equipment
providers for the core and last mile network and developing sales and marketing
plans and gathering necessary information to execute those plans. Appropriate
legal documents needed for all aspects of the business have been or are being
developed. Ensuring that business plans and the associated execution of those
plans is a consistent is an ongoing high priority activity. Through effective
execution of all major facets of the business plan, initial service in Beijing
is planned during the second half of 2008.
PLAN OF OPERATION
China Wi-Max closed a private offering in early January 2008 and raised
$1,000,000 in one year Convertible Promissory Notes. The Notes bear interest at
12% per annum, convertible at the Note Holder's option into Common Stock of
China Wi-Max at a conversion price of $.25 per share.
35
The use of the funds is planned as follows:
USE OF PROCEEDS PHASE I, $1,000,000:
CATEGORY AMOUNT PERCENT OF
OFFERING
=============================================== ==================================== ================
Start up costs and travel (5 trips) $50,000 5.0%
Legal for PPM and Form 10 $30,000 3.0%
Legal in China for acquisitions $10,000 1.0%
Accounting through Q4 $10,000 1.0%
Accounting retainer for Q4 $10,000 1.0%
Misc. exp. $50,000 5.0%
Acquisitions:
ISP License & fees $15,000 pays in full 1.5%
4 Core Fiber in Beijing $300,000 pays in full 30.0%
5.8 GHz lic. in Beijing $125,000 pays in full 12.5%
Broker and consulting fees $200,000 20.0%
4 Core Fiber in Hangzhou $50,000 down payment 5.0%
5.8GHz lic. in Hangzhou $50,000 down payment 5.0%
Operating overhead $100,000 10.0%
------------------------------------ ----------------
TOTALS $1,000,000 100%
==================================== ================
The initial plan was to raise $500,000 which would have covered China Wi-Max
expenses and planned acquisitions through year's end. However, China Wi-Max's
ability to acquire fiber and frequencies has exceeded preliminary expectations.
Thus, it expanded the Phase I raise to accommodate this opportunity.
China Wi-Max has a current offering to raise up to $1,000,000 in Convertible
Promissory Notes. The Notes will pay interest at 10% per annum, convertible at
the Note Holder's option into Common Stock in the Company at a conversion price
of $.50 per share. These Notes are only available to Qualified Investors. The
offering is currently set to close in the second half of 2008. As of September
25, 2008, $1,015,000 of these notes had been sold. We have not used a third
party to assist us in the offering. Investors for this offering are being
identified through referrals from friends and family of current shareholders,
directors and officers. (COMMENT #16)
USE OF PROCEEDS PHASE IB, $1,015,000:
CATEGORY AMOUNT PERCENT OF OFFERING
=============================================== ========================== ======= ===================================
Hangzhou License and Fiber $160,000 16%
Shanghai Fiber Deposit 50,000 5%
Shanghai Wireless License Deposit 50,000 5%
Beijing Network Equipment 200,000 20%
Establish Business Office - Beijing 50,000 5%
Broker and Consulting Fees 150,000 15%
General and Administrative Expense 355,000 34%
-------------------------- ------- -----------------------------------
TOTALS $1,015,000 100%
========================== ======= ===================================
36
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE PERIOD FROM JULY 5, 2006
(INCEPTION) THROUGH DECEMBER 31, 2006
China Wi-Max did not recognize any revenues for the year ended December 31, 2007
and the period from July 5, 2006 (inception) through December 31, 2006.
During the year ended December 31, 2007, general and administrative expenses
were $426,102 compared to $8,538 during the period from July 5, 2006 (inception)
through December 31, 2006. The $417,564 increase was a result of twelve months
of activity in 2007 versus six months of activity in 2006 and the hiring of
personnel and advisors in 2007 to create and execute China Wi-Max's business
plan.
During the year ended December 31, 2007, China Wi-Max recognized a net loss of
$444,590 compared to a net loss of $8,538 during the period from July 5, 2006
(inception) through December 31, 2006. The $436,052 increase is a result of the
$417,564 increase in general and administrative expenses that resulted from
China Wi-Max's increased operational activity over the year ended December 31,
2007 compared to the prior 6 month period.
China Wi-Max's basic loss per share was $0.06 in 2007 versus a basic loss per
share of less than $0.01 in 2006. A fully diluted loss per share was not
calculated as it would have reduced the loss per share and been anti-dilutive.
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2006 AND THE
PERIOD FROM JULY 2, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006
From the Company's inception July 5, 2006 through December 31, 2007, China
Wi-Max has funded its operations primarily from the following sources:
o Debt proceeds through private placements of China Wi-Max convertible
promissory notes; and
o Loans.
No cash flow from operations has been generated. At December 31, 2007, the
Company had total current assets of $192,990, consisting of cash of $182,401,
receivables from the issuance of common stock of $2,570 and prepaid expenses of
$8,019. At December 31, 2007, the Company had total liabilities of $1,017,881,
all of which are current. Total liabilities consist of accounts payable of
$87,501, accrued interest of $16,380 and convertible notes payable of $914,000.
At December 31, 2007, the Company had a working capital deficit of $824,891.
During the year ended December 31, 2007, the Company used $241,399 in its
operating activities compared to $9 in 2006. Net losses of $444,590 were
reconciled for two non-cash items, $113,750 of services paid for by the issuance
of the common stock and $2,108 in amortization of debt issuance costs and cash
from changes in current accounts of $87,333.
During the year ended December 31, 2007, the Company used $491,666 in its
investing activities. The Company used $491,666 for deposits on the acquisition
on long-lived assets. During the period of July 5, 2006 (inception) through
December 31, 2006, the Company did not have any investing activities.
37
During the year ended December 31, 2007, the Company received $914,350 from its
financing activities. During the period July 5, 2006 (inception) through
December 31, 2006, the Company received $1,125 from its financing activities.
In June 2007, the Company authorized the sale of up to $1 million of convertible
notes payable. Between June and December 2007, the Company issued $914,000 of
notes payable, which mature on December 31, 2008, bearing interest at 12% per
annum, and are unsecured. Principal and interest are convertible at any time
into shares of the Company's common stock at $0.25 per share, at the option of
the note holders. Through December 31, 2007, the Company recognized proceeds of
$914,000 from the sale of these convertible notes. At December 31, 2007, the
Company has accrued interest of $16,380 in connection with the convertible
notes. The Company has not paid nor is any principal or interest due on these
notes. The Company is not in default with regard to these notes. (COMMENT #18)
During the year ended December 31, 2007, the Company received $5,620 from the
sale of shares of its common stock.
During the year ended December 31, 2007, the Company issued 380,000 shares of
common stock to various third parties who performed services for the Company.
These shares were valued at $95,000. In December 2007, the Company also issued
75,000 shares to a director of the Company valued at $18,750 for services
rendered. All shares issued for services were valued at $0.25 per share, which
was based on the estimated fair value of the services rendered.
To the extent China Wi-Max operations are not sufficient to fund the Company's
capital requirements, China Wi-Max may enter into a revolving loan agreement
with financial institutions or attempt to raise capital through the sale of
additional capital stock or through the issuance of debt. At the present time
China Wi-Max does not have a revolving loan agreement with any financial
institution nor can the Company provide any assurance that it will be able to
enter into any such agreement in the future or be able to raise funds through
the further issuance of debt or equity.
The Company's business plan requires funding to develop and expand a new capital
intensive business. If the current Bridge Funding of Convertible Notes is
oversubscribed to the $1.5 million dollars authorized by the Board of Directors,
the Company will be able to operate through December 2008 depending on which
activities are implemented. The company is addressing funding needs for the next
twelve months estimated at $10 million dollars to carry out the business plan by
seeking to engage an Investment Advisor to assist in raising capital. To
continue to expand and grow the business beyond twelve months will require
significant additional capital estimated at $15 million dollars to build
networks in the first four metro areas to be served and an estimated $25 million
additional capital to build networks in the fifth through tenth metro area
identified. This is a total of approximately $50 million dollars of capital
requirements over the next thirty-six months. The Company expects to be
continually raising funds for at least the next thirty-six months. In fact, the
more successful the Company is in the near term, the higher its capital needs
will be as facilities and marketing costs are front in loaded and revenues occur
over time, thereby increasing negative cash flow in the earlier periods. Failure
to raise these additional funds may result in reduction or cessation of growth
or more serious operational issues. These ongoing capital needs are partially
reflected in Note 1 to the Company's 2007 Audited financial statements, for
which the Company's independent registered public accounting firm's Audit report
included a Going Concern explanatory paragraph. (COMMENT #17)
38
Although there are no known legal, economic or regulatory restrictions for China
Wi-Max contemplated operating subsidiaries to repay loans, management fees,
dividends or other distributions to the Company, such payments are not
contemplated in the Business Plan.
GOING CONCERN
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2007 and 2006, and for the periods ended
December 31, 2007, includes a "going concern" explanatory paragraph that
describes substantial doubt about the Company's ability to continue as a going
concern.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2007
During the six months ended June 30, 2008 and 2007, China Wi-Max did not
recognize any revenues from its operational activities.
During the six months ended June 30, 2008, China Wi-Max incurred general and
administrative expenses of $730,098 compared to $63,543 for the six months ended
June 30, 2007. The $666,555 increase was a result of an increase in the
Company's operational activities compared to the prior period. During the six
months ended June 30, 2008, the Company increased its staff and outside
consultants, as the beginnings of the implementation of its business plan. As a
result of the staff increases, there was an increase of $347,010 in salary and
wages over the prior period. During the six months ended June 30, 2008, China
Wi-Max incurred $230,425 in expenses related to stock and options issued as
payment for services compared to $25,000 for the six months ended June 30, 2007.
During the six months ended June 30, 2008, China Wi-Max recognized a net loss of
$808,736 compared to a net loss of $63,543 during the six months ended June 30,
2007. The $745,193 increase in net losses was a result of the $666,555 increase
in general and administrative expenses, discussed above combined with the
$78,638 increase in interest expense as a result of the issuance of convertible
promissory notes discussed below.
China Wi-Max's basic loss per share was $0.08 during the six months ended June
30, 2008 versus a net loss per share of $0.01 during the six months ended June
30, 2007.
LIQUIDITY AND CAPITAL RESOURCES
China Wi-Max continues to fund its operations through debt proceeds from the
issuance of convertible promissory notes.
Cash flow from operations has not historically been sufficient to sustain China
Wi-Max's operation without additional sources of capital. At June 30, 2008, the
Company had total current assets of $51,716, consisting of cash of $34,952 and
prepaid expenses of $16,764. At June 30, 2008, the Company had total current
liabilities of $1,133,942. Total current liabilities consist of accounts payable
of $34,624, accrued interest of $95,018 and current convertible notes payable of
$1,004,300. At June 30, 2008, the Company had a working capital deficit of
approximately $1,082,226.
39
During the six months ended June 30, 2008, China Wi-Max used $559,395 in its
operating activities. The net loss of $808,736 was adjusted for $158,500 of
services paid for by the issuance of common stock, $71,925 in non-cash option
expenses and $1,901 in amortization of debt issuance costs. During the six
months ended June 30, 2008, there was a $8,746 increase in prepaid expenses, a
$47,877 decrease in accounts payable, a $78,638 increase in accrued interest and
a $5,000 decrease in accrued expenses.
During the six months ended June 30, 2007, China Wi-Max received $9,303 from its
operating activities. A net loss of $63,543 was adjusted for $25,000 of services
paid for by the issuance of common stock. During the six months ended June 30,
2007, there was a $17,552 decrease in prepaid expenses and a $30,294 increase in
accounts payable.
During the six months ended June 30, 2008, China Wi-Max used $360,664 in its
investing activities on deposits for the acquisition of long-lived assets, which
relate to the acquisition of optical, fiber and wireless licenses in Beijing,
Hangzhou and Shanghai, China. During the six months ended June 30, 2007, China
Wi-Max used $35,000 in its investing activities on deposits for long lived
assets in Beijing, China.
During the six months ended June 30, 2008, China Wi-Max received $772,610 from
its financing activities. During the six months ended June 30, 2007, China
Wi-Max received $27,310 from its financing activities.
In June 2007, the Board of Directors authorized the sale of up to $1 million of
convertible promissory notes. Principal and interest are convertible at any time
into shares of China Wi-Max's common stock at $0.25 per share, at the option of
the note holders. As of January 2008, the Company oversubscribed the offering
and issued $1,004,300 of notes payable, which mature on December 31, 2008, bear
interest at 12% per annum, and are unsecured. During the six months ended June
30, 2008, China Wi-Max issued an additional $680,000 in convertible promissory
notes, which mature on December 31, 2009, bearing interest at 10% per annum, and
are unsecured. Principal and interest are convertible at any time into shares of
China Wi-Max's common stock at $0.50 per share, at the option of the promissory
note holders. China Wi-Max has not paid nor is any principal or interest due on
these notes. As of June 30, 2008, there is $1,004,300 in outstanding convertible
notes payable and has accrued interest of $95,108, China Wi-Max is not in
default with regard to these notes.(COMMENT #18)
During the six months ended June 30, 2008, China Wi-Max issued 634,000 shares of
its common stock to individuals as employment signing bonuses and payments for
services performed for China Wi-Max, valued at $158,500.
During the six months ended June 30, 2008, China Wi-Max issued stock options
exercisable for 2,600,000 shares of the its common stock. The options have an
exercise price of $0.25 per share and a term of 5 years. Subsequent to the
issuance, options exercisable for 400,000 shares of common stock were cancelled.
The options have variable vesting rates. During the six months ended June 30,
2008, options exercisable for 425,000 shares were vested. These options were
valued using the Black-Scholes model, and the Company has recorded $71,925 of
stock based compensation expense during the six months ended June 30, 2008.
To the extent China Wi-Max's operation are not sufficient to fund its capital
requirements, China Wi-Max may enter into a revolving loan agreement with
financial institutions or attempt to raise capital through the sale of
additional capital stock or through the issuance of debt. At the present time
China Wi-Max does not have a revolving loan agreement with any financial
40
institution nor can it provide any assurance that it will be able to enter into
any such agreement in the future or be able to raise funds through the further
issuance of debt or equity.
China Wi-Max's business plan requires funding to develop and expand a new
capital intensive business. China Wi-Max has been addressing funding needs for
the next twelve months estimated at $10 to $15 million dollars to carry out the
business plan. To continue to expand and grow the business beyond twelve months
will require significant additional capital, reduction or cessation of growth or
both. China Wi-Max expects to be continually raising funds for at least the next
twenty-four months. These ongoing capital needs are reflected in the Company's
independent registered public accounting firm's Going Concern comments for the
audited period ending December 31, 2007.
CRITICAL ACCOUNTING POLICIES
China Wi-Max has identified the policies below as critical to China Wi-Max
business operations and the understanding of China Wi-Max results from
operations. The impact and any associated risks related to these policies on the
Company's business operations is discussed throughout Management's Discussion
and Analysis of Financial Conditions and Results of Operations where such
policies affect China Wi-Max reported and expected financial results. For a
detailed discussion on the application of these and other accounting policies,
see Note 2 in the Notes to the Consolidated Financial Statements beginning on
page 78 for the years ended December 31, 2007 and 2006, and page 90 for the six
months ended June 30, 2008 and 2007 of this document. Note that China Wi-Max's
preparation of this document requires China Wi-Max to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of China Wi-Max
financial statements, and the reported amounts of expenses during the reporting
periods. There can be no assurance that actual results will not differ from
those estimates.
