MICHAEL A. LITTMAN
Attorney at Law
7609 Ralston Road
Arvada, CO 80002
(303) 422-8127
Fax (303) 431-1567
November 26, 2008
VIA EDGAR AND FEDERAL EXPRESS
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Securities and Exchange Commission
Attn: John Zitko
Larry Spirgel, Assistant Director
Mail Stop 3720
Washington, D.C. 20549
Re: China Wi-Max Communications, Inc.
Amendment No. 2 to Registration Statement on Form 10
Filed on November 5, 2008
File No. 000-53268
Dear Messrs. Zitko and Spirgel,
We have filed Amendment number 3 to Form 10 with amendments responsive
to your comments dated November 14, 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. WE NOTE YOUR RESPONSE TO PRIOR COMMENT THREE BUT ALSO CONTINUE TO NOTE YOUR
USE OF TERMS SUCH AS "THE COMPANY" IN REFERENCE TO ENTITIES OTHER THAN THE
NEVADA HOLDING COMPANY. 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 THE CHINA WI-MAX IS NOT AN OPERATING BUSINESS, YOU SHOULD IDENTIFY EACH
OPERATING ENTITY, AS APPLICABLE, THROUGHOUT THE PROSPECTUS. 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 revised areas throughout the Registration Statement text to
eliminate the confusing verbiage, specifically on pages 3 through 16.
November 26, 2008
China Wi-Max Communications, Inc.
Amendment No. 3 to Form 10
File No. 000-53268
Page 2 of 4
2. WE NOTE YOUR RESPONSE TO PRIOR COMMENT THREE AND THE REVISED DISCLOSURE ON
PAGES THREE THROUGH SIX. HOWEVER, YOUR DISCLOSURE THROUGHOUT THIS SECTION
CONTINUES TO ADDRESS THE COMPANY'S FUTURE PLANS. PLEASE CENTER YOUR DISCLOSURE
PRIMARILY UPON CURRENT OPERATIONS. YOU SHOULD DISCUSS PROSPECTIVE OPERATIONS
UNDER AN APPROPRIATE SUBHEADING, ALONG WITH THE CONDITIONS AND TIMETABLE FOR
CONDUCTING THOSE OPERATIONS.
Response:
We have revised to delete references to "future plans" to focus on
current operations, except in a "Future Plan" section on page 17.
ITEM 1. BUSINESS, PAGE 3
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3. WE NOTE YOUR RESPONSE TO PRIOR COMMENT FIVE AND YOUR REFERENCE TO REVISED
EXHIBIT 99.1. WE ALSO NOTE THAT THE REGISTRATION FOR COMPANY B (UNIDENTIFIED IN
EXHIBIT 99.1) IS STILL LISTED AS "PENDING," YOUR DESCRIPTION OF GAO DA AS BEING
50% OWNED DOES NOT APPARENTLY RECONCILE WITH YOUR STATEMENT ON PAGE FIVE THAT
CHINA WI-MAX INTENDS TO ACQUIRE 50% OWNERSHIP IN GAO DA AT A FUTURE DATE, AND
YOU HAVE IDENTIFIED ONLY ONE OF THE TWO LOCAL CHINESE COMPANIES WITH WHICH YOU
DISCLOSE AFFILIATES HAVE CONTRACTUAL ARRANGEMENTS. THEREFORE, PLEASE REVISE YOUR
DISCLOSURE HERE AND ELSEWHERE IN THE DOCUMENT, AS APPROPRIATE, INCLUDING
EXHIBITS 99.1 AND 21.1, TO PROVIDE A DETAILED DISCUSSION OF YOUR CURRENT
CORPORATE STRUCTURE. AS ALSO NOTED ABOVE, PROPOSED CORPORATE STRUCTURE MAY BE
INCLUDED UNDER AN APPROPRIATE SUBHEADING, ALONG WITH THE CONDITIONS AND
TIMETABLE FOR EXECUTING SUCH STRUCTURE, SPECIFICALLY IDENTIFYING ENTITIES AND
THE PROPOSED MANNER OF CONTROL.
Response:
We have included revised exhibits 99.1 and 21.1 per your request. We
have also changed the language on page five where marked (COMMENT #3) to comply
with your comment.
4. WE NOTE THE RESPONSE TO PRIOR COMMENT SIX AND THE ADDED DISCLOSURE ON PAGE
FIVE THAT THE THIRD PRIMARY CONTRACT IS BETWEEN DA CHUAN, GAO DA, AND LONG TENG.
HOWEVER, EXHIBIT 10.7 IS BETWEEN ONLY GAO DA AND LONG TENG. PLEASE ADVISE OR
REVISE.
Response:
We have revised language on page five as well as removed "Da Chuan"
from page 18 where marked (COMMENT #4).
November 26, 2008
China Wi-Max Communications, Inc.
Amendment No. 2 to Form 10
File No. 000-53268
Page 3 of 4
5. WE NOTE YOUR RESPONSE TO PRIOR COMMENT SEVEN AND THE REVISED DISCLOSURE ON
PAGE FIVE THAT GAO DA HOLDS WIRELESS SPECTRUM LICENSES FOR BEIJING, HANGZHOU AND
SHANGHAI, WHICH WERE FUNDED BY CHINA WI-MAX AND RECORDED BY CHINA WI-MAX AS
DEPOSITS. GAO DA HAS ISSUED A DECLARATION OF TRUST TO CHINA WI-MAX AS DEPOSITS.
GAO DA HAS ISSUED A DECLARATION OF TRUST TO CHINA WI-MAX AS BENEFICIARY PLEDGING
ALL GAO DA SHARES TO CHINA WI-MAX AS COLLATERAL FOR THE DEPOSITS, HOWEVER, WE
WERE UNABLE TO LOCATE THE OPERATIVE PROVISIONS OF SUCH AGREEMENTS IN EXHIBITS
10.6, 10.7, AND 10.8. PLEASE ADVISE OR REVISE.
Response:
The Exhibits 10.6, 10.7 and 10.8 have no such provisions, however,
Exhibit 10.11 filed herewith is a Declaration of Trust. We have revised the
language at page 5 where marked (COMMENT #5).
6. WE NOTE YOUR RESPONSE TO PRIOR COMMENT EIGHT AND THE REVISED DISCLOSURE ON
PAGE 13 THAT THE COMPANY BELIEVES THE CONTRACTS WITH GAO DA AND LONG TENG HAVE
SUBSTANTIAL DEFAULT PROVISIONS ENFORCEABLE, TO PROVIDE FOR REVENUE SHARING AND
ENTERPRISE MANAGEMENT, HOWEVER, WE WERE UNABLE TO LOCATE THE OPERATIVE
PROVISIONS IN SUCH AGREEMENTS. PLEASE ADVISE OR REVISE.
Response:
The Company believes that Articles 5 and 6 of the Long Teng Agreement
provide enforceability, but have amended the language at page 12 about
substantial default provisions.
PLAN OF OPERATIONS, PAGE 33
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7. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 12 BUT CONTINUE TO NOTE REFERENCES TO
THE COMPANY'S OFFERING MEMORANDUM WERE CONTAINED ON THE COMPANY'S WEBSITE
THROUGHOUT THE COURSE OF YOUR ONGOING CONVERTIBLE NOTE PRIVATE PLACEMENT. PLEASE
TELL US IN YOUR RESPONSE LETTER WHAT ROLE, IF ANY, THE ABOVE-REFERENCED ITEMS
HAVE SERVED TO IDENTIFY POTENTIAL INVESTORS IN THIS OFFERING.
Response:
No role was played by the above-referenced items in identifying any
investors. All investors were friends or acquaintances of officers, directors,
or founding shareholders.
November 26, 2008
China Wi-Max Communications, Inc.
Amendment No. 2 to Form 10
File No. 000-53268
Page 4 of 4
CONFLICTS OF INTEREST, PAGE 49
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8. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 17 AND THE REVISED DISCLOSURE ON PAGE
47. PLEASE REVISE TO MAKE CLEAR, IF TRUE, THAT THERE ARE NO CURRENT CONFLICTS OF
INTERESTS INVOLVING ANY OF YOUR DIRECTORS AND EXECUTIVE OFFICERS. IF ANY MEMBER
OF MANAGEMENT IS CURRENTLY AFFILIATE WITH ANOTHER PUBLIC OR PRIVATE COMPANY THAT
COULD GIVE RISE TO CONFLICTS OF INTERESTS, PLEASE DESCRIBE THE POTENTIAL
CONFLICT.