REVENUE RECOGNITION
China Wi-Max will follow very specific and detailed guidelines in measuring
revenue; however, certain judgments may affect the application of China Wi-Max
revenue policy. Revenue results are difficult to predict, and any shortfall in
revenue or delay in recognizing revenue could cause China Wi-Max operating
results to vary significantly from quarter to quarter and could result in future
operating losses.
Upon commencement of revenue-producing operations, the Company intends to
recognize revenue pursuant to Securities and Exchange Commission, Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, as amended by SAB No. 104, Revenue Recognition. Consistent with the
requirements of these SABs, revenue will be recognized only when: a) persuasive
evidence of arrangement exists, b) delivery has occurred, c) the seller's price
to the buyer is fixed, and d) collectibility is reasonably assured.
STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R, which addresses
the accounting for share-based payment transactions. SFAS No. 123R eliminates
the ability to account for share-based compensation transactions using APB No.
25 and generally requires instead that such transactions be accounted and
recognized in the statement of operations based on their fair value. Application
of SFAS 123R requires the use of significant estimates, including expected
41
volatility, expected term, risk-free interest rate and forfeiture rate. SFAS
123R was effective for us beginning July, 2006.
IMPAIRMENT OF OTHER LONG-LIVED ASSETS
Long-lived assets that do not have indefinite lives, such as property and
equipment and acquired customer relationships, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Determination of recoverability is based on
an estimate of undiscounted future cash flows resulting from the use of the
assets and their eventual disposition. Measurement of an impairment loss for
such long-lived assets is based on the fair value of the assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141 (R), BUSINESS COMBINATIONS ("SFAS 141 (R)"), which becomes effective for
fiscal periods beginning after December 15, 2008. SFAS No. 141 (R) requires all
business combinations completed after the effective date to be accounted for by
applying the acquisition method (previously referred to as the purchase method).
Companies applying this method will have to identify the acquirer, determine the
acquisition date and purchase price, and recognize at their acquisition date
fair values of the identifiable assets acquired, liabilities assumed, and any
non-controlling interests in the acquiree. In the case of a bargain purchase,
the acquirer is required to reevaluate the measurements of the recognized assets
and liabilities at the acquisition date and recognize a gain on that date if an
excess remains. The Company does not expect the adoption of this statement to
have a material impact on its financial statements.
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS AN AMENDMENT OF ARB 51 ("SFAS 160") which
becomes effective for fiscal periods beginning after December 15, 2008. This
statement amends ARB 51 to establish accounting and reporting standards for
non-controlling interests in a subsidiary and for the deconsolidation of a
subsidiary. The statement requires ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled, and presented in
the consolidated statement of financial position within equity, but separate
from the parent's equity. The statement also requires consolidated net income to
be reported at amounts that include the amounts attributable to both the parent
and the non-controlling interest, with disclosure on the face of the
consolidated statement of income of the amounts of consolidated net income
attributable to the parent and to the non-controlling interest. In addition,
this statement establishes a single method of accounting for changes in a
parent's ownership interest in a subsidiary that do not result in
deconsolidation and requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. The Company does not expect the
adoption of this statement to have a material impact on its financial
statements.
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT TO FASB
STATEMENT NO. 115. This statement permits companies to choose to measure many
financial instruments and other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is expected to expand the use of fair value
measurement of accounting for financial instruments, and the fair value option
42
established by this statement permits all entities to measure eligible items at
fair value at specified election dates. This statement was effective for the
Company on January 1, 2008. The Company did not apply the fair value option to
any of its outstanding instruments and therefore SFAS No. 159 did not have an
impact on the Company's financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement. This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. This
statement is effective for fiscal years beginning after November 15, 2007. SFAS
No. 157 was effective for the Company on January 1, 2008 for all financial
assets and liabilities. For non-financial assets and liabilities, SFAS No. 157
is effective for the Company on January 1, 2009. Management is currently
determining the effect that the adoption of SFAS No. 157 may have on its
financial statements beyond its current fiscal year.
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires additional disclosure
related to derivatives instruments and hedging activities. The provisions of
SFAS No. 161 are effective for fiscal years and interim periods beginning after
November, 15, 2008, and the Company is currently evaluating the impact of
adoption.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,
"Determination of the Useful Life of Intangible Assets." This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, "Goodwill and Other Intangible Assets." The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under Statement 142 and the period of expected cash flows used
to measure the fair value of the asset under FASB Statement No. 141 (Revised
2007), "Business Combinations," and other U.S. generally accepted accounting
principles (GAAP). This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company does not expect the
adoption of FAS 142-3 to have a material effect on its results of operations and
financial condition.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (SFAS 162). SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS 162 will become effective 60 days following the SEC's approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles." The Company does not expect the adoption of SFAS 162 to have a
material effect on its results of operations and financial condition.
In May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1 "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" (FSP APB 14-1). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
43
equity (conversion option) components of the instrument in a manner that
reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis and will be adopted by the Company in the first quarter of fiscal 2009.
The Company does not expect the adoption of FSP APB 14-1 to have a material
effect on its results of operations and financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
China Wi-Max's operations do not employ financial instruments or derivatives
which are market sensitive. (COMMENT #20)
China Wi-Max will generate revenues and incur expenses and liabilities in both
Chinese Renminbi (RMB) and U.S. dollars. Since 1994, the official exchange rate
for the conversion of Chinese RMB to U.S. dollars has generally been stable and
the Chinese RMB has appreciated slightly against the U.S. dollar. In the past
year, the RMB has appreciated quite rapidly against the dollar. China Wi-Max has
not entered into agreements or purchased instruments to hedge its exchange rate
risks, although it may do so in the future. China Wi-Max's results of operations
and financial condition may be negatively affected by changes in the value of
Chinese RMB.
ITEM 3. PROPERTIES
China Wi-Max's operations are principally located at 1905 Sherman Street, Suite
335, Denver, Colorado 80203. As of September 25, 2008, the Company was in the
last month of a six month lease for the use of the offices at 1905 Sherman
Street. The monthly rental approximates $1,100. The lease can be extended month
to month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to the beneficial
ownership of China Wi-Max outstanding common stock by:
o each person who is known by China Wi-Max to be the beneficial owner of
five percent (5%) or more of China Wi-Max common stock;
o China Wi-Max's President, its other executive officers, and each
director as identified in the "Management -- Executive Compensation"
section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
sixty days of the date of this document into shares of China Wi-Max common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants, or convertible securities for the purpose of computing
the percentage ownership of the person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of China Wi-Max common
stock that China Wi-Max believes was beneficially owned by each person or entity
as of September 25, 2008. The total shares outstanding as of September 25, 2008
was 10,144,000.
44
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE PERCENT OF PERCENT OF
OF BENEFICIAL OWNER CLASS CLASS AFTER
CONVERSION OF
NOTES (1)
- -------------------------- --------------------------------------- -------------------- ------------ -----------------
Common shares Dr. Allan Rabinoff, Chairman of the 2,825,000 27.8% 16.5%
Board and Executive Officer
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares George E. Harris, President and Chief 470,000 4.5% 2.7%
Financial Officer
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares Frank Jia 750,000 7.4% 4.4%
7-3-7#, No 102, Youyi Road, Haidian
District
Beijing, China 100085
Common shares Chris Watson 600,000 5.9% 3.5%
P.O. Box 398, 228 E. Union St.
Pacific, MO 63068
Common shares Buck Krieger, Director 1,800,000 17.7% 10.4%
12 Shari Dr.
St. Louis, MO 63122
Common shares Jenny Wang, Chief Administrative 1,050,000 10.4% 6.1%
Officer and Director
11649 Port Washington Rd. Ste. #224
Mequon, WI 53092
Common shares Henry Zaks 900,000 8.9% 5.2%
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares Daniel Najor, Director 282,500 2.7% 1.6%
1625 Highland Dr.
Solana Beach, California
92075-2124
Common shares All Directors and 6,427,500 63.1% 37.3%
Executive Officers as a
Group (5 persons)
- ---------------------------
(1) Assumes the sale of the maximum number of Notes offered and conversion
of all Notes into shares of common stock at $.25 and $.50 per share,
which could be 7,017,200 shares. There are no assurances that all the
Notes offered will be sold, or that if sold, all of the Notes will be
converted. To the extent that less than all the Notes are converted,
management's percentage of ownership in the Company will increase
proportionately.
45
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants, or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person. Included in
this table are only those derivative securities with exercise prices that China
Wi-Max believes have a reasonable likelihood of being "in the money" within the
next sixty days.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as to persons who currently serve as
China Wi-Max directors, executives or officers, including their ages as of
September 25, 2008.
NAME AGE POSITION TERM
- -------------------------- ---------- --------------------------------------------- ----------------------------------
Dr. Allan Rabinoff 63 Chairman and Executive Director - China Annual- Board, Officer and 3
Business Development years executive position
George E. Harris 58 President, Chief Financial Officer and Annual- Board, Officer and 3
Director years executive position
Buck Krieger 68 Director Annual - Board
Jenny Wang 45 Chief Administrative Officer and Director Annual - Board and Officer
Daniel Najor 54 Director Annual - Board
China Wi-Max's officers are elected by the board of directors at the first
meeting after each annual meeting of China Wi-Max's shareholders and hold office
until their successors are duly elected and qualified under China Wi-Max's
bylaws, or as defined by the terms of employment agreements.
The directors named above will serve until the next annual meeting of China
Wi-Max's stockholders. Thereafter, directors will be elected for one-, two-, or
three-year terms at the annual stockholders' meeting. Officers will hold their
positions at the pleasure of the board of directors absent any employment
agreement. There is no arrangement or understanding between the directors and
officers of China Wi-Max's and any other person pursuant to which any director
or officer was or is to be selected as a director or officer.
Dr. Allan Rabinoff and George E. Harris devote substantially all their time to
the affairs of China Wi-Max. The other Board members or officers of China Wi-Max
will devote part-time to its affairs until such time as they may be required to
devote full time.
46
China Wi-MAX is building a team of experienced business and telecommunications
experts who understand the combined fiber/wireless broadband delivery model and
also have business knowledge within China.
CHAIRMAN AND FOUNDER: DR. ALLAN RABINOFF has over twenty-five years of business
experience in China and the Far East, including developing international
companies and teams. Dr. Rabinoff has been involved as a Board and Senior
Executive Team member of several Chinese ventures. Additionally, he served as
the Chief Operations Officer of In Touch Communications Inc. in Beijing from
November 2004 to May 2005. Dr. Rabinoff has accumulated a vast array of contacts
in business and government over the last twenty-five years in Asia and has a
firm grasp on the requirements necessary to successfully operate in China. In
1975, Dr. Rabinoff earned a PhD from the University of Maryland. He also holds a
Master's and Bachelor of Science degree from the University of Wisconsin.
PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR: MR. GEORGE E. HARRIS was most
recently a Senior Vice President at Falkenberg Capital Corporation, a boutique
investment bank to the telecommunications community. Mr. Harris' experience
includes numerous active roles in several technology startups. In his role at
Falkenberg, he worked closely with companies that deliver telecommunications and
data services utilizing wired and wireless technologies. Mr. Harris is also the
President of Harris Products, Inc. and Integrated Components, Inc., and managed
component manufacturing facilities based in Southern China. Previously, Mr.
Harris served as the Chief Financial Officer of Farm Credit Banks of St. Louis.
During a ten year career at AT&T, Mr. Harris held various financial, software
development, data systems, financial planning and operational positions. He has
been a Certified Public Accountant since 1977 in the state of California, where
he worked for Arthur Young and Company, and earned a Bachelor of Science degree
in accounting and an MBA from Pepperdine University.
DIRECTOR: MR. BUCK KRIEGER was appointed to the Company's Board at its inception
in July 2006. In August of 2004 he was the President of StarTelecom, Inc., a
telecommunications consulting firm, until July 2006. Mr. Krieger has an
extensive financial background which began at Clayton Brokerage Company, which
became the largest brokerage house in the country dedicated to commodities.
During his tenure at Clayton Brokerage he was an Executive V.P. and National
Sales Manager for ten years. Mr. Krieger retired from Clayton after twenty-five
years. He intends to focus his business time primarily on China Wi-Max.
DIRECTOR AND CHIEF ADMINISTRATIVE OFFICER - CHINA: MS. JENNY WANG has a
combination of international skills and technical experience. Ms. Wang was born
and primarily educated in China, and has a background in science. She has earned
a Bachelor degree in chemistry from Zhejiang University in Hangzhou, China, and
earned her graduate degree in chemistry from Oregon Graduate Institute. She
began her technical career working for an American manufacturing company. Ms.
Wang lectures in both English and Chinese at professional seminars and has
advised Chinese distributors on developing International business agreements,
and technical product distribution with an emphasis on China. Ms. Wang has an
extensive network of business relationships and cultural understanding that will
be a significant asset to the Company.
DIRECTOR: MR. DANIEL NAJOR was appointed to the Company's Board in May 2008. Mr.
Najor has an extensive business background covering the last twenty-nine years;
he has directed retail establishments, real estate and corporate finance
activities, Internet gaming and telecom related ventures. Mr. Najor holds an
U.S. Patent for telephone calling card coupons. More recently, Mr. Najor used
47
his patent to combine couponing with calling cards. He is currently the largest
shareholder in a leading provider of telecommunication services that facilitate
audience interaction with television, radio, print, web and outdoor advertising.
Mr. Najor has been involved with and helped build a number of startup companies.
ANNUAL MEETING
The annual meeting of China Wi-Max's stockholders is expected to be held as soon
as practicable after the filing of this registration statement. This will be a
meeting of stockholders for the election of directors. The annual meeting will
be held at China Wi-Max's principal office or at such other place as permitted
by the laws of the State of Nevada and on such date as may be fixed from time to
time by resolution of China Wi-Max Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
China Wi-Max is managed by its officers under the oversight of its Board of
Directors. China Wi-Max's Board of Directors plans to establish an Audit
Committee as soon as practicable. China Wi-Max is currently attempting to
recruit one or more independent directors to serve on the Board of Directors and
the audit committee, at least one of whom will qualify as an "Audit Committee
Financial Expert" as defined in SEC regulations. China Wi-Max is also
establishing a Compensation Committee. There are currently no other committees
under consideration.
EXECUTIVE COMMITTEE
China Wi-Max currently does not have an Executive Committee.
AUDIT COMMITTEE
China Wi-Max currently does not have an Audit Committee. When formed, the Audit
Committee will be comprised solely of directors who are independent and
financially competent, as required by the Securities Exchange Act of 1934,
which, as amended, China Wi-Max refers to as the Securities Exchange Act. At
least one member of the committee will have accounting or related financial
management expertise.
PREVIOUS "BLANK CHECK" OR "SHELL" COMPANY INVOLVEMENT
Management of the Company has not been involved in prior private "blank-check"
or "shell" companies.
CONFLICTS OF INTEREST
The directors of China Wi-Max, who are not employed full-time, may not devote
more than a portion of their time to the affairs of the Company. There may be
occasions when the time requirements of China Wi-Max's business conflict with
the demands of their other business and investment activities. Such conflicts
may require that China Wi-Max attempt to employ additional personnel. There is
no assurance that the services of such persons will be available or that they
can be obtained upon terms favorable to China Wi-Max.
48
CONFLICTS OF INTEREST - OTHER
Certain officers and directors of China Wi-Max may be directors and/or principal
shareholders of other companies and, therefore, could face conflicts of interest
with respect to potential acquisitions. Additionally, officers and directors of
the Company may in the future participate in business ventures which could be
deemed to compete directly with the Company. Additional conflicts of interest
and non-arms length transactions may also arise in the future in the event the
Company's officers or directors are involved in the management of any firm with
which the Company transacts business. The Company's Board of Directors has
adopted a policy that the Company will not seek a merger with, or acquisition
of, any entity in which management serve as officers or directors, or in which
they or their family members own or hold a controlling ownership interest.
Although the Board of Directors could elect to change this policy, the Board of
Directors has no present intention to do so. In addition, if the Company and
other companies with which the Company's officers and directors are affiliated
both desire to take advantage of a potential business opportunity, then the
Board of Directors has agreed that said opportunity should be available to each
such company in the order in which such companies registered or became current
in the filing of annual reports under the Exchange Act subsequent to January 1,
1997.
The Company's officers and directors may actively negotiate or otherwise consent
to the purchase of a portion of their common stock as a condition to, or in
connection with, a proposed merger or acquisition transaction. It is anticipated
that a substantial premium over the initial cost of such shares may be paid by
the purchaser in conjunction with any sale of shares by the Company's officers
and directors which is made as a condition to, or in connection with, a proposed
merger or acquisition transaction. The fact that a substantial premium may be
paid to the Company's officers and directors to acquire their shares creates a
potential conflict of interest for them in satisfying their fiduciary duties to
the Company and its other shareholders. Though such a sale could result in a
substantial profit to them, they would be legally required to make the decision
based on the best interests of the Company and its shareholders, rather than on
the potential for personal pecuniary benefit.
(Remainder of page left blank intentionally)
49
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to officers and board
members during the fiscal years ended December 31, 2007, 2006 and 2005. The
table sets forth this information for China Wi-Max, including salary, bonus, and
certain other compensation to the Board members and named executive officers for
the past three fiscal years and includes all Board Members and Officers as of
September 25, 2008.
SUMMARY EXECUTIVES COMPENSATION TABLE
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
Non-equity Non-qualified
incentive deferred
Stock Option plan compensation All other
Salary Bonus awards awards compensation earnings compensation Total
Name & Position Year ($) ($) ($) ($) ($) ($) ($) ($)
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
Dr. Allan 2007 0 0 $20,000 0 0 0 $42,000 $62,000
Rabinoff, Chairman 2006 0 0 $1,500 0 0 0 0 $1,500
and Executive 2005 0 0 0 0 0 0 0 0
Director(1)
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
George E. Harris, 2007 0 0 0 0 0 0 0 0
President, CFO and 2006 0 0 0 0 0 0 0 0
Director(2) 2005 0 0 0 0 0 0 0 0
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
Buck Krieger, 2007 0 0 0 0 0 0 $20,975 $20,975
Director (3) 2006 0 0 0 0 0 0 $800 $800
2005 0 0 0 0 0 0 0 0
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
Daniel Najor, 2007 0 0 0 0 0 0 0 0
Director(4) 2006 0 0 0 0 0 0 0 0
2005 0 0 0 0 0 0 0 0
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
Jenny Wang, Chief
Administrative 2007 0 0 $13,400 0 0 0 $21,000 $34,400
Officer and 2006 0 0 $100 0 0 0 0 $100
Director (5) 2005 0 0 0 0 0 0 0 0
- -------------------- -------- --------- -------- --------- --------- --------------- ------------ --------------- ----------
- --------------------
(1) During the year ended December 31, 2006, Dr. Rabinoff received 1,500,000
shares of common stock valued at $1,500 for his services. During the year ended
December 31, 2007, Dr. Rabinoff recieved 1,325,000 shares of common stock valued
at $20,000 as compensation for his services. Mr. Rabinoff received $42,000 for
his services as a director for China Wi-Max. On March 1, 2008, Mr. Rabinoff
entered into an employment agreement with China Wi-Max, prior to that Mr.
Rabinoff did not receive a salary.
(2) In January 2008, Mr. Harris received 200,000 shares of common stock, valued
at $50,000 as a signing bonus in connection with the employment agreement he
executed at that time. Prior to January 1, 2008, Mr. Harris did not receive a
salary from China Wi-Max.
(3) During the year ended December 31, 2006, Mr. Krieger received 800,000 shares
of common stock for services contributing the formation of China Wi-Max, these
services were valued at $800. During the year ended December 31, 2007, Mr.
Krieger received cash of $19,975 in connection with his services and 1,000,000
shares of common stock valued at $1,000.
(4) In March 2008, Mr. Najor was issued 50,000 shares of common stock valued at
$12,500 for his services.
(5) During the year ended December 31, 2006, Ms. Wang was issued 100,000 shares
of common stock valued at $100 for services. During the year ended December 31,
2007, Ms. Wang received 950,000 shares of common stock valued at $13,400 as
compensation for her services. In addition, Ms. Wang received $21,000 in cash
for her services as a director of the Company.
(COMMENTS #22 AND #23)
50
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
In February 2008, China Wi-Max implemented a Corporation Stock Option Plan. The
Board of Directors has set aside 4,000,000 shares of its common stock to be
issued under Corporation Stock Option Plan. During the years ended December 31,
2007 and 2006, the Board did not grant or issue any options under the
Corporation Stock Option Plan. During the six months ended June 30, 2008,
options exercisable for 2,200,000 shares were granted.
The options have a term of five years and an exercise price of $0.25 per share.
The options all have vesting rates. At September 25, 2008, 425,000 shares have
vested in full. Before any employee options may be delivered or exercised, the
shareholders must ratify the Plan.
(COMMENT #24)
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS (COMMENT #25)
On January 1, 2008, China Wi-Max entered into an employment agreement with Mr.
George Harris to serve as the President and Chief Financial Officer of China
Wi-Max. Mr. Harris's employment agreement has a term of three years and provides
for Mr. Harris to receive a base salary of $10,000 per month. The employment
agreement does provide for the possibility of $5,000 per month being deferred,
as necessary, and that the deferred salary may be converted into common stock at
a rate of $0.25 per share. In addition, upon the earlier occurrence of the
closing of financing of at least $4 million or December 31, 2008, the base
salary will increase to $15,000 per month. In addition, Mr. Harris's employment
agreement received a signing bonus of 200,000 shares of China Wi-Max's common
stock.
On January 1, 2008, Mr. George Harris, President, Chief Financial Officer and a
Director of China Wi-Max was issued an option exercisable for 500,000 shares
under the Corporation Stock Option Plan in connection with his employment
agreement. The option has an exercise price of $0.25 per share and a term of
five years. The option vests at a rate of 200,000 on the grant date, 100,000 on
each anniversary of the effective date of the employment agreement. Vesting is
accelerated in connection with a change in control or termination of the
employment agreement.
On March 1, 2008, China Wi-Max entered into an employment agreement with Dr.
Allan Rabinoff to serve as the Executive Director - China Business Development.
Dr. Rabinoff's employment agreement has a term of three years and provides for
Dr. Rabinoff to receive a base salary of $10,000 per month. The employment
agreement provides that the base salary upon the earlier occurrence of of the
closing of financing of at least $4 million or December 31, 2008, the base
salary will increase to $15,000 per month. Vesting is accelerated in connection
with a change in control or termination.
On March 1, 2008, Dr. Allan Rabinoff, the Executive Director of Chinese Business
Development and a Director of China Wi-Max was issued an option exercisable for
600,000 shares under the Corporation Stock Option Plan in connection with his
employment agreement. The option has an exercise price of $0.25 per share and a
term of five years. The option vests at a rate of 75,000 shares with the
completion of acquisitions of both the fiber assets and spectrum license in each
of the remaining 8 targeted cities of the business plan. Vesting is accelerated
in connection with a change in control or termination of the employment
agreement.
51
In connection with the employment agreements, generally, the Company terminates
the employment agreement at any time with cause. The employee has the right to
terminate the employment agreement at any time with good reason. In the event,
the Company terminates an employment agreement for cause or the employee
terminates his or her employee agreement with good reason, all of such
employee's rights to compensation would cease upon the date of such termination.
If we terminate an employment agreement without cause, then such employee
terminates his employment agreement for cause, or in the event of a change in
control, we are required to pay to such employee all compensation and other
benefits that would have accrued and/or been payable to that employee during the
full term of the employment agreement.
A change of control is considered to have occurred when, as a result of any type
of corporate reorganization, execution of proxies, voting trusts or similar
arrangements, a person or group of persons (other than incumbent officers,
directors and our principal stockholders) acquires sufficient control to elect
more than a majority of our board of directors, acquires 50% or more of our
voting shares, or we adopt a plan of dissolution of liquidation. The employment
agreement also include a non-compete and nondisclosure provisions in which each
employee agrees not to compete with or disclose confidential information
regarding us and our business during the term of the employment agreement and
for a period of one year thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Through December 31, 2007, the China Wi-Max Board of Directors in its entirety
acted as the Compensation Committee for China Wi-Max. Dr. Rabinoff is the
Chairman of the Company. As of February 26, 2008, a Compensation Committee was
established.
STOCK OPTION AWARD AND COMPENSATION PLAN
China Wi-Max, in February 2008, adopted an incentive stock option plan pursuant
to which the Board of Directors may grant options to key employees, consultants,
and others to purchase up to 4,000,000 shares of the Company's common stock. The
plan will provide for the grant of incentive stock options with an exercise
price of not less than the fair market value on the date of the grant as
determined by the Board of Directors and will expire no later than the fifth
anniversary of the date of grant. As of September 25, 2008, 2,200,000 options
with an exercise price of $0.25 had been granted to key officers, directors,
employees and advisors. Before any employee options may be delivered or
exercised, the shareholders must ratify the Plan.
DIRECTOR COMPENSATION
The Company does not pay any Directors fees for meeting attendance. An Audit
Committee has yet to be established therefore no compensation has been paid for
this function.
LIMITATION ON LIABILITY AND INDEMNIFICATION
China Wi-Max is a Nevada corporation. Nevada Revised Statutes (NRS) provide that
a Nevada corporation's Articles of Incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, except that any such provision may not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) acts
specified in the NRS (concerning unlawful distributions), or (iv) any
52
transaction from which a director directly or indirectly derived an improper
personal benefit. China Wi-Max articles of incorporation contain a provision
eliminating the personal liability of directors to China Wi-Max or China Wi-Max
shareholders for monetary damages to the fullest extent provided by the NRS.
The NRS provides that a Nevada corporation must indemnify a person who was
wholly successful, on the merits or otherwise, in defense of any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal (a
"Proceeding"), in which he or she was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the Proceeding, unless such indemnity is limited by the corporation's articles
of incorporation. China Wi-Max articles of incorporation do not contain any such
limitation.
The NRS provides that a Nevada corporation may indemnify a person made a party
to a Proceeding because the person is or was a director against any obligation
incurred with respect to a Proceeding to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an employee benefit plan)
or reasonable expenses incurred in the Proceeding if the person conducted
himself or herself in good faith and the person reasonably believed, in the case
of conduct in an official capacity with the corporation, that the person's
conduct was in the corporation's best interests and, in all other cases, his or
her conduct was at least not opposed to the corporation's best interests and,
with respect to any criminal proceedings, the person had no reasonable cause to
believe that his or her conduct was unlawful. The Company's articles of
incorporation and bylaws allow for such indemnification. A corporation may not
indemnify a director in connection with any Proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation or, in
connection with any other Proceeding charging that the director derived an
improper personal benefit, whether or not involving actions in an official
capacity, in which Proceeding the director was judged liable on the basis that
he or she derived an improper personal benefit. Any indemnification permitted in
connection with a Proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with such Proceeding.
Under the NRS, unless otherwise provided in the articles of incorporation, a
Nevada corporation may indemnify an officer, employee, fiduciary, or agent of
the corporation to the same extent as a director and may indemnify such a person
who is not a director to a greater extent, if not inconsistent with public
policy and if provided for by its bylaws, general or specific action of its
Board of Directors or shareholders, or contract. China Wi-Max articles of
incorporation provide for indemnification of directors, officers, employees,
fiduciaries and agents of China Wi-Max to the full extent permitted by Nevada
law.
China Wi-Max articles of incorporation also provide that China Wi-Max may
purchase and maintain insurance on behalf of any person who is or was a director
or officer of China Wi-Max or who is or was serving at the request of China
Wi-Max as a director, officer or agent of another enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity or arising out of his or her status as such, whether or not China
Wi-Max would have the power to indemnify him or her against such liability.
EQUITY COMPENSATION PLAN INFORMATION
China Wi-Max, in February 2008, adopted an incentive stock option plan pursuant
to which the Board of Directors may grant options to key employees, consultants,
and others to purchase up to 4,000,000 shares of the Company's common stock. The
53
plan will provide for the grant of incentive stock options with an exercise
price of not less than the fair market value on the date of the grant as
determined by the Board of Directors and will expire no later than the fifth
anniversary of the date of grant. As of September 25, 2008, 2,200,000 options
with an exercise price of $0.25 had been granted to key officers, directors,
employees and advisors. Before any employee options may be delivered or
exercised, the shareholders must ratify the Plan.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of September 25, 2008 regarding the
equity compensation plan (including individual compensation arrangements) under
which shares of China Wi-Max's common stock are authorized for issuance. No
class of our securities other than our common stock or options to purchase our
common stock is authorized for issuance under any of our equity compensation
plans.
NUMBER OF WEIGHTED-AVERAGE NUMBER OF SECURITIES
SECURITIES TO BE XERCISE PRICE OF REMAINING AVAILABLE FOR
ISSUED UPON OUTSTANDING FUTURE ISSUANCE UNDER
EXERCISE OF PTIONS, WARRANTS EQUITY COMPENSATION
OUTSTANDING AND RIGHTS PLANS (EXCLUDING
PTIONS, WARRANTS (B) SECURITIES REFLECTED IN
AND RIGHTS COLUMN (A)
PLAN CATEGORY (A) (C)
Equity compensation plans approved by
security holders 0 -- 0
Equity compensation plans not approved by
security holders 2,200,000 $ 0.25 1,800,000
---------------- ----------------- ------------------------
Total 2,200,000 $ 0.25 1,800,000
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 2008, China Wi-Max entered into an employment agreement with Mr.