Response:
There are no conflicts known, and language to such effect have been
added to the section "Conflicts of Interest" on page 48 where marked (COMMENT
#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 to this matter.
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. 3
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
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
1905 Sherman Street, Suite 335, Denver, Colorado 80203
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(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 32
Item 3 PROPERTIES 43
Item 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 43
Item 5 DIRECTORS AND EXECUTIVE OFFICERS 45
Item 6 EXECUTIVE COMPENSATION 49
Item 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 53
Item 8 LEGAL PROCEEDINGS 55
Item 9 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED 55
STOCKHOLDER MATTERS
Item 10 RECENT SALES OF UNREGISTERED SECURITIES 56
Item 11 DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED 67
Item 12 INDEMNIFICATION OF DIRECTORS AND OFFICERS 68
Item 13 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 69
Item 14 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 97
DISCLOSURE
Item 15 FINANCIAL STATEMENTS AND EXHIBITS 97
2
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
Company focused on providing commercial customers, specifically in first and
second tier markets in China with high-bandwidth broadband connections through
wholly owned Chinese subsidiary companies. China Wi-Max, through its wholly
owned Chinese subsidiaries and those contracts the subsidiaries have executed,
is building and operating metropolitan area Internet Protocol (IP) based
broadband networks in China. China Wi-Max is using owned (through wholly owned
subsidiaries) equipment and optical fiber and licensed Wi-Max capable wireless
spectrum (through contracts its subsidiaries have executed with local Chinese
companies). Although China Wi-Max operates through wholly owned Chinese
subsidiaries, it has direct and full control over these wholly owned
subsidiaries operations, subject to the laws and regulations of China. (COMMENT
#1)
Broadband networks established, owned and operated by China Wi-Max's wholly
owned Chinese subsidiaries are designed to provide the reliability, redundancy,
scalability, and other features expected of a carrier class network. China
Wi-Max believes these networks 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 one part- time and four
full-time employees in the United States, augmented by a number of contract
personnel and professional services organizations.
There is no trading market for China Wi-Max's common stock. We are subject to
the reporting requirements under the Securities and Exchange Act of 1934,
Section 13a. We are registered under Section 12(g) of the Securities Exchange
Act of 1934. 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 U.S. generally accepted accounting principles and audited by
an independent registered public accounting firm which will be accessible at the
SEC website (www.sec.gov).
CHINA WI-MAX STRATEGY
China Wi-Max has created a carrier class fiber optic and wireless
telecommunications network by combining licenses and assets owned or held by its
wholly owned Chinese subsidiaries and contract relationships within China
arranged by its wholly owned Chinese subsidiaries with other Chinese companies.
The Company currently has two wholly-owned (100%) subsidiaries in China - 1)
Beijing Yuan Shan Da Chuan Business Development Ltd. (hereafter Gao Da) and 2)
Beijing Yuan Shan Shi Dai Technology Ltd. (hereafter Shi Dai) Ownership of these
two entities was effectuated in September 2008. One of these subsidiaries,
Beijing Yuan Shan Da Chuan Business Development Ltd., has contractual agreements
with a local Chinese company, Beijing Gao Da Yang Guang Communication Technology
Ltd. to use this local company's licenses and contract relationships to deliver
wireless and "Value Added Telecommunications Services". (COMMENT #1)
(Refer to the following section and Appendix A - Exhibit 99.1 - regarding
Corporate Structure).
3
At this time, under the direction of, and with funding from, China Wi-Max, its
wholly owned Chinese subsidiaries have acquired optical fiber and contracts to
exclusively use wireless spectrum licenses in Beijing and Hangzhou (plus use of
a spectrum license in Shanghai). (COMMENT #1) The fiber assets and equipment are
owned by the Company's wholly owned subsidiary, Beijing Yuan Shan Shi Dai
Technology CO, Ltd. Da Chuan has entered into a 20 year exclusive contract to
use the assets of Shi Dai. China Wi-Max has accounted for investment in wireless
licenses as non-refundable deposits, as these licenses are not held or owned by
China Wi-Max. The wireless licenses are held by a local Chinese company, Gao Da.
The Company's wholly owned Chinese subsidiary, Da Chuan, has entered into a
contract with Gao Da for the exclusive use of these wireless and other licenses
for the next 20 years. The primary party controlling Gao Da, Frank Jia, owns
approximately 9.6% of China Wi-Max stock.
(DELETION - COMMENT #2)
Starting in January 2008, China Wi-Max began a 10% Convertible Promissory Note
offering. As a result of such offering, China Wi-Max received $1,260,000,
through November 24, 2008. 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 the future, in order to fully complete the China Wi-Max business plan
described herein, China Wi-Max will need to raise at least a subsequent round of
$2 to $5 million dollars through equity, debt, or a combination thereof during
the first half of 2009. The plan is to use these funds to acquire additional
optical fiber assets and use of wireless spectrum in up to eight additional
markets in 2008 and 2009 through its wholly owned subsidiary companies and
associated contract arrangements, as well as starting up the operations in
Hangzhou and expanding the Beijing network.
OVERVIEW OF CURRENT CORPORATE STRUCTURE
The following chart represents an overview of the corporate structure that is
being employed by China Wi-Max as it executes its business plan:
Please refer to Exhibit 99.1 - Appendix A
China Wi-Max's wholly owned Chinese subsidiaries are operating in China through
the use of owned assets and contractual relationships with local companies such
as Gao Da that have Value Added Telecommunications Licenses and/or hold wireless
spectrum licenses.
(DELETION - COMMENT #2)
Da Chuan was established as a wholly owned foreign entity of the Company in
September of 2008 and began sales activities in September of 2008. Da Chuan is
the primary interface with end customers in China through a contract executed
between it and Beijing Gao Da Yang Guang Communication Technology Ltd. (a
wireless license holder), whereby Da Chuan is to manage all aspects of Gao Da's
assets and business. (COMMENT #1) This includes the contract executed between
Gao Da and Beijing Long Teng Jia Xun Network Technology Ltd. (hereafter Long
Teng), a Value Added Telecommunications license holder, whereby Gao Da can
provide Value Added Telecommunications Services. The contract between Gao Da and
4
Long Teng specifically establishes Da Chuan as the servicing agent for customers
of Gao Da. When customers sign their service contracts, there will be three
parties to the contract. At this time, the three parties are the customer
receiving service, Da Chuan as the servicing company and Long Teng as the Value
Added Telecommunications Services licensee.
In addition, our wholly owned Chinese subsidiary, Da Chuan, has entered into a
contract with our wholly owned Chinese subsidiary, Shi Dai, to utilize Shi Dai's
optical fiber and other network assets. (COMMENT #1) Da Chuan will operate all
aspects of the networks and business on behalf of Gao Da and Shi Dai. 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 be collected by Da Chuan.
Various contracts define the services to be rendered and amounts to be paid from
and to the various parties and the associated terms of such payments (see
Material Contracts attached as Exhibits 10.6, 10.7 and 10.8). At this time, all
end customers serviced by Da Chuan on behalf of Gao Da will be customers under
Long Teng's ISP license. (COMMENT #1) Da Chuan's Board of Directors and
management have been appointed by China Wi-Max. Da Chuan is China Wi-Max's
primary wholly owned Chinese operating subsidiary. (COMMENT #1)
Shi Dai was initially established as a locally owned Chinese entity and 100% of
the outstanding shares of Shi Dai were acquired by China Wi-Max in September of
2008. Shi Dai currently holds the fiber optic cable deeds for Beijing and
Hangzhou. Going forward, Shi Dai holds or will hold fiber optic cable assets and
such other assets as are needed in order to establish and operate the networks
to be deployed in China. Shi Dai's Board of Directors and management have been
appointed by China Wi-Max.