George Harris to serve as the President and Chief Financial Officer of China
Wi-Max. Mr. Harris's employment agreement has a term of three years and provides
for Mr. Harris to receive a base salary of $10,000 per month. The employment
agreement does provide for the possibility of $5,000 per month being deferred,
as necessary, and that the deferred salary may be converted into common stock at
a rate of $0.25 per share. In addition, upon the earlier occurrence of the
closing of financing of at least $4 million or December 31, 2008, the base
salary will increase to $15,000 per month. In addition, Mr. Harris's employment
agreement received a signing bonus of 200,000 shares of China Wi-Max's common
stock.
On March 1, 2008, China Wi-Max entered into an employment agreement with Dr.
Allan Rabinoff to serve as the Executive Director of Chinese Business
Development. Dr. Rabinoff's employment agreement has a term of three years and
provides for Dr. Rabinoff to receive a base salary of $10,000 per month. The
employment agreement provides that the base salary upon the earlier occurrence
of of the closing of financing of at least $4 million or December 31, 2008, the
base salary will increase to $15,000 per month.
54
On January 1, 2008, Mr. George Harris, President, Chief Financial Officer and a
Director of China Wi-Max, was issued an option exercisable for 500,000 shares
under the Corporation Stock Option Plan in connection with his employment
agreement. The option has an exercise price of $0.25 per share and a term of
five years. The option vests at a rate of 200,000 on the grant date, 100,000 on
each anniversary of the effective date of the employment agreement. Vesting is
accelerated in connection with a change in control or termination of the
employment agreement.
In December 2007, Mr. George Harris, an officer and director of China Wi-Max,
purchased a $5,000 Convertible Promissory Note, as part of the Convertible Note
Offering. The note is due December 31, 2008 and is convertible in shares of
common stock at $0.25 per share.
On March 1, 2008, Dr. Allan Rabinoff, the Executive Director - China Business
Development and a Director of China Wi-Max was issued an option exercisable for
600,000 shares under the Corporation Stock Option Plan in connection with his
employment agreement. The option has an exercise price of $0.25 per share and a
term of five years. The option vests at a rate of 75,000 shares with the
completion of acquisitions of both the fiber assets and spectrum license in each
of the remaining 8 targeted cities of the business plan.
On March 1, 2008, Mr. Daniel Najor, a Director of China Wi-Max, was issued an
option exercisable for 450,000 under the Corporation Stock Option Plan. The
option has an exercise price of $0.25 per share and a term of 5 years. The
option vests at a rate of 18,750 shares per month. Mr. Najor received the option
as payment for his services.
During the years ended December 31, 2007 and 2006 and the period of January 1,
2008 through June 30, 2008, the following officers and directors of China Wi-Max
received shares of common stock in the following amounts for the reasons as
stated below.
- --------------------------------------------- ----------------- ----------------- ----------------------------
NAME NUMBER OF SHARES VALUE OF STOCK REASON FOR ISSUANCE
- --------------------------------------------- ----------------- ----------------- ----------------------------
YEAR ENDED DECEMBER 31, 2006
- --------------------------------------------- ----------------- ----------------- ----------------------------
Buck Krieger, Director 800,000 $800 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Dr. Allan Rabinoff, Officer and Director 1,500,000 $1,500 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Jenny Wang, Director 100,000 $100 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
YEAR ENDED DECEMBER 31, 2007
- --------------------------------------------- ----------------- ----------------- ----------------------------
Jenny Wang, Director 200,000 $200 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Dr. Allan Rabinoff, Director 750,000 $750 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Buck Krieger, Director 500,000 $500 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Jenny Wang 100,000 $100 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Buck Krieger, Director 500,000 $500 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Dr. Allan Rabinoff, Director 500,000 $500 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Dr. Allan Rabinoff 75,000 $18,750 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
Jenny Wang 50,000 $12,500 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
55
- --------------------------------------------- ----------------- ----------------- ----------------------------
NAME NUMBER OF SHARES VALUE OF STOCK REASON FOR ISSUANCE
- --------------------------------------------- ----------------- ----------------- ----------------------------
JANUARY 1, 2008 THROUGH JUNE 30, 2008
- --------------------------------------------- ----------------- ----------------- ----------------------------
George Harris, President, Chief Financial 200,000 $50,000 Signing Bonus with
Officer and Director Employment Agreement
- --------------------------------------------- ----------------- ----------------- ----------------------------
Daniel Najor, Director 5,000 $1,250 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
ITEM 8. LEGAL PROCEEDINGS
China Wi-Max anticipates that it (including any future subsidiaries) will from
time to time become subject to claims and legal proceedings arising in the
ordinary course of business. It is not feasible to predict the outcome of any
such proceedings and China Wi-Max cannot assure that their ultimate disposition
will not have a materially adverse effect on China Wi-Max business, financial
condition, cash flows or results of operations. There are no such claims or
legal proceedings as of September 25, 2008.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION (COMMENT #27)
There is no current public trading market for the common stock and there is no
assurance that one will develop in the near future, if ever. China Wi-Max will
seek application to be listed on the over-the-counter bulletin board trading
facility ("OTCBB") concurrent with filing this Form 10. The Company cannot
assure that its shares will trade at or above the Company's net asset value.
HOLDERS
There are approximately 37 holders of record of China Wi-Max common stock as of
September 25, 2008.
DIVIDEND POLICY
Holders of China Wi-Max common stock are entitled to receive such dividends as
may be declared by China Wi-Max's Board of Directors. China Wi-Max has not
declared or paid any dividends on China Wi-Max common shares and does not plan
on declaring any dividends in the near future. China Wi-Max currently intends to
use all available funds to finance the operation and expansion of its business.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 25, 2008, China Wi-Max currently has 10,144,000 shares of common
stock outstanding. A current shareholder who is an "affiliate" of China Wi-Max,
defined in Rule 144 as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
China Wi-Max will be required to comply with the resale limitations of Rule 144.
Of these shares a total of 9,854,000 shares have been held for six months or
more and are eligible for resale under Rule 144 assuming the company has been a
56
reporting company for 90 days. Sales by affiliates will be subject to the volume
and other limitations of Rule 144, including certain restrictions regarding the
manner of sale, notice requirements, and the availability of current public
information about China Wi-Max. The volume limitations generally permit an
affiliate to sell, within any three month period, a number of shares that does
not exceed the greater of one percent of the outstanding shares of common stock
or the average weekly trading volume during the four calendar weeks preceding
his sale. A person who ceases to be an affiliate at least three months before
the sale of restricted securities beneficially owned for at least two years may
sell the restricted securities under Rule 144 without regard to any of the Rule
144 limitations.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
CONVERTIBLE NOTES
NOTES DUE DECEMBER 31, 2008, CONVERTIBLE AT $.25 INTO COMMON SHARES
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Adis, Donald P.
574 Eagle Nest Ct.
Golden, Colorado 80401-0907 1 $55,000 4-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Adis, Kathryn
574 Eagle Nest Ct.
Golden, Colorado 80401-0907 1 $12,500 9-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Barba, Ronald
2 Gate Field Dr.
Greenwich, Connecticut 06831 1 $25,000 6-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Beilenson, Larry
1705 Bristol Ridge Ct.
Chesterfield, MO 63017 1 $5,300 1-Jan -08
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Blanchard, Lawrence
4101 Sulgrave Rd.
Richmond, Virginia 23221 1 $5,000 2-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Bollinger, George
219 Canyon Point Circle
Golden, Colorado 80403 1 $25,050 10-Jan-08
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Charleville, Joe L.
2036 Pheasant Run Dr.
St. Louis, Missouri 63043 1 $15,000 5-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Clooney, Donald
1149 Templeton Pl.
Chesterfield, Missouri 63019-8412 1 $20,000 3-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Doss, Sara
6217 Rhodes Ave.
St. Louis, Missouri 63109-3416 1 $5,000 2-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Doss, Stephen
6217 Rhodes Ave.
St. Louis, Missouri 63109-3416 1 $5,000 1-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
57
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Hahn, Owen
9356 N. Waverly Dr.
Milwaukee, Wisconsin 53217 1 $40,000 26-Jul-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Harris, George
PO Box 3568
Copper Mountain, Colorado 80443 1 $5,000 6-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Heidlebaugh, Shawn
1632 Forest Park
Findlay, Ohio 45840 1 $10,000 1-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Hombs, Roy
111 E. Broadway, Ste 340
Columbia, Missouri 65203 1 $25,000 6-Aug-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Jacobs, Michael
1120 Lincoln St., Apt 2
Denver, CO 80203 1 $25,050 10-Jan-08
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Jatho, David
4904 Ct Rd 343
Fulton, Missouri 65251 1 $107,500 19-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Jordan, R. Thomas
1833 Lowell Ln.
Ft. Collins, Colorado 80524 1 $100,000 23-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Jordan, Thomas
1833 Lowell Ln.
Fort Collins, CO 80524 1 $25,000 10-Jan-08
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Kretz, John
2814 Invale Dr.
Glendale, CA 91208 1 $75,000 22-Jan-08
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Lee, Charles
8343 Acuff Ln.
Lenexa, Kansas 66215 1 $5,000 15-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
McAdams, Gary
8480 E Orchard Rd., Suite 3600
Greenwood Village, CO 80111 1 $100,000 4-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Mitchell, Sam & JoAnn
8214 Mayhews Landing Rd.
Newark, California 94560 1 $5,000 15-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Najor, Samul
1625 Highland Dr.
Solana Beach, California
92075-2124 1 $30,000 5-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
O'Connor, Judith
3321 Steeple Hill
St. Charles, Missouri 63301 1 $5,000 7-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Scott, Pat & Karon
8085 S. Niagara Way
Centennial, Colorado 80112 1 $5,000 7-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
58
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Shanker, Marcia
10805 W. 142st St.
Overland Park, Kansas 66221 1 $10,000 10-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Stein, Patricia
12323 Fox Lake Ct.
Fairfax, Virginia 22033 1 $2,500 4-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Stern, Aron
3482 Corte Clarita
Carlsbad, California 92009 1 $3,000 5-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Torson, Robert D.
2064 Vista Dr.
Loveland, Colorado 80538 1 $10,000 2-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Young, Robert
PO Box 980517160
Calle Serena,
Rancho Sante Fe, California 92087-4805 1 $50,000 1-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
TOTAL ACCREDITED INVESTORS 30 $810,900
========================= ======================
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Dyall, John
1450 Pepperhill Dr.
Florissant, Missouri 63033 2 $9,000 0-Jan-00
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Erickson, Marlowe
8419 Cornell Ave.
St. Louis, Missouri 63132-4905 2 $5,000 1-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Finnen, Martha
1945 S. Jay Ct.
Lakewood, Colorado 80227 2 $5,000 14-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Gibbons, Eileen
3703 S. Edmunds St., #37
Seattle, Washington 98118 2 $2,500 1-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Gieseking, Linda
2323 Wellington Estates Dr.
Chesterfield, Missouri 63017 2 $5,000 30-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Gill, Timothy
7650 Windy Ct.
Arvada, Colorado 80007 2 $5,000 24-Sep-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Haas, Michael
2148 Pino Cir.
Erie, Colorado 80516 2 $5,000 10-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
59
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Harper, Glenn H.
PO Box 481084
Denver, Colorado 80248 2 $2,500 3-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Hrdlicka, Beth
919 2nd Ave. West #202
Seattle, Washington 98119 2 $5,000 10-Aug-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Hrdlicka, Mark
#3 Berry Patch Ln.
Columbia, Illinois 62236 2 $2,500 18-Sep-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Hrdlicka, Paul
2327 Principia Dr.
Maryland Heights, Missouri 63043-1436 2 $2,500 22-Jul-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Johnson, Anthony
23431 Toronja Corte
Corona, California 92883 2 $10,000 19-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Johnson, Kevin
4132 N. Menomonee River Pkwy
Wauwatosa, Wisconsin 53222-1134 2 $3,000 30-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Lueken, Patricia
6036 Highfield Rd.
St. Louis, Missouri 63109-3374 2 $5,000 1-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Marden, Richard
313 Old Dominion Ave.
Herndon, Virginia 20170 2 $2,500 28-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Miller, Ann
751 Muir View Dr.
Ballwin, Missouri 63011 2 $5,000 5-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Milliken, Mark
PO Box 4923585 Homestead Dr. Edwards,
Colorado 81632-4923 2 $5,000 16-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Moore, Brian
5950 Golden Pond
Villa Ridge, Missouri 63089 2 $8,900 3-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Nedelcovych, Mima
2791 Centerboro Dr., #488
Vienna, Virginia 22181 2 $5,000 26-Jul-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Nelson, Robert A.
4 Anglers Ln.
Defiance, Missouri 63341 2 $15,000 6-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Nikolaisen, Lynn
8808 Pardee Forest Dr. #C
St. Louis, Missouri 63123 2 $2,500 20-Sep-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Pantaleo, Riccardo
9337 Waterfall Glen Blvd.
Darien, Illinois 60561 2 $5,000 13-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Peterson, Ronald
423 S.E. Gilham Ave.
Portland, Oregon 97215 2 $6,500 4-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
60
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Rosen, Judy H.
14569 Benefit St., #307
Sherman Oaks, California 91403 2 $5,000 9-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Ross, Robert A.
1608 S. Chester Ct.
Denver, Colorado 80247 2 $12,500 5-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Rudeen, Beverly
314 Overdale Rd.
Pittsburgh, Pennsylvania
15221-4436 2 $6,000 31-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Smith, Kathy
16592 W. 61st. Pl.
Golden, Colorado 80403 2 $2,500 17-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Smith, Richard
16592 W. 61st Pl.
Golden, Colorado 80403 2 $2,500 15-Apr-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Wang, Qingwen
36 Plateau
Aliso Veijo, California 92656 2 $20,000 4-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Wang, Sharon & Qi
8552 S Miller Ct.
Littleton, Co 80127 2 $5,000 29-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Wedlake, David
W357 Delafield Rd.
Oconomowoc, WI 53066 2 $10,000 4-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Ziegler, Sally
509 W. Dean Ct.
Fox Point, Wisconsin 53217-2640 2 $7,500 27-Sep-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
TOTAL UN-ACCREDITED INVESTORS 32 $193,400
------------------------- ----------------------
TOTAL INVESTORS 62 $1,004,300
========================= ======================
* Investor type 1 is accredited and type 2 is un-accredited
- -----------------------------------------------------------------------------------------------------------------
NOTES DUE DECEMBER 31, 2009, CONVERTIBLE AT $.50 INTO COMMON SHARES
- ------------------------------------------ ------------------------- ----------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * AMOUNT DATE
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Ron Barba
2 Gatefield Dr.
Greenwich, CT 6831 1 $50,000 17-Mar-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Steven Hanson
206 Spring Dr.
NYC, NY 10012 1 $300,000 17-Mar-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Yves Rounier
11919 E. Ida Pl.
Englewood, CO 80111 1 $50,000 21-Mar-07
- ------------------------------------------ ------------------------- ----------------------- ---------------------
61
- ------------------------------------------ ------------------------- ----------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * AMOUNT DATE
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Christopher Virtue
672 N E 21 Ave
Deerfield Beach, FL 33441 1 $50,000 20-Mar-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Brian & Marie Millikin
2380 Bougainvillea Circle
Corona, CA 92879 1 $65,000 1-Apr-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Judy Rosen
14569 Benefit St., #307
Sherman Oaks, CA 91403 1 $10,000 20-May-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Christopher Virtue
672 N.E. 21st Ave.
Deerfield Beach, FL 33441 1 $100,000 23-May-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
David Wedlake
W357 Delafield Road
Oconomowoc, WI 53066 1 $20,000 3-June-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
National Home Vision, Inc.