Gao Da was established in China as a locally owned Chinese entity. China
Wi-Max's wholly owned Chinese subsidiaries will operate in conjunction with Gao
Da on a contract basis. Da Chuan, China Wi-Max's wholly owned subsidiary has
entered into an exclusive 20 year contract to manage all aspects of Gao Da's
assets and business. (COMMENTS #1 and #3) Currently, Gao Da has eight full-time
employees and business activity, which has been funded by deposits delivered by
China Wi-Max. Any portion of the deposited funds that have been used for expense
purposes have been recorded as such in China Wi-Max financial statements. Gao Da
holds wireless spectrum licenses for Beijing, Hangzhou and Shanghai, which were
funded by China Wi-Max, recorded by China Wi-Max as deposits and are being used
by Da Chuan via contract. Gao Da has issued a Declaration of Trust to China
Wi-Max as Beneficiary pledging all Gao Da shares to China Wi-Max. (COMMENT #5)
MATERIAL TERMS OF CONTRACTS:
There are three primary contracts at this time that enable China Wi-Max to
operate the business in China today through its wholly owned Chinese
subsidiaries. (COMMENT #1)
The first contract is between the two wholly owned Company subsidiaries, Shi Dai
and Da Chuan. This twenty (20) year exclusive contract enables Da Chuan to
utilize the network assets owned by Shi Dai to provide internet related
services. Da Chuan will pay Shi Dai ten percent (10%) of Da Chuan's net revenue
for maintenance and support of the Shi Dai assets.
The second primary contract is an exclusive twenty (20) year contract between
Gao Da and Da Chuan, whereby Da Chuan will manage all aspects of Gao Da's assets
and business. Da Chuan will obtain and service retail and wholesale customers on
behalf of Gao Da and will provide billing and collection services, etc. Da Chuan
5
will use the various resources held by Gao Da to deliver services to end
customers. Da Chuan will pay Gao Da one percent (1%) of the net revenue
generated from the use of Gao Da' assets and other resources.
The third primary contract is between Gao Da and Long Teng for a term of two (2)
years. This contract provides for Gao Da (effectively assigned to Da Chuan by
the second primary contract mentioned above) to obtain wholesale and retail
customers utilizing Long Teng's license. Gao Da will pay Long Teng three percent
of (3%) of the revenues derived from service contracts signed by Long Teng with
end customers sold to by Da Chuan on behalf of Gao Da. Gao Da agrees to provide
Long Teng favorable pricing on data transport services across the fiber network
managed by Da Chuan on behalf of Shi Dai, if requested. Da Chuan and Shi Dai
have tentatively agreed to provide this access, prices to be determined when,
and if, requested. (COMMENT #1)
For financial reporting purposes, China Wi-Max is consolidating its investments
in its wholly owned subsidiaries.
In the early growth years of the business, money to build the business in China
is flowing from China Wi-Max to its wholly owned subsidiaries and other
entities, in the form of loans or deposits, as necessary to meet requirements of
the China Wi-Max business plan. Currently, there are no legal impediments that
would hinder future repayment of these loans/deposits (investment not for
registered capital will be in the form of a loan) to the parent Company, China
Wi-Max. Additionally, there are no existing legal impediments for the
subsidiaries to pay dividends to the parent Company, China Wi-Max, after the
appropriate in-country (China) taxes are paid. The current business plan does
not contemplate the need for any funds to be returned from the subsidiary
entities in China to China Wi-Max in the United States for successful execution.
The preceding description of the current corporate structure provides China
Wi-Max with the basis to operate a value-added telecommunications service
business in China through its wholly owned Chinese subsidiaries that meets legal
and regulatory requirements, while at the same time giving the corporate parent
significant direct and indirect control over operations. (COMMENT #1)
(DELETION - COMMENT #2)
CONTRACTS, LICENSES AND AGREEMENTS
The Cooperation Agreement by and between Gao Da and Long Teng provides for
both parties to use each other's existing fiber network and related
infrastructures and licenses to develop their services in Beijing. The
Cooperation Agreement further enables Da Chuan (a subsidiary of China Wi-Max) to
obtain new customers on behalf of Gao Da and for collecting fees from and
issuing invoices to customers. The Cooperation Agreement provides for Gao Da to
pay on a quarterly basis 3% of the revenue received from the services sold by Da
Chuan on behalf of Gao Da to Long Teng. (COMMENT #1)
The cooperation agreement between Da Chuan and Gao Da provides for Da Chuan to
pay Gao Da 1% of the net revenues collected by Da Chuan resulting from the use
of Gao Da's assets. (COMMENT #1) The contract between Da Chuan and Shi Dai
provides for Da Chuan to pay Shi Dai 10% of the net revenues collected by Da
Chuan for customers using the network assets held by Shi Dai.
6
China Wi-Max has deposits on three metropolitan area city 5.8GHz frequency
licenses, held by Gao Da, which were granted from the Ministry of Information
Industry (MII) offices 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
the license holder must pay the following annual fees for spectrum use:
o For microwave station frequencies below 10GHz, the charge is 40 Yuan
per station in operation, per MHz 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
NATIONAL RADIO FREQUENCY USAGE REGULATIONS:
During the license-effective period, base stations set up and used in the
network have to be registered at local MII offices. One month before the
expiration date of each license, there is a requirement to apply for annual
inspection and submit a 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.
Da Chuan may use Wi-Fi for internal distribution of broadband within buildings.
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. As a result no Wi-Fi registration is currently contemplated.
CURRENT SERVICES OFFERED AND SOLD
China Wi-Max began offering revenue generating services in China during the
month of September, 2008. The initial services being sold are high speed
broadband internet connections in Beijing. The two initial customers signed one
year agreements. The first customer was provided a 100 Mbit connection in
September and the second customer will be provided a 10 Mbit connection later
this quarter. No additional services beyond internet connectivity, such as VoIP,
are planned for the fourth quarter of 2008.
SERVICE DELIVERY
China Wi-Max began deploying and delivering optical fiber network services via
its 100% owned subsidiaries and their contract relationships in September 2008.
This initial deployment began in Beijing, where the Company is validating
network performance. Service to customers is being provided through direct
connections to the optical fiber. Connections over licensed radio spectrum are
to be provided in the fourth quarter of 2008. 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 (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
7
markets are currently in process. China Wi-Max is using proceeds it has raised
through its convertible bridge loan to set up this initial Beijing network. The
Board has authorized up to a 50% oversubscription (additional $500,000), and the
$1.0 million convertible bridge loan is expected to be completed or otherwise
closed in the fourth quarter of 2008. The initial cost of equipment and
installation of the base network is expected to be approximately $150,000 to
$250,000.
China Wi-Max's wholly owned Chinese subsidiaries plan to tailor and deliver
their service offerings to satisfy customer needs based principally upon
customer size through its subsidiary companies. (COMMENT #1) For small
businesses, China-Wi-Max subsidiaries 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 offered. Large
businesses are offered connection packages ranging from 10,000,000 bits per
second to 1,000,000,000 bits per second. Upon completion of the initial pilot
phase, 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 subsidiaries
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 an equity interest
in 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.
In addition, China Wi-Max subsidiary, Shi Dai, 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.
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:
8
CURRENT MARKETS
APPROXIMATE
METROPOLITAN AREA MARKET POPULATION
Beijing - Network operating 16,000,000
Hangzhou - Company subsidiary owns
fiber and access to wireless spectrum 6,600,000
FUTURE TARGET MARKETS
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
===================
CUSTOMERS
China Wi-Max's wholly owned subsidiary, Da Chuan, has the following customers as
of the date of this filing: (COMMENT #1)
1. Beijing Zhongda Guhe Information System Tech Ltd. - 100 Mbit circuit -
100,000 RMB per month, 1 year contract.
2. Beijing He Mei Long Da Advertisement Ltd - 10Mbit circuit - 55,000 RMB
per year, 1 year contract
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's wholly owned Chinese subsidiaries compete with these companies on the
basis of the portability, ease of use, speed, and respective price of services.
(COMMENT #1)
Many telecom carriers are 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 wholly owned Chinese subsidiaries
major competitors for its broadband services. (COMMENT #1)
9
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. These cable companies are
somewhat handicapped in their offerings by the regulatory differences of
Ministry of Information Industry (MII), which regulates the telecom industry and
the State Administration of Radio, File and Television (China) ("SARFT"), which
regulates the radio and television broadcasting industry.
INCUMBENT TELEPHONE COMPANIES
The Company's wholly owned Chinese subsidiaries face 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. (COMMENT #1) In particular, these competitors include
traditional wireline companies like China Telecom, China Tietong and China
Netcom.
Local telecom carriers are actively marketing broadband services on national and
provincial, as well as local levels in China. China Wi-Max believes that its
wholly owned Chinese subsidiaries could add Voice-over Internet Protocol
telephony service (known as "VOIP) to Broadband services it offers. While China
Wi-Max's wholly owned Chinese subsidiaries do not currently have 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 People's Republic of China, herein after referred to as PRC,
regulatory approval). China Wi-Max estimates that expansion to include this
service feature would take 9 to 12 months should it be deemed worthwhile in the
future. (COMMENT #1)
CABLE MODEM AND DSL SERVICES
China Wi-Max's wholly owned Chinese subsidiaries compete with companies that
provide Internet connectivity through cable modems or DSL. (COMMENT #1)
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 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 in competition with the services provided by China Wi-Max's wholly
owned Chinese subsidiaries. (COMMENT #1) These providers have substantially
broader geographic coverage than China Wi-Max's subsidiaries currently have (and
expect to have in the foreseeable future). If one or more of these providers can
deploy technologies that compete effectively with China Wi-Max's subsidiaries'
services, the mobility and coverage offered by these carriers will provide even
greater competition than is currently faced. The Chinese government has not yet
set a timetable for distribution of third generation (3G) cellular licenses.
Today's more advanced cellular technologies, such as 3G, currently offer
10
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, and therefore this is not expected to be a major short term threat to
the business.
WIRELESS BROADBAND SERVICE PROVIDERS
China Wi-Max's wholly owned Chinese subsidiaries also face competition from
other wireless broadband service providers that use licensed and unlicensed
spectrum. (COMMENT #1) 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 in some of the
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 FEATURES OF CHINA WI-MAX PLANS
Despite facing substantial existing and prospective competition, China Wi-Max
believes that its wholly owned Chinese subsidiaries will possess several
competitive advantages that will allow them to attract new customers and retain
these customers over time. (COMMENT #1) These advantages include:
RELIABILITY
Compared to cellular, cable and DSL networks that generally rely on an
infrastructure originally designed for non-broadband purposes, the optical fiber
and wireless networks operated by China Wi-Max's subsidiaries are designed
specifically to support broadband services. When the networks are deployed,
customers will connect through the optical network, which will connect at
carrier interconnection points along the network, thereby eliminating single
points of failure. The network is intended to deliver at least 99% reliability
rates with true redundancy.
VALUE
China Wi-Max, through its wholly owned Chinese subsidiaries, owns its
entire fiber optic network and has access to wireless spectrum in each market.
This should result in a very price competitive solution. Utilizing the owned
fiber rings should result in lower or no local loop costs.
11
ECONOMIC MODEL
After initially bringing the fiber optic network into operation, a
"Success Based Capital Approach" is to be used, which will enable capital assets
to be acquired and installed as customers are added. There is no need to
pre-build an extensive network before customers are added. Utilizing the core
fiber network and extending it through use of wireless base stations should
provide a cost advantage by minimizing the number of interconnection points and
providing for lower cost high bandwidth interconnection contract costs. This
should result in incremental savings in its build-out costs as the subscriber
base grows.
PRINCIPAL CHINESE GOVERNMENT REGULATIONS
China Wi-Max's operations in China will be carried out by wholly owned Chinese
subsidiary companies, formed or purchased by China Wi-Max, as follows: (COMMENT
#1)
- Beijing Yuan Shan Da Chuan Business Development Ltd., (Da Chuan)
- Beijing Yuan Shan Shi Dai Technology CO, Ltd. (Shi Dai)
Da Chuan is a wholly owned foreign subsidiary and is governed by laws including
the LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON FOREIGN CAPITAL ENTERPRISES and
related regulations.
Shi Dai was 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.
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 wholly owned Chinese
subsidiary companies to deliver value-added telecommunications services in
China, and more specifically Beijing (initially). (COMMENT #1)
The Company has complete control over its 100% owned subsidiaries, Da Chuan and
Shi Dai, in China. Its business partners which hold telecommunications related
licenses under Chinese Law, Gao Da and Long Teng, are not able to be
"controlled" by the Company through equity, except that the contracts with Gao
Da and Long Teng are expected to be enforceable, the Company believes, under
current Chinese law, to provide for revenue sharing, license access and
enterprise management. (COMMENT #6)
INTELLECTUAL PROPERTY AND OTHER AGREEMENTS
China Wi-Max and its wholly owned Chinese subsidiaries are not a party to any
royalty agreements, labor contracts, or franchise agreements and, other than the
Company's wholly owned Chinese subsidiaries right to own and operate networks to
provide value-added telecommunication services, the Company does not currently
12
own any trademarks. (COMMENT #1) 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
China Wi-Max's investment in assets held by Gao Da and Shi Dai was approximately
$440,000 in 2007 and $420,000 in 2008 for the acquisition of licensed wireless
access and fiber optic cable assets. China Wi-Max has invested in excess of
$100,000 (in form of deposits) into the business of Gao Da 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
provided by its wholly owned Chinese subsidiaries. These barriers stem from both
industry barriers and government regulation. The rates charged and services
provided by China Wi-Max's subsidiaries are subject to government regulation and
approval. (COMMENT #1)
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) 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.
The MII 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 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
13
other agencies. For this reason, China Wi-Max, if it decides to purchase shares
of Gao Da, the Company will only be able to acquire up to 50% of Gao Da shares
with the remaining 50% of shares owned by local parties. If such an acquisition
occurred, revenue sharing and voting control will be governed by written
agreements between the parties.
During initial network implementation, China Wi-Max's wholly owned Chinese
subsidiaries do not have plans to provide additional value-added services beyond
Internet connectivity to China users if their network and intend to expand by
increasing the number of regions in which they are licensed to operate. (COMMENT
#1)
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. China
Wi-Max believed most cable operators in China still lack the economies of scale
to systematically introduce value-added services that can significantly upgrade
average revenue per user (ARPU).
LACK OF MANAGEMENT EXPERTISE
Current monthly cable sales in China are low, with small profit margins, if any,
as compared to cable systems in more developed nations that have gone through
consolidation into very large providers. 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 in the near term.
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 less regulated telecom
industry in China. This lack of financial resources has resulted in priorities
and goals of the Chinese radio and broadcasting industry that 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
to provide 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, through its wholly owned Chinese subsidiaries, it is in a
favorable position to acquire the network assets it seeks at attractive prices.
(COMMENT #1) This belief has been substantiated to an extent by successful
purchases of optical fiber and access to wireless licenses in Beijing and
Hangzhou. 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
14
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 exists 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,
through its wholly owned Chinese subsidiaries is acquiring access to
significantly broad blocks of spectrum. China Wi-Max believes if its wholly
owned Chinese subsidiaries effectively implement and utilize this spectrum, they
will be able to retain access to a large block of bandwidth for a significant
period of time. (COMMENT #1)
EXIT STRATEGY
China Wi-Max intends to be a publicly traded entity. This may provide a degree
of investor liquidity, as well as an external indication of value. In addition,
when China Wi-Max, through its wholly owned Chinese subsidiaries, aggregates its
entire network, it believes it will be a very attractive acquisition target for
larger Telco(s) or ISP(s) that wish 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
in China, utilizing technologically advanced optical and wireless standards,
will be in high demand in the future.
FUTURE PLANS
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 $2 to $5 million
dollars in early 2009. After the previously referenced $2 to $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 through
its wholly owned Chinese subsidiaries in its targeted first and second tier
markets. (COMMENT #1) Purchasing of the second set of markets will occur as the
initial stages of deploying networks in the first ten markets is accomplished.
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 October 1, 2008 to September 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:
15
EXPENDITURE BUDGET FOURTH QUARTER 2008 THROUGH THIRD QUARTER 2009
TWELVE MONTHS
4TH QUARTER 1ST QUARTER 2ND QUARTER 3RD QUARTER OCTOBER 2008 TO
2008 2009 2009 2009 SEPTEMBER 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
================
16
MATERIAL CONTRACTS
Service agreements between:
1. Da Chuan and Shi Dai (Exhibit 10.6)
2. Da Chuan and Gao Da (Exhibit 10.7)
3. Gao Da and Long Teng (Exhibit 10.8) (COMMENT #4)
FUTURE PLANS (COMMENT #2)
CHINA WI-MAX NETWORK PLANS IN PROPOSED TARGET MARKETS
China Wi-Max, through its wholly owned Chinese subsidiaries, plans to establish
fiber optic and wireless networks in each of the markets it plans to 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 owned fiber network. Customers will typically be connected to
fiber optic and wireless networks, which are designed to have no single point of
failure. The optical fiber will typically be fed by two or more large Internet
access providers with connections located at various points within the cities
served. In new markets, customers should generally receive service activation
within two to ten business days of receiving an order. The coverage area can be
accessed by customers on the fiber network and within approximately ten miles of
the fiber network via installed wireless base stations, depending upon location
and line of sight access.