1151 Bowes Rd., Suite B
Lowell, MI 49331 1 $10,000 12-June-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
James and Jewel A. Allen
1500 Fox Moon Court
Jefferson City, MO 65109 1 $25,000 24-June-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
John Kretz
2814 Invale Drive
Glendale, CA 91208 1 $75,000 29-July-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Steven Hanson
206 Spring Drive
New York City, NY 10012 1 $150,000 30-July-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Ralph Ruschel
5505 Sonoma Road
Bethesda, MD 20817 1 $110,000 29-August-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
------------------------- -----------------------
TOTAL INVESTORS 13 $1,015,000
========================= =======================
- ------------------------------------------------------------------------------------------------------------------
* Only accredited investors are accepted in this raise
62
COMMON SHARES ISSUED
COMMON SHARES ISSUED AT PAR VALUE
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
PRICE NUMBER OF
NAME AND ADDRESS OF INVESTOR DATE SHARES ISSUED CONSIDERATION SERVICE PROVIDED PER SHARE SHARES
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Buck Krieger
12 Shari Dr.
St Louis, MO 63122 September 25, 2006 $800 Services (1) $0.001 800,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Chris Watson
P.O. Box 398, 228 E. Union St.
Pacific, MO 63067 September 25, 2006 $200 Services (2) $0.001 200,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Owen Hahn
9356 N Waverly Dr.
Bayside, WI 53217 September 25, 2006 $100 Services (1) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Allan Rabinoff
11649 Port Washington Rd., Suite
224
Mequon, WI 53092 September 28, 2006 $1,500 Services (1) $0.001 1,500,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Iain Stewart
2518 Stonecrest Dr.
Fort Collins, CO 80521 September 28, 2006 $200 Services (2) $0.001 200,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Phil Allen
7130 W. Stetson Pl #25
Denver, CO 80123 September 28, 2006 $100 Services (3) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Michael Kalbs
14569 Benefit St. #307
Sherman Oaks, CA 91403 September 28, 2006 $25 Services (1) $0.001 25,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63011 September 28, 2006 $20 Services (5) $0.001 20,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Joseph Charleville
2036 Pheasant Run
Maryland Heights, MO 63043 September 28, 2006 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
William Hanks
38 W. Sunnyside Drive
St Peters, MO 63377 September 28, 2006 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Henry Zaks
11649 Port Washington Rd., Suite
224
Mequon, WI 53092 September 28, 2006 $600 Services (1) $0.001 600,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Roy Hombs
2100 Garnet Drive
Columbia, MO 63202 September 28, 2006 $20 Services (3) $0.001 20,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
David Jatho
4904 Court Road 343
Fulton, MO 65251 September 28, 2006 $5 Services $0.001 5,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
William Hanks
38 W. Sunnyside Drive
St Peters, MO 63378 September 28, 2006 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
63
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
PRICE NUMBER OF
NAME AND ADDRESS OF INVESTOR DATE SHARES ISSUED CONSIDERATION SERVICE PROVIDED PER SHARE SHARES
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Phil Allen
7130 W. Stetson Pl #25
Denver, CO 80124 November 6, 2006 $100 Services (3) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Jenny Wang
24W 565 Eugenia Dr.
Naperville, IL 60540 November 29, 2006 $100 Services (1) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63012 December 26, 2006 $10 Services (5) $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Donald Clooney
1149 Templeton Place
Town and Country, MO 63017 December 26, 2006 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Michael Kalbs
14569 Benefit St. #307
Sherman Oaks, CA 91404 January 2, 2007 $5 Services (1) $0.001 5,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
William Hanks
38 W. Sunnyside Drive
St Peters, MO 63379 December 26, 2006 $5 Services $0.001 5,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Jenny Wang
24W 565 Eugenia Dr.
Naperville, IL 60541 February 5, 2007 $100 Services (1) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Beverly Harris
P. O. Box 3568
Copper Mountain, CO 80443 February 5, 2007 $50 Services (3) $0.001 50,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Neslo Ventures C/0 Mark Olson
P.O. Box 1382
O'Fallon, MO 63366 February 12, 2007 $50 Services (3) $0.001 50,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Donald Woodlee
6860 S. Yosemite Ct. Ste 2000
Centennial, CO 80112 February 12, 2007 $25 Services (3) $0.001 25,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Frank Jia
7-3-7#, No 102, Youyi Road,
Haidian District
Beijing, China 100085 February 12, 2007 $200 Services (4) $0.001 200,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
James Xu
Room 104, Building 71,
Qiu-Shi-Cun,
Hangzhou City, China 310013 February 13, 2007 $50 Services (2) $0.001 50,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Thomas Wong
1611 Locust, #203
St, Louis, MO 63103 May 1, 2007 $25 Services (3) $0.001 25,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Chris Watson
P.O. Box 398, 228 E. Union St.
Pacific, MO 63069 May 22, 2007 $200 Services (2) $0.001 200,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Roy Hombs
2100 Garnet Drive
Columbia, MO 63202 May 1, 2007 $50 Services (3) $0.001 50,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
David Jatho
4904 Court Road 343
Fulton, MO 65252 May 1, 2007 $50 Services (3) $0.001 50,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
64
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
PRICE NUMBER OF
NAME AND ADDRESS OF INVESTOR DATE SHARES ISSUED CONSIDERATION SERVICE PROVIDED PER SHARE SHARES
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
David Jatho
4904 Court Road 343
Fulton, MO 65253 May 1, 2007 $15 Services (3) $0.001 15,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Michael Kalbs
14569 Benefit St. #307
Sherman Oaks, CA 91405 May 1, 2007 $10 Services (1) $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63013 May 1, 2007 $10 Services (5) $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
William Hanks
38 W. Sunnyside Drive
St Peters, MO 63376 May 1, 2007 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Jenny Wang
24W 565 Eugenia Dr.
Naperville, IL 60542 May 22, 2007 $200 Services (1) $0.001 200,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Michael Kalbs
14569 Benefit St. #307
Sherman Oaks, CA 91406 May 22, 2007 $15 Services (1) $0.001 15,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63014 May 22, 2007 $25 Services (5) $0.001 25,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Phil Allen
7130 W. Stetson Pl #25
Denver, CO 80125 May 1, 2007 $200 Services (3) $0.001 200,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63015 May 31, 2007 $15 Services (5) $0.001 15,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Frank Jia
7-3-7#, No 102, Youyi Road,
Haidian District
Beijing, China 100086 May 31, 2007 $150 Services (4) $0.001 150,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Brian D. Beers
15251 Peppermill Drive
Chesterfield, MO 63005 May 31, 2007 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
James Harter
933 Kiefer Trails Drive
Ballwin, MO 63021 May 31, 2007 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Steve Broadbent
920 Plaza Dr, Suite G
St Clair, MO 63077 May 31, 2007 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63016 May 31, 2007 $15 Services (5) $0.001 15,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Allan Rabinoff
11649 Port Washington Rd., Suite
224
Mequon, WI 53093 May 31, 2007 $750 Services (1) $0.001 750,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Buck Krieger
12 Shari Dr.
St Louis, MO 63123 May 31, 2007 $500 Services (1) $0.001 500,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
65
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
PRICE NUMBER OF
NAME AND ADDRESS OF INVESTOR DATE SHARES ISSUED CONSIDERATION SERVICE PROVIDED PER SHARE SHARES
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Henry Zaks
11649 Port Washington Rd., Suite
224
Mequon, WI 53093 May 31, 2007 $300 Services (1) $0.001 300,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Chris Watson
P.O. Box 398, 228 E. Union St.
Pacific, MO 63068 May 31, 2007 $100 Services (2) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Jenny Wang
24W 565 Eugenia Dr.
Naperville, IL 60543 May 31, 2007 $100 Services (1) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63017 May 31, 2007 $50 Services (5) $0.001 50,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Frank Jia
7-3-7#, No 102, Youyi Road,
Haidian District
Beijing, China 100087 June 2, 2007 $200 Services (4) $0.001 200,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Jenny Wang
24W 565 Eugenia Dr.
Naperville, IL 60544 June 4, 2007 $500 Services (1) $0.001 500,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Buck Krieger
12 Shari Dr.
St Louis, MO 63124 June 4, 2007 $500 Services (1) $0.001 500,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Allan Rabinoff
11649 Port Washington Rd., Suite
224
Mequon, WI 53094 June 4, 2007 $500 Services (1) $0.001 500,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Chris Watson
P.O. Box 398, 228 E. Union St.
Pacific, MO 63070 June 4, 2007 $100 Services (2) $0.001 100,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Paul Murphy
459 Sovereign Court
Ballwin, MO 63018 June 4, 2007 $50 Services (1) $0.001 50,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Michael Kalbs
14569 Benefit St. #307
Sherman Oaks, CA 91407 June 4, 2007 $25 Services (1) $0.001 25,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Richard Smith
16592 W. 61st Place
Golden, CO 80403 October 22, 2007 $25 Services (3) $0.001 25,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
William Hanks
38 W. Sunnyside Drive
St Peters, MO 63380 October 22, 2007 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
Sam Stein
6455 N. Garden Grove Lane
Glendale, WI 53209 December 31, 2007 $10 Services $0.001 10,000
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
TOTAL PAID $9,045 TOTAL SHARES 9,045,000
- -----------------------------------------------------------------------------------------------------------------------
(1) Contributing to the formation of the Company
(2) Providing advice on technological matters and researching broadband sector
(3) Providing advice on strategic issues, technology market trends and financial
and capital markets.
(4) Providing market and asset negotiation and acquisition services in China
(5) Marketing and internet design services
66
COMMON SHARES ISSUED AT $.25 PER SHARE
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
NAME AND ADDRESS OF INVESTOR DATE SHARES ISSUED CONSIDERATION SERVICE PROVIDED PRICE NUMBER OF
PER SHARE SHARES
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Lupe Duenas
10642 Essex Court
Mequon, WI 53092 October 4, 2007 $2,500 Services $0.25 10,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Aron Stern
3482 Corte Clarita
Carlsbad, CA 92009 October 4, 2007 $2,500 Services $0.25 10,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Leo Kutz
9 Tulip Drive
St Louis, MO 63119 December 10, 2007 $25,000 Services (2) $0.25 100,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Leo Kutz
9 Tulip Drive
St Louis, MO 63120 December 10, 2007 $5,000 Services (2) $0.25 20,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Frank Jia
7-3-7#, No 102, Youyi Road, Haidian
District
Beijing, China 100085 December 11, 2007 $25,000 Services (3) $0.25 100,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Allan Rabinoff
11649 Port Washington Rd. #224
Mequon, WI 53092 December 11, 2007 $18,750 Services (3) $0.25 75,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Jenny Wang
24W 565 Eugenia Dr.
Naperville, IL 60540 December 11, 2007 $12,500 Services (3) $0.25 50,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Phil Allen
7130 W. Stetson Pl #25
Denver, CO 80123 December 31, 2007 $25,000 Services (3) $0.25 100,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
George Harris
P. O. Box 3568
Copper Mountain, CO 80443 January 1, 2008 $50,000 Services (3) $0.25 200,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Benjamin Edmonds
4883 Foster Road
Elbridge, NY 13060 January 2, 2008 $9,750 Services (2) $0.25 39,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Michael Barber
4627 Torrey Circle Unit P-202
San Diego, CA 92130 February 1, 2008 $25,000 Services (2) $0.25 100,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Daniel Najor
1625 Highland Cove
Solana Beach, CA 92075 March 1, 2008 $12,500 Services (2) $0.25 50,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
David Gao
Suit 818, Tower 2, Bright China
Chang An Building, 7 Jianguomen Nei
Street
Beijing, China 100005 March 12, 2008 $1,250 Services $0.25 5,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Barba, Ronald
2 Gate Field Dr.
Greenwich, Connecticut 06831 May 5, 2008 $35,000 Services (2) $.25 140,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
67
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
NAME AND ADDRESS OF INVESTOR DATE SHARES ISSUED CONSIDERATION SERVICE PROVIDED PRICE NUMBER OF
PER SHARE SHARES
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Frank Jia
7-3-7#, No 102, Youyi Road, Haidian
District
Beijing, China 100085 June 9, 2008 $25,000 Services (3) $0.25 100,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Total Consideration $274,750 Total Shares 1,099,000
- --------------------
(1) Providing advice on technological matters and researching broadband sector
(2) Providing advice on strategic issues, technology market trends and financial and capital markets.
(3) Assistance in acquisition of Beijing fiber and wireless assets
GRAND TOTAL CONSIDERATION $283,795 GRAND TOTAL SHARES 10,144,000
===================================== ===================== ================ ================== ============ ==============
EXEMPTION FROM REGISTRATION CLAIMED (COMMENT #28)
All of the sales by China Wi-Max of its unregistered securities were made by the
Company in reliance upon Section 4(2) of the Act. All of the individuals and/or
entities listed above that purchased the unregistered securities were all known
to the Company and its management, through pre-existing business relationships,
as long standing business associates, friends, and employees. All purchasers
were provided access to all material information, which they requested, and all
information necessary to verify such information and were afforded access to
management of the Company in connection with their purchases. All purchasers of
the unregistered securities acquired such securities for investment and not with
a view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of common
stock, $.001 par value per share and 5,000,000 shares of preferred stock, $.001
par value per share. As of September 25, 2008, there were 10,144,000 shares
issued and outstanding. No preferred stock is issued and outstanding.
COMMON STOCK
The holders of China Wi-Max common stock are entitled to one vote for each share
on all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
68
Company's Board of Directors with respect to any series of preferred stock, the
holders of China Wi-Max common stock possess all voting power. China Wi-Max
articles of incorporation do not provide for cumulative voting in the election
of directors. Subject to any preferential rights of any outstanding series of
China Wi-Max preferred stock created by China Wi-Max Board of Directors from
time to time, the holders of common stock are entitled to dividends, if any, as
may be declared from time to time by China Wi-Max Board of Directors from funds
available and are entitled to receive pro rata all assets available for
distribution to such holders upon liquidation. For a more complete discussion of
China Wi-Max dividend policy, please see "Dividend Policy."
The holders of China Wi-Max common stock have no preemptive rights. The rights,
preferences, and privileges of holders of common stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
preferred stock which China Wi-Max may designate and issue in the future.