PROPOSED MARKET COVERAGE
China Wi-Max, through its wholly owned Chinese subsidiary companies, intends to
grow its business by deploying the service more broadly in each metro market it
enters and plans to rapidly increase the subscriber base. The fiber optic and
wireless broadband network is intended to be deployed broadly in terms of
geography and type of commercial/business subscriber. China Wi-Max currently
intends to increase the number of geographic markets its wholly owned Chinese
subsidiaries will serve to ten, using a staged roll-out model to deploy services
throughout these major Chinese markets, serving a wide a range of commercial
subscribers, from small businesses to large enterprises.
The identification of which geographic markets to enter was determined by
assessment of specific criteria spanning four broad categories:
- (i) evaluation of the ability to deploy services in a given market,
considering the owned optical fiber and licensed 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.
17
PROPOSED SALES AND MARKETING
China Wi-Max Chinese 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.
NEED FOR ADDITIONAL FINANCING
China Wi-Max is in the process of seeking an Investment Advisor to assist it in
raising an additional $2 to $5 million dollars planned for early 2009 and
another $5 million dollars through equity, debt or a combination thereof later
in 2009 Failure of the Company to secure the additional funding of the
convertible bridge loan and then an additional $5 million dollars will
negatively affect the Company's ability to meet its business plan delivery
timing and could force a slowdown or discontinuance of operations (refer to
Appendix B - Exhibit 99.2 - for Network Overview). (COMMENT #2)
ITEM 1A. RISK FACTORS
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.
18
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'S 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
wireless delivery. China Wi-Max recognized its first revenue since its inception
during the month of September 2008, through its wholly owned subsidiary Da
Chuan. There is no assurance that China Wi-Max's intended activities will be
successful or result in significant 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 AND MINIMAL 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, minimal revenues and no 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 further develops its operating subsidiaries in The Peoples Republic of
China ("PRC"), which is not expected to occur until it receives sufficient
proceeds from additional capital raising. China Wi-Max has incurred a net
operating loss that will continue until China Wi-Max has more fully implemented
its business plan and is producing sufficient revenues to break even. 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
19
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 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 for itself
and its Chinese subsidiaries and funds for the purchase of fiber and access to
spectrum in additional cities in China, herein identified, and could exceed
$9,000,000 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 $100,000.
China Wi-Max and its Chinese subsidiaries have no operating history and minimal
revenue and it may be unlikely that China Wi-Max will raise the required
additional working capital from any source.
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
current management. 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 beyond its intended
and current Chinese 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 November 24, 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
20
Wi-Max's officers and directors are not employed full-time by the Company, which
could be detrimental to the business.
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, IN THE FUTURE, ISSUE DEBT HAVING PRIORITY, WHICH, IF
FORECLOSED, COULD CAUSE LOSS OF SOME OR ALL OF THE COMPANY'S ASSETS OR BUSINESS.
While management has no immediate plans to issue any securities that would have
a higher priority in terms of repayment or be secured by Company assets than
those unsecured Convertible Notes previously sold or currently offered, these
plans may change in the future. In the event of a China Wi-Max default on its
obligations to repay all sums due pursuant to the existing 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 fund existing wholly owned subsidiaries in China and to
form additional partially or wholly owned foreign enterprises in China and on
proposed asset acquisitions and operating costs for these companies in The
Peoples Republic of China. The success of China Wi-Max's 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 grow China Wi-Max
21
business operations described herein, investors may lose all or a substantial
portion of their investment herein.
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.
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
22
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.
RISK FACTORS RELATED TO DOING BUSINESS IN CHINA
CHINA WI-MAX WILL BE MATERIALLY RELIANT ON REVENUES FROM OPERATIONS IN THE
PEOPLES REPUBLIC OF CHINA. 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
operating subsidiaries 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.
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 future 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.
23
CHINA WI-MAX WILL BE SUBJECT TO RISKS ASSOCIATED WITH THE CONVERSION OF CHINESE
RENMINBI (RMB) INTO U.S. DOLLARS, OVER WHICH IT HAS NO CONTROL, AND ANY CHINESE
GOVERNMENT 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 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.
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
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.
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
24
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 DISTRIBUTION OF 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.
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 subject to a 10 percent Chinese tax. In the future, tax authorities
in China could amend or interpret the regulations 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. There is also the
possibility that other regulatory interpretations by the Chinese authorities
could 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
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 CHINESE 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.
25
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 operating subsidiaries 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 operating subsidiaries 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
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
CHINA WI-MAX DOES NOT CURRENTLY OWN ANY CHINESE SUBSIDIARY WITH VALUE ADDED
TELECOMMUNICATIONS OR WIRELESS LICENSES AND IF THEY OR THEIR ULTIMATE
SHAREHOLDERS OR CONTROL PERSONS VIOLATE CHINA WI-MAX'S OPERATING SUBSIDIARIES
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 operating
subsidiaries contractual relationships with Gao Da and Long Teng. 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 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's operating subsidiaries to obtain remedies or
damages from these companies or their ultimate shareholders for breaching these
26
agreements. Because China Wi-Max's operating subsidiaries rely significantly on
these companies for their business, the realization of any of these risks may
disrupt China Wi-Max's operating subsidiaries operations or cause degradation in
the quality and service provided by, or a temporary or permanent shutdown of,
the Company. China Wi-Max's operating subsidiaries initial Cooperation Agreement
(term of 2 years) that enables the Company to operate its 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 and access to use wireless licenses, is for a term of 20 years. If
China Wi-Max's operating subsidiaries are unable to renew these agreements on
favorable terms, or to enter into similar agreements with other parties, their
business may not expand and China Wi-Max operating subsidiaries operating
expenses may increase.
ANY INCREASE IN GOVERNMENT REGULATION OF THE TELECOMMUNICATIONS AND INTERNET
INDUSTRIES IN CHINA MAY RESULT IN THE CHINESE GOVERNMENT REQUIRING CHINA
WI-MAX'S OPERATING SUBSIDIARIES TO OBTAIN ADDITIONAL LICENSES OR OTHER
GOVERNMENTAL APPROVALS TO CONDUCT THE THEIR BUSINESS WHICH, IF UNATTAINABLE, MAY
RESTRICT CHINA WI-MAX'S OPERATING SUBSIDIARIES OPERATIONS.
The telecommunications industry, including Internet service providers (ISP), 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. ISP 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 now own up to 50% interests in
Chinese businesses that are licensed to provide value added telecommunications
services (a foreign company can only own 49% of a Chinese company with a basic
telecommunications services license). In addition, enterprises that are more
than 50% foreign owned (and foreign invested) are currently not able to apply
for the required licenses for operating broadband services in China.
China Wi-Max's operating subsidiaries cannot be certain that they 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 ISP 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 operating
subsidiaries services.
Until such time as China Wi-Max acquires up to a 50% equity interest in a local
company that has value added telecommunications license(s), China Wi-Max's
operating subsidiaries must rely exclusively on contractual arrangements with
their Chinese partners and their approvals to operate as value added
telecommunications (ISP) providers. China Wi-Max believes that its operating
subsidiaries 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
operating subsidiaries business activities. China Wi-Max cannot be certain as to
whether the Chinese government will reclassify China Wi-Max's operating
subsidiaries business as a media or retail company due to its acceptance of fees
for Internet access, 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
operating subsidiaries to penalties or fines or place significant restrictions
on their business. Future changes in Chinese government policies affecting the
provision of information services, including the provision of online services,
27
Internet access, e-commerce services and online advertising, may impose
additional regulatory requirements on China Wi-Max or its service providing
subsidiaries or otherwise harm its business.
CHINA WI-MAX OPERATING SUBSIDIARIES 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, and cable/fiber optic companies. In addition, as a consequence of
China 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 operating subsidiaries competition comes from standard
telephone and cable providers. Any of China Wi-Max's operating subsidiaries
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 those
offered by China Wi-Max's operating subsidiaries.
Because many of China Wi-Max's operating subsidiaries 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 and its operating subsidiaries have,
they cannot ensure they will be able to compete successfully against their
current or future competitors. Any increased competition could make it difficult
for China Wi-Max's operating subsidiaries 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 OPERATING SUBSIDIARIES REPUTATION.
Reliable access and consistent speeds while connecting to Internet services and
the performance and reliability of China Wi-Max's operating subsidiaries
technical infrastructure are critical to their reputation and ability to attract
and retain users of their Internet services. Any system failure or performance
inadequacy that causes interruptions or delays in the availability of China
Wi-Max's operating subsidiaries services or increases the response time of their
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 operating subsidiaries cannot ensure
that they will be able to scale their systems proportionately. In addition, any
system failures and electrical outages could materially and adversely impact the
business.
28
IF CHINA WI-MAX'S OPERATING SUBSIDIARIES SUPPLIERS OF BANDWIDTH AND COLLOCATION
SERVICES FOR SWITCHES, ROUTERS, AND SERVERS FAIL TO PROVIDE THESE SERVICES,
THEIR BUSINESS COULD BE MATERIALLY CURTAILED.
China Wi-Max's operating subsidiaries rely on partners to provide them with
bandwidth and collocation services for switches, routers, and servers for
Internet users. If partners fail to provide such services or raise prices for
services, China Wi-Max's operating subsidiaries may not be able to find a
reliable and cost-effective substitute provider on a timely basis, if at all. If
this happens, their business could be materially curtailed.
RISK FACTORS RELATED TO CHINA WI-MAX STOCK
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.
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.
29
THE REGULATION OF PENNY STOCKS BY THE 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
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.
30
MANY OF CHINA WI-MAX'S SHARES OF COMMON STOCK WILL BE AVAILABLE FOR RESALE IN
THE FUTURE. 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 quoted on the OTCBB, 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.
ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
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 wholly
and partially 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.
32
China Wi-Max operating subsidiaries networks are designed to provide the
reliability, redundancy, scalability, and other features expected of a carrier
class network. China Wi-Max believes its operating subsidiaries 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 four full-time and one part-time employees in the United States,
augmented by a number of personnel in operating subsidiaries, contract personnel
and professional services organizations.
Service to customers is provided through direct connections to the optical fiber
or transmissions over licensed radio spectrum provided through China Wi-Max's
Chinese operating subsidiaries. Currently, the Company's operating subsidiaries
are offering customers high speed broadband Internet access. Services
contemplated to be offered in the future include 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.
China Wi-Max currently has two wholly owned Chinese operating subsidiaries.
Ownership of these two entities was effectuated in September 2008. The operating
subsidiaries have the assets and business licenses or have entered into contract
arrangements with other companies that have the requisite business licenses to
deliver value added telecommunications services in Beijing, China. 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 operating subsidiaries personnel and contract staff in
China are continuing to evaluate equipment providers for the core and last mile
network and developing sales and marketing plans and gathering necessary
information to execute those plans. The initial fiber network in Beijing carried
its first commercial traffic in September, 2008. 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 are
carried out is an ongoing high priority activity.
PLAN OF OPERATIONS
China Wi-Max closed a private offering of unsecured convertible Notes in early
January 2008 and raised $1,000,000. 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, and are due December 31, 2008.
The use of the funds was planned as follows:
33
USE OF PROCEEDS PHASE IA, $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 IA offering to accommodate this opportunity, closing
the initial convertible note offering after raising approximately $1 million.
China Wi-Max has a second offering to raise up to $1,000,000 (subsequently
increased from $1,000,000 to $1,500,000) 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 offered only to Qualified Investors. As of November 24, 2008,
$1,260,000 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.
PLANNED USE OF PROCEEDS PHASE IB, $1,500,000:
CATEGORY AMOUNT PERCENT OF OFFERING
=============================================== ========================== ===================================
Hangzhou License and Fiber $225,000 15%
Shanghai Fiber Deposit 50,000 3%
Shanghai Wireless License 150,000 10%
Beijing Network Equipment 250,000 17%
Establish Business Office - Beijing 100,000 7%
Broker and Consulting Fees 250,000 17%
General and Administrative Expense 475,000 31%
-------------------------- -----------------------------------
TOTALS $1,500,000 100%
========================== ===================================
34
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.
35
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.
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. In addition, the United States is
experiencing severe instability in the commercial and investment banking systems
which is likely to continue to have far reaching effects on the economic
activity in the country for an indeterminable period. The long term impact on
the United States economy and the Company's operating activities and ability to
raise capital cannot be predicted at this time, but may be substantial.
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
36
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.
Although there are no known legal, economic or regulatory restrictions for China
Wi-Max operating subsidiaries to repay loans, management fees, dividends or
other distributions to the Company, such payments are not contemplated to
successfully execute 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 THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2007
During the three months ended September 30, 2008 and 2007, China Wi-Max
recognized revenues of approximately $15,000 and $0 from its operational
activities.
During the three months ended September 30, 2008, China Wi-Max incurred general
and administrative expenses of $297,035 compared to $16,340 for the three months
ended September 30, 2007. The $280,695 increase was a result of an increase in
the Company's operational activities compared to the prior period. During the
three months ended September 30, 2008, the Company continued to increase its
staff and outside consultants, as it began implementation of its business plan.
As a result of the staff increases, there was an increase of approximately
$116,000 in salary and wages, expenses for operations in China increased by
$73,000, consulting and professional fees increased by $49,000 and travel
increased by $14,000 over the prior period ended September 30, 2007.
During the three months ended September 30, 2008, China Wi-Max recognized a net
loss of $342,897 compared to a net loss of $16,340 during the three months ended
September 30, 2007. The $326,557 increase in net loss was primarily a result of
the $280,000 increase in general and administrative expenses, discussed above
combined with the $49,387 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 $.03 during the three months ended
September 30, 2008 versus a net loss of less than $0.01 per share during the
three months ended September 30, 2007.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2007
During the nine months ended September 30, 2008 and 2007, China Wi-Max
recognized revenues of approximately $15,000 and $0 from its operational
activities.
During the nine months ended September 30, 2008, China Wi-Max incurred general
and administrative expenses of $1,026,084 compared to $79,884 for the nine
months ended September 30, 2007. The $946,200 increase was primarily the result
of an increase in the Company's operational activities compared to the prior
period. During the nine months ended September 30, 2008, the Company hired its
37
initial staff and increased use of outside consultants as it continued
implementation of its business plan. The period over period increase was
primarily a result of the staff increases, with an increase of $310,000 in
salary and wages, increased consulting and professional fees of $280,000,
expenses for operations in China increased of $108,000 and increased travel
expense of $28,000. During the nine months ended September 30, 2008, China
Wi-Max incurred $246,075 in expenses related to stock and options issued as
payment for services compared to $25,000 for the nine months ended September 30,
2007.
During the nine months ended September 30, 2008, China Wi-Max recognized a net
loss of $1,115,633 compared to a net loss of $79,884 during the nine months
ended September 30, 2007. The $1,071,749 increase in net loss was primarily the
result of the $946,200 increase in general and administrative expenses,
discussed above combined with the 129,074 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 $0.12 during the nine months ended
September 30, 2008 versus a net loss per share of $0.01 during the nine months
ended September 30, 2007.
LIQUIDITY
Cash flow from operations has not historically been sufficient to sustain China
Wi-Max's operation without additional sources of capital. At September 30, 2008,
the Company had total current assets of $160,631, consisting of cash of
$120,984, accounts receivable of $21,882 and prepaid expenses of $17,765. At
September 30, 2008, the Company had total current liabilities of $1,193,698.
Total current liabilities consist of accounts payable of $45,001, accrued
interest of $144,397 and current convertible notes payable of $1,004,300. At
September 30, 2008, the Company had a working capital deficit of $1,033,067.
During the nine months ended September 30, 2008, China Wi-Max used $821,732 in
its operating activities. The net loss of $1,151,633 was adjusted for $158,500
of services paid for by the issuance of common stock, $87,575 in non-cash option
expenses and $1,901 in amortization of debt issuance costs. During the nine
months ended September 30, 2008, there was a $32,892 increase in accounts
receivable, $3,834 decrease in prepaid expenses, a $32,892 decrease in accounts
payable, a $128,017 increase in accrued interest and a $40 increase in payroll
liabilities.