Neither the Articles of Incorporation nor the By-Laws of China Wi-Max, provide
for any provisions to delay or prevent a change of control of the Company
through the use of shares of its common stock or preferred stock. (COMMENT #29)
PREFERRED STOCK
China Wi-Max's Articles of Incorporation vest the Board of Directors with
authority to divide the class of Preferred Shares into series and to fix and
determine the relative rights and preferences of the shares of any such series
so established to the full extent permitted by the laws of the State of Nevada
and the Articles of Incorporation in respect of, among other things: (a) the
number of Preferred Shares to constitute such series and the distinctive
designations thereof, (b) the rate and preference of dividends, if any, the time
of payment of dividends, whether dividends are cumulative and the date from
which any dividend shall accrue, (c) whether Preferred Shares may be redeemed
and, if so, the redemption price and the terms and conditions of redemption, (d)
the liquidation preferences payable on Preferred Shares in the event of
involuntary or voluntary liquidation, (e) sinking fund or other provisions, if
any, for redemption or purchase of Preferred Shares, (f) the terms and
conditions by which Preferred Shares may be converted, if the Preferred Shares
of any series are issued with the privilege of conversion, and (g) voting
rights, if any. As of the date of this Offering Memorandum, there are no
Preferred Shares issued or outstanding.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for China Wi-Max common stock is Mountain Share
Transfer, Inc., of 1625 Abilene Dr., Broomfield, CO 80020.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Company's Articles of Incorporation and By-Laws, the Company may
indemnify an officer or director who is made a party to any proceeding,
including a lawsuit, because of his position, if he acted in good faith and in a
manner he reasonably believed to be in the Company's best interest. No officer
or director may be indemnified, however, where the officer or director committed
intentional misconduct, fraud, or an intentional violation of the law.
The Company may advance expenses incurred in defending a proceeding. To the
extent that the officer or director is successful on the merits in a proceeding
as to which he is to be indemnified, the Company must indemnify him against all
69
expenses incurred, including attorney's fees. With respect to a derivative
action, indemnity may be made only for expenses actually and reasonably incurred
in defending the proceeding, and if the officer or director is judged liable,
only by a court order. The indemnification is intended to be to the fullest
extent permitted by the laws of the State of Nevada.
Regarding the indemnification for liabilities arising under the Securities Act
of 1933, which may be permitted to officers and directors under Nevada law, the
Company is informed that, in the opinion of the Securities and Exchange
Commission, indemnification is against public policy, as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities is asserted by the Company's officer(s), director(s),
or controlling person(s) in connection with the securities being registered, it
will, unless in the opinion of the Company's legal counsel the matter has been
settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
The Company will then be governed by the court's decision.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of China Wi-Max Communications, Inc. for the
year ended December 31, 2007, period from July 5, 2006 (inception) through
December 31, 2006, and period from July 5, 2006 through December 31, 2007,
appear as pages 71 through 83. The unaudited financial statements for the six
months period ended June 30, 2008 and 2007 appear as pages 84 through 95.
70
China Wi-Max Communications, Inc.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
71
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
CONTENTS
Report of independent registered public accounting firm 73
Financial statements:
Balance sheets 74
Statements of operations 75
Statements of shareholders' deficit 76
Statements of cash flows 77
Notes to financial statements 78-83
72
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
China Wi-Max Communications, Inc.
We have audited the accompanying balance sheets of China Wi-Max Communications,
Inc. (a Development Stage Enterprise) as of December 31, 2007 and 2006, and the
related statements of operations, shareholders' deficit, and cash flows for the
year ended December 31, 2007, the period from July 5, 2006 (inception) through
December 31, 2006, and the period from July 5, 2006 through December 31, 2007.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of China Wi-Max Communications,
Inc. as of December 31, 2007 and 2006, and the results of its operations and its
cash flows for the year ended December 31, 2007, the period from July 5, 2006
(inception) through December 31, 2006, and the period from July 5, 2006 through
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company reported a net loss of approximately $445,000
during the year ended December 31, 2007, and has a working capital deficiency
and a shareholders' deficit of approximately $825,000 and $330,000,
respectively, at December 31, 2007. In addition, the Company has a limited
operating history and no revenue producing operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
GHP HORWATH, P.C.
March 18, 2008
Denver, Colorado
73
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS
December 31,
-------------------------------------------
2007 2006
------------------- --------------------
Current assets:
Cash $ 182,401 $ 1,116
Receivables from issuance of common stock (Note 6) 2,570 2,700
Prepaid expenses 8,019 -
------------------- --------------------
Total current assets 192,990 3,816
------------------- --------------------
Debt-issue costs, net 3,162
Deposits for acquisition of long-lived assets (Note 3) 491,666 -
------------------- --------------------
494,828 -
------------------- --------------------
Total assets $ 687,818 $ 3,816
=================== ====================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 87,501 $ 8,529
Accrued interest 16,380 -
Convertible notes payable (Note 4) 914,000 -
------------------- --------------------
Total liabilities (all current) 1,017,881 8,529
------------------- --------------------
Shareholders' deficit (Note 6):
Preferred stock; $.001 par value; 5,000,000 shares authorized;
none issued or outstanding - -
Common stock; $.001 par value; 50,000,000 shares authorized;
9,770,000 and 3,825,000 shares issued and outstanding as of
December 31, 2007 and 2006, respectively 9,770 3,825
Additional paid-in capital 113,295 -
Deficit accumulated during the development stage (453,128) (8,538)
------------------- --------------------
Total shareholders' deficit (330,063) (4,713)
------------------- --------------------
$ 687,818 $ 3,816
=================== ====================
SEE NOTES TO FINANCIAL STATEMENTS.
74
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
Period from Period from
July 5, 2006 July 5, 2006
(inception) (inception)
Year ended through through
December 31, 2007 December 31, 2006 December 31, 2007
---------------------- ----------------------- ------------------------
Operating expenses:
General and administrative expense $ (426,102) $ (8,538) $ (434,640)
---------------------- ----------------------- ------------------------
Other expense:
Interest expense (Note 4) (18,488) - (18,488)
---------------------- ----------------------- ------------------------
Net loss $ (444,590) $ (8,538) $ (453,128)
====================== ======================= ========================
Basic and diluted net loss per share $ (0.06) $ *
====================== =======================
Weighted average number of common
shares outstanding 7,136,096 1,968,611
====================== =======================
* Less than ($0.01) per share
SEE NOTES TO FINANCIAL STATEMENTS.
75
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIOD FROM JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2007
Additional Deficit
Common stock paid-in accumulated Total
-------------------------------- during the shareholders'
Shares Amount capital development stage deficit
--------------- ------------- --------------- -------------- -----------------
Common stock issued for cash
between July 5, 2006 (inception)
and December 31, 2006 at par
value ($0.001 per share) 3,825,000 $ 3,825 $ 3,825
Net loss $ (8,538) (8,538)
--------------- ------------ --------------- -------------- -----------------
Balances, December 31, 2006 3,825,000 3,825 (8,538) (4,713)
Common stock issued for cash
between January and
December 2007 at par value
($0.001 per share) 5,490,000 5,490 5,490
Common stock issued for services,
valued at $0.25 per share (Note 6) 455,000 455 $ 113,295 113,750
Net loss (444,590) (444,590)
--------------- ------------ -------------- -------------- ----------------
Balances, December 31, 2007 9,770,000 $ 9,770 $ 113,295 $ (453,128) $ (330,063)
=============== ============ ============== ============== ================
SEE NOTES TO FINANCIAL STATEMENTS.
76
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
Period from Period from
July 5, 2006 July 5, 2006
(inception) (inception)
Year ended through through
December 31, 2007 December 31, 2006 December 31, 2007
------------------ ---------------- ----------------
Cash flows from operating activities:
Net loss $ (444,590) $ (8,538) $ (453,128)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 113,750 - 113,750
Amortization of debt-issue costs 2,108 - 2,108
Changes in assets and liabilities:
Increase in prepaid expenses (8,019) - (8,019)
Increase in accounts payable 78,972 8,529 87,501
Increase in accrued interest 16,380 - 16,380
------------------ ---------------- ----------------
Net cash used in operating activities (241,399) (9) (241,408)
------------------ ---------------- ----------------
Cash flows from investing activities:
Deposits for acquisition of long-lived assets (491,666) - (491,666)
------------------ ---------------- ----------------
Net cash used in investing activities (491,666) - (491,666)
------------------ ---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable 914,000 - 914,000
Proceeds from issuance of common stock 5,620 1,125 6,745
Debt issue costs (5,270) - (5,270)
------------------ ---------------- ----------------
Net cash provided by financing activities 914,350 1,125 915,475
------------------ ---------------- ----------------
Net increase in cash 181,285 1,116 182,401
Cash, beginning of period 1,116 - -
------------------ ---------------- ----------------
Cash, end of period $ 182,401 $ 1,116 $ 182,401
================== ================ ================
Supplemental disclosure of non-cash investing and
financing activities:
Receivables from issuance of common stock $ 2,570 $ 2,700 $ 5,270
================== ================ ================
SEE NOTES TO FINANCIAL STATEMENTS.
77
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
1. ORGANIZATION, BASIS OF PRESENTATION, GOING CONCERN AND MANAGEMENT'S PLANS:
ORGANIZATION AND BASIS OF PRESENTATION:
China Wi-Max Communications, Inc. (the "Company") is a development stage
telecommunications broadband provider. The Company is a Nevada corporation
formed in July 2006, and is focused on providing commercial customers with
high bandwidth connections throughout first and second tier markets in
China. For accounting purposes, the Company is classified as a development
stage enterprise in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 7.
The Company plans to build, own, and operate metropolitan area Internet
Protocol (IP)-based broadband networks using a combination of Company-owned
optical fiber and licensed Wi-Max (Worldwide Interoperability for Microwave
Access) capable wireless spectrum. These networks are designed to provide
the reliability, redundancy, scalability, and other features expected of a
carrier class network. The Company intends to provide value-added services
such as IP transport, Internet Service Provider (ISP) services, and
broadband internet access. The Company also intends to offer Voice Over
Internet Protocal (VOIP) services. The Company plans to position inself to
bypass the local loop facilities of the current local exchange carriers to
connect enterprise customers directly to a global communications network.
To facilitate its plans, the Company is in the process of acquiring two
shell companies in China, which are to hold and control the assets
acquired, and through which operations are to occur (Note 3).
GOING CONCERN AND MANAGEMENT'S PLANS:
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The Company
reported a net loss of approximately $445,000 for the year ended December
31, 2007, and a working capital deficiency and shareholders' deficit of
approximately $825,000 and $330,000, respectively, at December 31, 2007.
The Company has a limited operating history and has no revenue producing
operations. In addition, the Company does not have a revolving loan
agreement with any financial institution, nor can the Company provide any
assurance it will be able to enter into any such agreement in the future,
or be able to raise funds through a future issuance of debt or equity.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of assets or
the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
To address its current cash flow concerns, the Company is completing a $1
million issuance of 12% convertible notes maturing in December 2008,
convertible at $0.25 per share (Note 4), and is in the process of raising
additional capital through a $1 million bridge loan, which consists of 10%
convertible notes maturing in December 2009, convertible at $0.50 per
share. Debt issuances are expected to be completed in the first and second
quarter of 2008. In addition, the Company is planning a $3 to $5 million
private placement of stock in mid 2008. Management anticipates that the
proceeds from the bridge loan and the private placement will be used
primarily to acquire long-lived assets and to begin marketing the Company's
services, including the implementation of required infrastructure.
78
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
LONG-LIVED ASSETS:
Management assesses the carrying values of long-lived assets for impairment
when circumstances indicate that such amounts may not be recoverable from
future operations. Generally, assets to be held and used are considered
impaired if the sum of expected undiscounted future cash flows is less than
the carrying amount of the asset.
DEBT ISSUE COSTS:
Debt issue costs of $5,270 are being amortized to interest expense on a
straight-line basis over the term of the related debt, which matures in
December 2008 (Note 4). Accumulated amortization is $2,108 as of December
31, 2007.
CONVERTIBLE SECURITIES:
Convertible notes are accounted for in accordance with the provisions of
Emerging Issues Task Force ("EITF") Issue No. 98-5, ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES ("EITF 98-5")
and EITF Issue No. 00-27, APPLICATION OF ISSUE NO. 98-5 TO CERTAIN
CONVERTIBLE INSTRUMENTS ("EITF 00-27"). Under these pronouncements, the
Company, where applicable, records a beneficial conversion feature
amortized as additional discount on debt and recorded as expense. The
Company has also considered EITF No. 05-2, THE MEANING OF CONVENTIONAL
CONVERTIBLE DEBT INSTRUMENTS and EITF Issue No. 00-19, ACCOUNTING FOR
DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A
COMPANY'S OWN STOCK.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's cash, receivables from the issuance of
common stock, accounts payable and convertible notes, approximate their
carrying amounts due to the short maturities of these instruments.
REVENUE RECOGNITION:
The Company does not yet have any revenue-producing operations. Upon
commencement of revenue-producing operations, the Company intends to
recognize revenue pursuant to Securities and Exchange Commission, Staff
Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, as amended by SAB No. 104, REVENUE RECOGNITION. Consistent with
the requirements of these SABs, revenue will be recognized only when: a)
persuasive evidence of arrangement exists, b) delivery has occurred, c) the
seller's price to the buyer is fixed, and d) collectibility is reasonably
assured.
79
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
LOSS PER SHARE:
Basic loss per share of common stock is computed based on the weighted
average number of common shares outstanding during the year. Stock options
and common shares issuable upon the conversion of debt securities
(3,721,520 at December 31, 2007) are not considered in the calculation, as
the effect would be antidilutive. Therefore, diluted loss per share is
equivalent to basic loss per share.
STOCK BASED COMPENSATION:
The Company has adopted the provisions of SFAS No. 123 (revised 2004),
SHARE-BASED PAYMENT ("SFAS 123R"). SFAS 123R requires the recognition of
the cost of employee services received in exchange for an award of equity
instruments in the financial statements and is measured based on the grant
date fair value of the award. SFAS 123R also requires the stock option
compensation expense to be recognized over the period during which an
employee is required to provide service in exchange for the award
(generally the vesting period). The Company did not grant any options in
2007 or 2006.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In December 2007, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 (R), BUSINESS COMBINATIONS ("SFAS 141 (R)"), which becomes
effective for fiscal periods beginning after December 15, 2008. SFAS No.
141 (R) requires all business combinations completed after the effective
date to be accounted for by applying the acquisition method (previously
referred to as the purchase method). Companies applying this method will
have to identify the acquirer, determine the acquisition date and purchase
price and recognize at their acquisition date fair values of the
identifiable assets acquired, liabilities assumed, and any non-controlling
interests in the acquiree. In the case of a bargain purchase, the acquirer
is required to reevaluate the measurements of the recognized assets and
liabilities at the acquisition date and recognize a gain on that date if an
excess remains. The Company does not expect the adoption of this statement
to have a material impact on its financial statements.
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS AN AMENDMENT OF ARB 51 ("SFAS 160") which
becomes effective for fiscal periods beginning after December 15, 2008.
This statement amends ARB 51 to establish accounting and reporting
standards for non-controlling interests in a subsidiary and for the
deconsolidation of a subsidiary. The statement requires ownership interests
in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of
financial position within equity, but separate from the parent's equity.