During the nine months ended September 30, 2007, China Wi-Max used $35,311 in
its operating activities. A net loss of $79,884 was adjusted for $25,000 of
services paid for by the issuance of common stock. During the nine months ended
September 30, 2007, there was a $3,686 decrease in accounts receivable and a
$15,887 increase in accounts payable.
During the nine months ended September 30, 2008, China Wi-Max used $357,459 in
its investing activities, of which $174,417 was for purchases of optical fiber
and $183,042 was for deposits for the acquisition of long-lived assets, which
relate to the acquisition of business and wireless licenses in Beijing, Hangzhou
and Shanghai, China. During the nine months ended September 30, 2007, China
Wi-Max used $35,000 in its investing activities on deposits for long lived
assets in Beijing, China.
During the nine months ended September 30, 2008, China Wi-Max received
$1,143,240 from its financing activities. During the nine months ended September
30, 2007, China Wi-Max received $106,575 from its financing activities.
38
In June 2007, the Board of Directors authorized the sale of up to $1 million of
unsecured 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 nine
months ended September 30, 2008, China Wi-Max issued an additional $1,053,200 in
unsecured 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 September 30, 2008,
there is $2,057,500 in outstanding convertible notes payable and accrued
interest of $144,397. China Wi-Max is not in default with regard to these notes.
During the nine months ended September 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 nine months ended September 30, 2008, China Wi-Max issued stock
options exercisable for 2,600,000 shares of 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 nine months ended September
30, 2008, options exercisable for 581,250 shares were vested. These options were
valued using the Black-Scholes model, and the Company has recorded $87,575 of
stock based compensation expense during the nine months ended September 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
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.
In the event that our operating plan changes due to changes in our strategic
plans, lower than expected revenues, unanticipated expenses, increased
competition, unfavorable economic conditions or other unforeseen circumstances,
including the continued turmoil and tightening of the credit markets, and
further weakening of consumer confidence and spending, our liquidity may be
negatively impacted. If so, we could be required to adjust our expenditures for
the remainder of 2008 and for 2009 to conserve working capital or raise
additional capital, possibly including debt or equity financing, to fund
operations and our growth strategy.
Need for Additional Financing
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 and China Wi-Max expects to be
continually raising funds for at least the next twenty-four months to thirty-six
months. Although management believes there is tremendous upside potential,
failure to raise sufficient additional capital could result in reduced growth,
39
or in the worst case, failure of the business. 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.
No commitments to provide additional funds have been made by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover our expenses as they may be
incurred.
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 __ for the nine
months ended September 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 follows 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.
The Company recognizes 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 is 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) collection 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
volatility, expected term, risk-free interest rate and forfeiture rate. SFAS
123R was effective for us beginning July, 2006.
40
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
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
41
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 FSP 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.
42
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. Short term funds are held in non-interest bearing
accounts and funds held for longer periods are placed in interest bearing
accounts. Large amounts of funds, if available, will be distributed among
multiple financial institutions to reduce risk of loss. Our cash holdings do not
generate interest income.
China Wi-Max generates revenues and incurs 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, 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 has been 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.
43
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 November 24, 2008. The total shares outstanding as of November 24, 2008
was 10,394,000.
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 27.2% 16.2%
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 1,000,000 9.6% 5.7%
7-3-7#, No 102, Youyi Road, Haidian
District
Beijing, China 100085
Common shares Chris Watson 600,000 5.8% 3.4%
P.O. Box 398, 228 E. Union St.
Pacific, MO 63068
Common shares Buck Krieger, Director 1,800,000 17.3% 10.3%
12 Shari Dr.
St. Louis, MO 63122
Common shares Jenny Wang, Chief Administrative 1,050,000 10.1% 6.0%
Officer and Director
11649 Port Washington Rd. Ste. #224
Mequon, WI 53092
Common shares Henry Zaks 900,000 8.7% 5.2%
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares Daniel Najor, Director 338,500 3.3% 1.9%
1625 Highland Dr.
Solana Beach, California
92075-2124
Common shares All Directors and Executive Officers
as a Group (5 persons) 6,483,500 63.4% 37.2%
- ----------------------------
(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, as investors may not purchase the notes, 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.
44
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
November 24, 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.
45
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
his patent to combine couponing with calling cards. He is currently the largest
46
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 - DIRECTORS
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. Experienced
directors of public companies, particularly those doing business in China, are
difficult to engage due to expertise/experience issues and liability, and may
not be readily available to be engaged, leaving the Company lacking in
experienced directors.
47
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. At the date of this amendment to Form 10,
there are no current conflicts of interests involving any of our directors or
executive officers as to any known business conflicts of our business. No member
of management is currently an officer/director or affiliate with any other
public or private company that is currently, or is planning to be in a
competitive business. (COMMENT #8)
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
48
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
November 24, 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 received 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.
49
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 nine months ended September 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 November 24, 2008, 581,250 shares have
vested in full. Before any employee options may be delivered or exercised, the
shareholders must ratify the Plan.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
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, pursuant to Mr. Harris's
employment agreement, Mr. Harris received a signing bonus of 200,000 shares of
China Wi-Max's common stock.
On January 1, 2008, Mr. Harris 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 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. Rabinoff 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.
50
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 November 24, 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
51
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.
52
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
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 November 24, 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 November 24, 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
53
of the closing of financing of at least $4 million or December 31, 2008, the
base salary will increase to $15,000 per month.
On January 1, 2008, Mr. Harris 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. Harris 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. Rabinoff 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 shares 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 September 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
- --------------------------------------------- ----------------- ----------------- ----------------------------
54
- --------------------------------------------- ----------------- ----------------- ----------------------------
NAME NUMBER OF SHARES VALUE OF STOCK REASON FOR ISSUANCE
- --------------------------------------------- ----------------- ----------------- ----------------------------
JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
- --------------------------------------------- ----------------- ----------------- ----------------------------
George Harris, President, Chief Financial 200,000 $50,000 Signing Bonus with
Officer and Director Employment Agreement
- --------------------------------------------- ----------------- ----------------- ----------------------------
Daniel Najor, Director 50,000 $12,500 Services
- --------------------------------------------- ----------------- ----------------- ----------------------------
ITEM 8. LEGAL PROCEEDINGS
China Wi-Max anticipates that it (including any 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 November 24, 2008.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
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
November 24, 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 November 24, 2008, China Wi-Max currently has 10,394,000 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.
55
Of these shares a total of 10,044,000 shares have been held for six months or
more and are eligible for resale under Rule 144 assuming the Company has been a
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
- ------------------------------------------ ------------------------- ---------------------- ---------------------
56
- ------------------------------------------ ------------------------- ---------------------- ---------------------
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
- ------------------------------------------ ------------------------- ---------------------- ---------------------
DLN Financial
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
- ------------------------------------------ ------------------------- ---------------------- ---------------------
57
- ------------------------------------------ ------------------------- ---------------------- ---------------------
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 $5,000 28-Nov-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Dyall, John
1450 Pepperhill Dr.
Florissant, Missouri 63033 2 $4,000 19-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
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
- ------------------------------------------ ------------------------- ---------------------- ---------------------
58
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Haas, Michael
2148 Pino Cir.
Erie, Colorado 80516 2 $5,000 10-Oct-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
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
- ------------------------------------------ ------------------------- ---------------------- ---------------------
59
- ------------------------------------------ ------------------------- ---------------------- ---------------------
INVESTOR NAME AND ADDRESS INV TYPE * INVESTMENT AMOUNT INVESTMENT DATE
- ------------------------------------------ ------------------------- ---------------------- ---------------------
Peterson, Ronald
423 S.E. Gilham Ave.
Portland, Oregon 97215 2 $6,500 4-Dec-07
- ------------------------------------------ ------------------------- ---------------------- ---------------------
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 Roumier
11919 E. Ida Pl.
Englewood, CO 80111 1 $50,000 21-Mar-07
- ------------------------------------------ ------------------------- ----------------------- ---------------------
60
- ------------------------------------------ ------------------------- ----------------------- ---------------------
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
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Ralph Ruschel
5505 Sonoma Road
Bethesda, MD 20817 1 $38,200 30-September-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Ralph Ruschel
5505 Sonoma Road
Bethesda, MD 20817 1 $14,000 6-October-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Dyall, John
1450 Pepperhill Drive
Florissant, Missouri 63033 2 $10,000 24-October-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Ralph Ruschel
5505 Sonoma Road
Bethesda, MD 20817 1 $30,000 27-October-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
Ralph Ruschel
5505 Sonoma Road
Bethesda, MD 20817 1 $152,800 20-November-08
- ------------------------------------------ ------------------------- ----------------------- ---------------------
TOTAL INVESTORS 13 $1,260,000
========================= =======================
- ------------------------------------------------------------------------------------------------------------------
* Only existing or accredited investors are accepted in this raise.