The statement also requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
non-controlling interest with disclosure on the face of the consolidated
statement of income, of the amounts consolidated net income attributable to
the parent and to the non-controlling interest. In addition, this statement
establishes a single method of accounting for changes in a parent's
ownership interest in a subsidiary that do not result in deconsolidation
and requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. The Company does not expect the adoption of
this statement to have a material impact on its financial statements.
80
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED):
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT TO FASB
STATEMENT NO. 115. This statement permits companies to choose to measure
many financial instruments and other items at fair value. The objective is
to improve financial reporting by providing entities with the opportunity
to mitigate volatility in reported earnings caused by measuring related
assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement is expected to expand the use of fair
value measurement of accounting for financial instruments, and the fair
value option established by this statement permits all entities to measure
eligible items at fair value at specified election dates. This statement is
effective as of the beginning of an entity's first fiscal year that begins
after November 15, 2007. The Company is assessing the impact that the
adoption of SFAS No. 159 may have on its financial statements.
In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENT.
This statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS No. 157 does not require
any new fair value measurements, but provides guidance on how to measure
fair value by providing a fair value hierarchy used to classify the source
of the information. This statement is effective for fiscal years beginning
after November 15, 2007. In February 2008, the FASB deferred the effective
date of SFAS No. 157 for one full year for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis. Management is currently
determining the effect, if any, that the adoption of SFAS No. 157 may have
on its financial statements.
3. DEPOSITS FOR ACQUISITION OF LONG-LIVED ASSETS AND INTERNATIONAL OPERATIONS:
As of December 31, 2007, the Company has made non-refundable deposits
totaling $491,666 with three parties in Beijing, China, in which these
parties, at the direction of the Company, are to acquire long-lived assets
on the Company's behalf. These long-lived assets are to consist of a
45-mile long optical fiber ring and ISP and wireless licenses. These assets
are to be held by Chinese shell companies for which the Company is to
acquire a 50% ownership in the Chinese company that will hold the ISP and
wireless licenses and a 100% ownership interest in a second Chinese company
that will hold the optical fiber assets. This corporate structure is being
established to satisfy the legal and regulatory requirements of the Chinese
telecommunications industry for the provision of value-added
telecommunications services. The remaining projected cost of acquiring all
assets and the ownership interests in the Chinese entities necessary to
commence operations is estimated to be $250,000 to $500,000. The Company
expects to complete these transactions in the second quarter of 2008.
The Company's foreign operations are to be located in China. Foreign
transactions will be conducted in currencies other than the U.S. dollar,
primarily the Chinese Renmimbi (RMB). As a result, the Company will be
exposed to movements in foreign currency exchange rates. In addition, the
Company will be subject to risks including adverse developments in the
foreign political and economic environment, trade barriers, managing
foreign operations and potentially adverse tax consequences. There can be
no assurance that any of these factors will not have a material negative
impact on the Company's financial condition or results of operations in the
future.
81
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
4. CONVERTIBLE NOTES PAYABLE:
In June 2007, the Company authorized the sale of up to $1 million of
convertible notes payable. Between June and December 2007, the Company
issued $914,000 of notes payable, which mature on December 31, 2008, bear
interest at 12% per annum, and are unsecured. Principal and interest are
convertible at any time into shares of the Company's common stock at $0.25
per share, at the option of the note holders.
5. INCOME TAXES:
In 2007, the Company adopted FASB Interpretation No. 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES, AN INTERPRETATION OF FASB STATEMENT 109 ("FIN
48") The Company did not have any unrecognized tax benefits, and there was
no effect on the Company's financial condition or results of operations as
a result of implementing FIN 48.
The Company files an income tax return in the U.S. federal jurisdiction,
and the Company is subject to U.S. federal examinations for 2007 and 2006.
Management does not believe it has any material unrecognized tax positions.
The Company recognizes interest and penalties accrued on any unrecognized
tax benefits as a component of income tax expense. As of the date of
adoption of FIN 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor was any
interest expense recognized during the period.
Based on statutory rates, the Company's expected income tax benefit was
approximately $151,000 and $3,000 for the year ended December 31, 2007, and
the period from July 5, 2006 through December 31, 2006, respectively. The
expected income tax benefit differs from the actual benefit of $0 each
period, due primarily to the valuation allowance.
Deferred tax assets consisted of the following at December 31, 2007 and
2006:
2007 2006
------------- --------------
Deferred non-current tax assets:
Loss carryforwards $ 154,000 $ 3,000
Valuation allowance (154,000) (3,000)
------------- --------------
Net non-current deferred tax assets $ - $ -
============= ==============
At December 31, 2007, the Company has net operating loss carryforwards of
approximately $450,000, which expire through 2027. As the Company is unable
to determine that it is more likely than not that future taxable income of
the Company will be sufficient to utilize the operating loss carryforwards,
a valuation allowance has been established against these assets.
6. SHAREHOLDERS DEFICIT:
RECEIVABLES FROM ISSUANCE OF COMMON STOCK:
AtDecember 31, 2007, the Company has a receivable for common stock issued
of $2,570, which was collected in January and February 2008. At December
31, 2006, the Company had a $2,700 receivable for common stock issued,
which was collected in 2007.
82
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2007, PERIOD FROM
JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006, AND
PERIOD FROM JULY 5, 2006 THROUGH DECEMBER 31, 2007
6. SHAREHOLDERS DEFICIT (CONTINUED):
STOCK OPTION PLAN:
In February 2008, the Company initiated plans to implement a Corporation
Stock Option Plan (the "Plan") covering up to three million shares of the
Company's common stock. The exercise prices of the options granted will be
determined by the Plan committee, whose members are appointed by the Board
of Directors, and the exercise prices are generally to be established at
the estimated fair value of the Company's common stock at the date of
grant. Options are to be granted with terms not to exceed five years.
Before any employee options may be delivered or exercised, the Company's
shareholders must ratify the Plan.
COMMON STOCK ISSUED FOR SERVICES:
During 2007, the Company issued 380,000 shares of common stock to various
third parties who performed services for the Company. These shares were
valued at $95,000. In December 2007, the Company also issued 75,000 shares
to a director/significant shareholder of the Company valued at $18,750 for
services rendered. All shares issued for services were valued at $0.25 per
share, which was based on the estimated fair value of the services
rendered.
83
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
84
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
CONTENTS
Financial statements:
Balance sheets - June 30, 2008 (Unaudited) and December 31, 2007 86
Statements of operations (Unaudited) 87
Statements of shareholders' deficit (Unaudited) 88
Statements of cash flows (Unaudited) 89
Notes to financial statements (Unaudited) 90-95
85
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS
June 30, December 31,
2008 2007
-------------- ---------------
Unaudited
Current assets:
Cash $ 34,952 $ 182,401
Receivables from issuance of common stock (Note 6) - 2,570
Prepaid expenses 16,764 8,019
-------------- ---------------
Total current assets 51,716 192,990
-------------- ---------------
Debt-issue costs, net 1,262 3,162
Deposits for acquisition of long-lived assets (Note 3) 852,330 491,666
-------------- ---------------
853,592 494,828
-------------- ---------------
Total assets $ 905,308 $ 687,818
============== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 34,624 $ 87,501
Accrued interest 95,018 16,380
Convertible notes payable (Note 4) 1,004,300 914,000
-------------- ---------------
Total current liabilities 1,133,942 1,017,881
-------------- ---------------
Non-current Liabilities
Convertible notes payable (Note 4) 680,000 -
-------------- ---------------
Total liabilities 1,813,942 1,017,881
-------------- ---------------
Shareholders' deficit (Note 6):
Preferred stock; $.001 par value; 5,000,000 shares authorized;
none issued or outstanding - -
Common stock; $.001 par value; 50,000,000 shares authorized;
10,144,000 and 9,770,000 shares issued and outstanding as of
June 30, 2008 and December 31, 2007, respectively 10,144 9,770
Additional paid-in capital 343,086 113,295
Deficit accumulated during the development stage (1,261,864) (453,128)
-------------- ---------------
Total shareholders' deficit (908,634) (330,063)
-------------- ---------------
$ 905,308 $ 687,818
============== ===============
SEE NOTES TO FINANCIAL STATEMENTS.
86
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Period from
July 5, 2006
Six Months Ended (inception)
------------------------------------------------- through
June 30, 2008 June 30, 2007 June 30, 2008
---------------------- ---------------------- --------------------
Operating expenses:
General and administrative expense $ (730,098) $ (63,543) $ (1,166,846)
---------------------- ---------------------- --------------------
Operating loss (730,098) (63,543) (1,166,846)
---------------------- ---------------------- --------------------
Other expense:
Interest expense (Note 4) (78,638) - (95,018)
---------------------- ---------------------- --------------------
Net loss $ (808,736) $ (63,543) $ (1,261,864)
====================== ====================== ====================
Basic and diluted net loss per share $ (0.08) $ (0.01)
====================== ======================
Weighted average number of common
shares outstanding 9,885,467 5,020,110
====================== ======================
SEE NOTES TO FINANCIAL STATEMENTS.
87
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIOD FROM JULY 5, 2006 (INCEPTION) THROUGH JUNE 30, 2008
Deficit
accumulated
Common stock Additional during the Total
----------------------------- paid-in development shareholders'
Shares Amount capital stage deficit
------------- ------------- -------------- ----------------- ---------------
Common stock issued for cash between
July 5, 2006 (inception) and
December 31, 2006 at par value 3,825,000 $ 3,825 $ - $ - $ 3,825
Net loss (8,538) (8,538)
------------- ------------- -------------- ----------------- ---------------
Balances, December 31, 2006 3,825,000 3,825 - (8,538) (4,713)
Common stock issued for cash
between January and December
2007, valued at par value ($0.001
per share) 5,490,000 5,490 5,490
Common stock issued for services,
valued at $0.25 per share 455,000 455 113,295 113,750
Net loss (444,590) (444,590)
------------- ------------- -------------- ----------------- ---------------
Balances, December 31, 2007 9,770,000 9,770 113,295 (453,128) (330,063)
Shares of common stock cancelled at
par value (unaudited) (260,000) (260) (260)
Common stock issued for services,
valued at $0.25 per share (Note 6)
(unaudited) 634,000 634 157,866 158,500
Fair value of options vested during the
period (Note 6) (unaudited) 71,925 71,925
Net loss (unaudited) (808,736) (808,736)
------------- ------------- -------------- ----------------- ---------------
Balances, June 30, 2008 (unaudited) 10,144,000 $ 10,144 $ 343,086 $ (1,261,864) $ (908,634)
============= ============= ============== ================= ===============
SEE NOTES TO FINANCIAL STATEMENTS.
88
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
Period from
July 5, 2006
(inception)
Six Months Ended through
June 30, June 30,
2008 2007 2008
--------------------- ------------------ -----------------
Cash flows from operating activities:
Net loss $ (808,736) $ (63,543) $ (1,261,864)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Common stock issued for services 158,500 25,000 272,250
Non cash stock option expense 71,925 - 71,925
Amortization of debt-issue costs 1,901 - 4,009
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses (8,746) 17,552 (16,764)
Increase (decrease) accounts payable (47,877) 30,294 34,624
Increase in accrued interest 78,638 - 95,018
Decrease in accrued expenses (5,000) - -
--------------------- ------------------ -----------------
Net cash (used in) provided by operating activities (559,395) 9,303 (800,802)
--------------------- ------------------ -----------------
Cash flows from investing activities:
Deposits for acquisition of long-lived assets (360,664) (35,000) (852,330)
--------------------- ------------------ -----------------
Net cash used in investing activities (360,664) (35,000) (852,330)
--------------------- ------------------ -----------------
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable 770,300 25,000 1,684,300
Proceeds from issuance of common stock 2,310 2,310 9,055
Debt issue costs - - (5,271)
--------------------- ------------------ -----------------
Net cash provided by financing activities 772,610 27,310 1,688,084
--------------------- ------------------ -----------------
Net (decrease) increase in cash and cash equivalents
(147,449) 1,613 34,952
Cash and cash equivalents, beginning
182,401 1,116 -
--------------------- ------------------ -----------------
Cash and cash equivalents, ending $ 34,952 $ 2,729 $ 34,952
===================== ================== =================
Supplemental disclosure of non-cash investing
and financing activities:
Receivable from issuance of common stock - $2,765 -
===================== ================== =================
SEE NOTES TO FINANCIAL STATEMENTS.
89
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION, GOING CONCERN AND MANAGEMENT'S
PLANS:
ORGANIZATION AND BASIS OF PRESENTATION:
China Wi-Max Communications, Inc. (the "Company") is a development
stage telecommunications broadband provider. The Company is a Nevada
corporation formed in July 2006, and is focused on providing commercial
customers with high bandwidth connections throughout first and second
tier markets in China. For accounting purposes, the Company is
classified as a development stage enterprise in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 7.
The Company plans to build, own, and operate metropolitan area Internet
Protocol (IP)-based broadband networks using a combination of
Company-owned optical fiber and licensed WI-MAX (Worldwide
Interoperability for Microwave Access) capable wireless spectrum. These
networks are designed to provide the reliability, redundancy,
scalability, and other features expected of a carrier class network.
The Company intends to provide value-added services such as IP
transport, Internet Service Provider (ISP) services, and broadband
internet access. The Company also intends to offer Voice Over Internet
Protocal (VOIP) services. The Company plans to position inself to
bypass the local loop facilities of the current local exchange carriers
to connect enterprise customers directly to a global communications
network.
To facilitate its plans, the Company is in the process of acquiring two
shell companies and establishing one wholly-owned foreign entity in
China, which are to hold and control the assets acquired, and through
which operations are to occur (Note 3).
The accompanying audited interim 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 ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such regulations.
The unaudited condensed consolidated financial statements reflect all
adjustments and disclosures that are, in the opinion of management,
necessary for a fair presentation. Except as described above, all such
adjustments are of a normal recurring nature. The results for the
six-month period ended June 30, 2008, are not necessarily indicative of
the results expected for the year ending December 31, 2008
GOING CONCERN AND MANAGEMENT'S PLANS:
The accompanying unaudited interim financial statements have been
prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the
normal course of business. The Company reported a net loss of
approximately $809,000 for the six months ended ended June 30, 2008,
and a working capital deficiency and shareholders' deficit of
approximately $1,082,000 and $909,000, respectively, at June 30, 2008.
The Company has a limited operating history and has no revenue
producing operations. In addition, the Company does not have a
revolving loan agreement with any financial institution, nor can the
Company provide any assurance it will be able to enter into any such
agreement in the future, or be able to raise funds through a future
issuance of debt or equity. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
recoverability and
90
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION, GOING CONCERN AND MANAGEMENT'S
PLANS (CONTINUED):
GOING CONCERN AND MANAGEMENT'S PLANS (CONTINUED):
classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue as a going concern.
To address its current cash flow concerns, the Company completed a $1
million note issuance consisting of 12% convertible notes maturing in
December 2008, convertible at $0.25 per share. The Company is in the
process of raising additional capital through a $1 million bridge loan,
which consists of 10% convertible notes maturing in December 2009,
convertible at $0.50 per share. The 10% convertible note issuance is
expected to be completed in the second half of 2008. In addition, the
Company is planning a $5 million private placement of stock in late
2008. Management anticipates that the proceeds from the bridge loans
and the private placement will be used primarily to acquire long-lived
assets and to begin marketing the Company's services, including the
implementation of required infrastructure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
LONG-LIVED ASSETS:
Management assesses the carrying values of long-lived assets for
impairment when circumstances indicate that such amounts may not be
recoverable from future operations. Generally, assets to be held and
used are considered impaired if the sum of expected undiscounted future
cash flows is less than the carrying amount of the asset.
DEBT ISSUE COSTS:
Debt issue costs of approximately $5,000 are being amortized to
interest expense on a straight-line basis over the term of the related
debt, which matures in December 2008 (Note 4). Accumulated amortization
is approximately $4,000 as of June 30, 2008.
CONVERTIBLE SECURITIES:
Convertible notes are accounted for in accordance with the provisions
of Emerging Issues Task Force ("EITF") Issue No. 98-5, ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES ("EITF
98-5") and EITF Issue No. 00-27, APPLICATION OF ISSUE NO. 98-5 TO
CERTAIN CONVERTIBLE INSTRUMENTS ("EITF 00-27"). Under these
pronouncements, the Company, where applicable, records a beneficial
conversion feature amortized as additional discount on debt and
recorded as expense. The Company has also considered EITF No. 05-2, THE
MEANING OF CONVENTIONAL CONVERTIBLE DEBT INSTRUMENTS and EITF Issue No.
00-19, ACCOUNTING FOR
91
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CONVERTIBLE SECURITIES (CONTINUED):
DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED
IN, A COMPANY'S OWN STOCK.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's cash, receivables from the issuance of
common stock, accounts payable and convertible notes, approximate their
carrying amounts due to the short maturities of these instruments.
REVENUE RECOGNITION:
The Company does not yet have any revenue-producing operations. Upon
commencement of revenue-producing operations, the Company intends to
recognize revenue pursuant to Securities and Exchange Commission, Staff
Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, as amended by SAB No. 104, REVENUE RECOGNITION. Consistent
with the requirements of these SABs, revenue will be recognized only
when: a) persuasive evidence of arrangement exists, b) delivery has
occurred, c) the seller's price to the buyer is fixed, and d)
collectibility is reasonably assured.
LOSS PER SHARE:
Basic loss per share of common stock is computed based on the weighted
average number of common shares outstanding during the year. Stock
options and common shares issuable upon the conversion of debt
securities (5,377,200 at June 30, 2008; 100,000 at June 30, 2007) are
not considered in the calculation, as the effect would be antidilutive.
Therefore, diluted loss per share is equivalent to basic loss per
share.
RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS:
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION
FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT
TO FASB STATEMENT NO. 115. This statement permits companies to choose
to measure many financial instruments and other items at fair value.
The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having
to apply complex hedge accounting provisions. This statement is
expected to expand the use of fair value measurement of accounting for
financial instruments, and the fair value option established by this
statement permits all entities to measure eligible items at fair value
at specified election dates. This statement was effective for the
Company on January 1, 2008. The Company did not apply the fair value
option to any of its outstanding instruments and therefore SFAS No. 159
did not have an impact on the Company's financial statements.
92
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS (CONTINUED):
In September 2006, the FASB issued SFAS No. 157, FAIR VALUE
MEASUREMENT. This statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. SFAS No. 157
does not require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy used
to classify the source of the information. This statement is effective
for fiscal years beginning after November 15, 2007. SFAS No. 157 was
effective for the Company on January 1, 2008 for all financial assets
and liabilities. For non-financial assets and liabilities, SFAS No. 157
is effective for the Company on January 1, 2009. Management is
currently determining the effect that the adoption of SFAS No. 157 may
have on its financial statements beyond it's current fiscal year.
In March 2008, the FASB issued SFAS No. 161 DISCLOSURES ABOUT
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 161 requires
additional disclosure related to derivatives instruments and hedging
activities. The provisions of SFAS No. 161 are effective for fiscal
years and interim periods beginning after November, 15, 2008, and the
Company is currently evaluating the impact of adoption.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,
"Determination of the Useful Life of Intangible Assets." This FSP
amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, "Goodwill and Other
Intangible Assets." The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset
under Statement 142 and the period of expected cash flows used to
measure the fair value of the asset under FASB Statement No. 141
(Revised 2007), "Business Combinations," and other U.S. generally
accepted accounting principles (GAAP). This FSP is effective for
financial statements issued for fiscal years beginning after December
15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company does not expect the adoption of FAS 142-3 to
have a material effect on its results of operations and financial
condition.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles" (SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
generally accepted accounting principles (the GAAP hierarchy). SFAS 162
will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles." The Company does not expect the adoption of
SFAS 162 to have a material effect on its results of operations and
financial condition.
In May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1
"Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement)" (FSP APB
14-1). FSP APB 14-1 requires the issuer of certain convertible debt
instruments that may be settled in cash (or other assets) on conversion
to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the
issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective
for fiscal years beginning after December 15, 2008 on a retroactive
basis and will be adopted by the Company in the first quarter of fiscal
2009. The Company does not expect the adoption of FSP APB 14-1 to have
a material effect on its results of operations and financial condition.
93
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
3. DEPOSITS FOR ACQUISITION OF LONG-LIVED ASSETS AND INTERNATIONAL
OPERATIONS:
As of June 30, 2008, the Company has made non-refundable deposits
totaling $852,330 with three parties in Beijing, China, in which these
parties, at the direction of the Company, are to acquire long-lived
assets on the Company's behalf. These long-lived assets are to consist
of 45-mile and 17-mile long optical fiber rings, an ISP and three
wireless licenses. These assets are to be held by Chinese shell
companies for which the Company is to acquire a 50% ownership in the
Chinese company that will hold the ISP and wireless licenses and a 100%
ownership interest in a second Chinese company that will hold the
optical fiber assets. This corporate structure is being established to
satisfy the legal and regulatory requirements of the Chinese
telecommunications industry for the provision of value-added
telecommunications services. The remaining projected cost of acquiring
all assets and the ownership interests in the Chinese entities
necessary to commence operations is estimated to be $250,000 to
$500,000. The Company expects to complete these transactions in the
third and fourth quarters of 2008.
The Company's foreign operations are to be located in China. Foreign
transactions will be conducted in currencies other than the U.S.
dollar, primarily the Chinese Renmimbi (RMB). As a result, the Company
will be exposed to movements in foreign currency exchange rates. In
addition, the Company will be subject to risks including adverse
developments in the foreign political and economic environment, trade
barriers, managing foreign operations and potentially adverse tax
consequences. There can be no assurance that any of these factors will
not have a material negative impact on the Company's financial
condition or results of operations in the future.
4. CONVERTIBLE NOTES PAYABLE:
In June 2007, the Company authorized the sale of up to $1 million of
convertible notes payable. As of January 2008, the Company
oversubscribed the offering and issued $1,004,300 of notes payable,
which mature on December 31, 2008, bear interest at 12% per annum, and
are unsecured. Principal and interest are convertible at any time into
shares of the Company's common stock at $0.25 per share, at the option
of the note holders. In addition, in March 2008, the Company authorized
the sale of up to an additional $1 million of convertible notes
payable. As of June 30, 2008, the Company issued $680,000 of notes
payable, which mature on December 31, 2009, bear interest at 10% per
annum, and are unsecured. Principal and interest are convertible at any
time into shares of the Company's common stock at $0.50 per share, at
the option of the note holders.
5. INCOME TAXES:
Based on statutory rates, the Company's expected income tax benefit was
approximately $429,000 for the period from inception through June 30,
2008, and $275,000 and $22,000 for the six month periods ended June 30,
2008 and 2007. The expected income tax benefit differs from the actual
benefit of $0 each period, due primarily to the valuation allowance. As
the Company is unable to determine that it is more likely than not that
future taxable income of the Company will be sufficient to utilize the
operating loss carryforwards, a valuation allowance has been
established against these assets.
94
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
6. SHAREHOLDERS DEFICIT:
RECEIVABLES FROM ISSUANCE OF COMMON STOCK:
At December 31, 2007, the Company had a receivable for common stock
issued of $2,570. All payments have been received subsequent to the
balance sheet date.
STOCK OPTION PLAN:
Effective January 1, 2008, the Company established a Stock Option Award
and Compensation Plan (the "Plan") covering up to four million shares
of the Company's common stock. Any employee, consultant or Director of
the Company, any Parent or any Subsidiary is eligible to participate.
The exercise prices of the options granted were determined by the Plan
committee, whose members are appointed by the Board of Directors, and
the exercise prices are generally to be established at the estimated
fair value of the Company's common stock at the date of grant. Options
are to be granted with terms not to exceed five years. The Company
granted 2,600,000 options during the first quarter of 2008 with an
exercise price of $.25 per share and cancelled 400,000 of these grants
in the second quarter of 2008. There were 425,000 vested options as of
June 30, 2008. Before any employee options may be delivered or
exercised, the shareholders must ratify the Plan.
The compensation committee may award incentive stock options and
nonqualified stock options under the 2008 Plan. Only employees may
receive incentive stock options. The compensation committee also
determines the exercise price of each option. However, the exercise
price of an incentive stock option may not be less than 100% of the
fair market value of the underlying shares on the date of grant. The
exercise price of any option may not be less than the par value of the
underlying share(s).
The compensation committee determines the term of each option, but no
term may exceed 10 years from the date of grant. The compensation
committee also determines at what time or times each option may be
exercised and any conditions that must be met before an option may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the compensation
committee.
The Company recorded total stock-based compensation of $71,925 for the
six months ended June 30, 2008 for options that vested in the period.
These costs are included in general and administrative expense. As of
June 30, 2008 the fair value of unvested stock options amounted to
$222,175 which are expected to be recognized over a weighted average
period of approximately 1.2 years and a current vesting period of up to
56 months.
The Company uses the Black-Scholes option pricing model to determine
the weighted average fair value of options. The weighted average fair
value of options granted during the six months ended June 30, 2008 was
$0.13. The assumptions utilized to determine the fair value of options
granted during the six months ended June 30, 2008 are indicated in the
following table. There were no options granted in the six months ended
June 30, 2007.
Risk free interest rates 1.61% - 2.89%
Expected volatility 80% - 89%
Expected life in years 2 - 3
Expected dividend yield -
95
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
(UNAUDITED)
6. SHAREHOLDERS DEFICIT (CONTINUED):
STOCK OPTION PLAN (CONTINUED):
The following table sets forth the activity in the Company's Stock
Option Plan since its January 1, 2008 establishment:
Weighted
Average
Number of Exercise Average
Options Price Exercisable Fair Value
------------ ------------ --------------- ------------
Outstanding January 1, 2008 - - - -
Granted during period 2,600,000 $0.25 525,000 $0.13
Forfeited/expired 400,000 0.25 100,000 0.14
------------ ------------ --------------- ------------
Outstanding June 30, 2008 2,200,000 $0.25 425,000 $0.13
============ ============ =============== ============
It was determined that there was no intrinsic value attributable to
options granted during the six months ended June 30, 2008, as the
estimated market price of the Company's common stock of $.25 per share
is the same as the exercise price of the options.
COMMON STOCK ISSUED FOR SERVICES:
During the six months ended June 30, 2008, the Company issued 634,000
shares of common stock to various parties as employment signing bonuses
and payments for services performed for the Company, valued at $158,500
($0.25 per share). There were 100,000 shares of common stock issued for
services during the six months ended June 30, 2007, valued at $25,000.
96
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS (COMMENT #31)
(a) Audited financial statements for December 31, 2006 and 2007
Unaudited financial statements for June 30, 2008
(b) EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Articles of Incorporation of China Wi-Max Communications, Inc. - 7/5/06
3.2 Certificate of Amendment - 9/1/06 (Stock amount changed to 50,000,000 @ $.001)
3.3 Bylaws of China Wi-Max Communications, Inc. (1)
10.1 Shares Transfer Agreement between Zhouwei and China Wi-Max Communications, Inc.
10.2 Employment Agreement - George E. Harris
10.3 Employment Agreement - Alan Rabinoff
10.4 2008 China Wi-Max Communications, Inc. Stock Option Award and Compensation Plan
10.5 Cooperation Agreement - English Translation and Chinese
21.1 List of Subsidiaries of China Wi-Max Communications, Inc. (1)
23.1 Consent of Independent Registered Public Accounting Firm
99.1 Appendix A - Diagram
99.2 Appendix B - Network Overview
99.3 English Translation of Business License of Gao Da Yang Guang Communication
Technology Ltd.
99.4 English Translation of Business License of Yuan Shan Shi Dai Technology
Development, Ltd.
99.5 Frequency License Explanation Letter
- ----------------
(1) Incorporated by reference from the exhibits included in the Company's Form
10 filed with the Securities and Exchange Commission (www.sec.gov), dated June
4, 2008. A copy can be provided by mail, free of charge, by sending a written
request to China Wi-Max, Inc., 1905 Sherman Street, Suite 335, Denver, Colorado
80203.
97
SIGNATURES:
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 25, 2008
CHINA WI-MAX COMMUNICATIONS, INC.
/s/George E. Harris
---------------------------------------------------
George E. Harris, President, CFO and Director
/s/Dr. Allan Rabinoff
---------------------------------------------------
Dr. Allan Rabinoff, Chairman and Executive Director
- China Business Development
/s/Buck Krieger
---------------------------------------------------
Buck Krieger, Director
/s/Jenny Wang
---------------------------------------------------
Jenny Wang, Chief Administrative Officer
and Director
/s/Daniel Najor
---------------------------------------------------
Daniel Najor, Director
98
CHINA WI-MAX COMMUNICATIONS, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------
3.1 Articles of Incorporation of China Wi-Max Communications, Inc. - 7/5/06
3.2 Certificate of Amendment - 9/1/06 (Stock amount changed to 50,000,000 @ $.001)
3.3 Bylaws of China Wi-Max Communications, Inc. (1)
10.1 Shares Transfer Agreement between Zhouwei and China Wi-Max Communications, Inc.
10.2 Employment Agreement - George E. Harris
10.3 Employment Agreement - Alan Rabinoff
10.4 2008 China Wi-Max Communications, Inc. Stock Option Award and Compensation Plan
10.5 Cooperation Agreement - English Translation and Chinese
21.1 List of Subsidiaries of China Wi-Max Communications, Inc. (1)
23.1 Consent of Independent Registered Public Accounting Firm
99.1 Appendix A - Diagram
99.2 Appendix B - Network Overview
99.3 English Translation of Business License of Gao Da Yang Guang Communication
Technology Ltd.
99.4 English Translation of Business License of Yuan Shan Shi Dai Technology
Development, Ltd.
99.5 Frequency License Explanation Letter
- ------------------------
(1) Incorporated by reference from the exhibits included in the Company's Form
10 filed with the Securities and Exchange Commission (www.sec.gov), dated June
4, 2008. A copy can be provided by mail, free of charge, by sending a written
request to China Wi-Max, Inc., 1905 Sherman Street, Suite 335, Denver, Colorado
80203.
99