61
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
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
62
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
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
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
63
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
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
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
64
- ------------------------------------ ---------------------- ---------------- ------------------- ---------- -----------
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
65
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
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
66
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
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
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Frank Jia
7-3-7#, No 102, Youyi Road, Haidian
District
Beijing, China 100085 November 17, 2008 $62,500 Services (3) $0.25 250,000
- ------------------------------------- --------------------- ---------------- ------------------ ---------- ----------------
Total Consideration $337,250 Total Shares 1,349,000
(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
GRAND TOTAL CONSIDERATION $346,295 SHARES 10,394,000
===================================== ===================== ================ ================== ============ ==============
EXEMPTION FROM REGISTRATION CLAIMED
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 COMMON STOCK REGISTERED UNDER SECTION 12(G)
OF THE SECURITIES EXCHANGE ACT OF 1934
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of common
stock, $.001 par value per share. As of November 24, 2008, there were 10,394,000
shares issued and outstanding. The Company has no preferred stock authorized.
67
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. 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. 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.
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.
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
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.
68
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 70 through 82. The unaudited financial statements for the three
and nine months period ended September 30, 2008 and 2007 appear as pages 83
through 96.
69
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
70
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 72
Financial statements:
Balance sheets 73
Statements of operations 74
Statements of shareholders' deficit 75
Statements of cash flows 76
Notes to financial statements 77-82
71
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.
/s/GHP HORWATH, P.C.
March 18, 2008
Denver, Colorado
72
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):
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.
73
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.
74
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.
75
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.
76
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.
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
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.
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 (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.
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):
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.
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
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.
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
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.
82
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(UNAUDITED)
83
CHINA WI-MAX COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE CITYPLACEENTERPRISE)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(UNAUDITED)
CONTENTS
Financial statements:
Balance sheets - September 30, 2008 (Unaudited) and December 31, 2007 85
Statements of operations (Unaudited) 86
Statements of shareholders' deficit (Unaudited) 87
Statements of cash flows (Unaudited) 88
Notes to financial statements (Unaudited) 89-96
84
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
ASSETS
September 30, December 31,
2008 2007
------------------ ------------------
Unaudited
Current assets:
Cash $ 120,984 $ 182,401
Receivable from issuance of common stock (Note 6) - 2,570
Accounts receivable (Note 7) 21,882 -
Prepaid expenses 17,765 8,019
------------------ ------------------
Total current assets 160,631 192,990
------------------ ------------------
Property and equipment (Note 3) 506,549 -
------------------ ------------------
Other assets:
Debt-issue costs, net 1,261 3,162
Deposits for acquisition of long-lived assets (Note 3) 368,042 491,666
------------------ ------------------
369,303 494,828
------------------ ------------------
Total assets $ 1,036,483 $ 687,818
================== ==================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 45,001 $ 87,501
Accrued interest 144,397 16,380
Convertible notes payable (Note 4) 1,004,300 914,000
------------------ ------------------
Total current liabilities 1,193,698 1,017,881
------------------ ------------------
Non-current liabilities:
Convertible notes payable (Note 4) 1,053,200 -
------------------ ------------------
Total liabilities 2,246,898 1,017,881
------------------ ------------------
Shareholders' deficit (Note 6):
Common stock; $.001 par value; 50,000,000 shares authorized;
10,144,000 and 9,770,000 shares issued and outstanding as of
September 30, 2008 and December 31, 2007, respectively 10,144 9,770
Additional paid-in capital 358,736 113,295
Accumulated other comprehensive income 25,466 -
Deficit accumulated during the development stage (1,604,761) (453,128)
------------------ ------------------
Total shareholders' deficit (1,210,415) (330,063)
------------------ ------------------
$ 1,036,483 $ 687,818
================== ==================
See notes to unaudited financial statements.
85
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Period from
July 5, 2006
Three months Three months Nine months Nine months (inception)
ended ended ended ended through
September 30, September 30, September 30, September 30, September 30,
2008 2007 2008 2007 2008
--------------- ---------------- ---------------- ---------------------------------
Revenue $ 15,195 $ - $ 15,195 $ - $ 15,195
Cost of revenue (11,670) - (11,670) - (11,670)
--------------- ---------------- ---------------- ---------------- ---------------
Gross margin 3,525 - 3,525 - 3,525
Operating expenses:
General and administrative expense (297,035) (16,340) (1,026,084) (79,884) (1,460,724)
--------------- ---------------- ---------------- ---------------- ---------------
Operating loss (293,510) (16,340) (1,022,559) (79,884) (1,457,199)
--------------- ---------------- ---------------- ---------------- ---------------
Other expense:
Interest expense (Note 4) (49,387) - (129,074) - (147,562)
--------------- ---------------- ---------------- ---------------------------------
Net loss (342,897) (16,340) (1,151,633) (79,884) (1,604,761)
Foreign currency translation gain 25,466 - 25,466 - 25,466
--------------- ---------------- ---------------- ---------------------------------
Comprehensive loss $ (317,431) $ (16,340) $ (1,126,167) $ (79,884) $ (1,579,295)
=============== ================ ================ ================ ===============
Basic and diluted net loss per share $ (0.03) $ * $ (0.12) $ (0.01)
=============== ================ ================ ================
Weighted average number of common
shares outstanding 10,105,000 9,000,000 9,959,179 6,361,319
=============== ================ ================ ================
*Less than ($0.01) per share.
See notes to unaudited financial statements.
86
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIODS FROM JULY 5, 2006 (INCEPTION) THROUGH SEPTEMBER 30, 2008
Accumulated Deficit
Additional other accumulated Total
Common stock paid-in comprehensive during the share-
----------------------------- development holders'
Shares Amount capital income 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 June 2007 at par value
($0.001 per share) 5,230,000 5,230 - - - 5,230
Common stock issued for cash between
June and December 2007 at par value
($0.001 per share) 260,000 260 - - - 260
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)
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 vesting during
the period (Note 6) (unaudited) - - 87,575 - - 87,575
Net loss (unaudited) - - - - (1,151,633) (1,151,633)
Other comprehensive income adjustments
Gain on foreign currency translation
(unaudited) - - - 25,466 - 25,466
----------- ------------ ----------- ------------ ------------ ------------
Balances, September 30, 2008 (unaudited) 10,144,000 $ 10,144 $ 358,736 $ 25,466 $(1,604,761) $(1,210,415)
=========== ============ =========== ============ ============ ============
See notes to unaudited financial statements.
87
CHINA WI-MAX COMMUNICATIONS,INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period from
July 5, 2006
(Inception)
through
Nine months ended Nine months ended September 30,
September 30, 2008 September 30, 2007 2008
-------------------- -------------------- -----------------
Cash flows from operating activities:
Net loss $ (1,151,633) $ (79,884) $ (1,604,761)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 158,500 25,000 272,250
Non-cash stock option expense (Note 6) 87,575 - 87,575
Amortization of debt-issuance costs 1,901 - 4,009
Changes in assets and liabilities:
Increase in accounts receivable (21,882) (2,730) (21,882)
Increase in prepaid expenses (9,746) - (17,765)
Increase (decrease) in accounts payable (42,500) 22,303 45,001
Increase in accrued interest 128,017 - 144,397
----------------- ----------------- -----------------
Net cash used in operating activities (849,768) (35,311) (1,091,176)
-------------------- -------------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (199,883) - (481,083)
Deposits for acquisition of long-lived assets (157,576) (35,000) (368,042)
-------------------- -------------------- --------------------
Net cash used in investing activities (357,459) (35,000) (849,125)
-------------------- -------------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable 1,143,500 101,500 2,057,500
Proceeds from issuance of common stock 2,310 5,075 9,055
Debt issue costs - - (5,270)
-------------------- -------------------- -----------------
Net cash provided by financing activities 1,114,810 106,575 2,061,285
-------------------- -------------------- -----------------
Net (decrease) increase in cash (61,417) 36,264 120,984
Cash, beginning of period 182,401 1,116 -
-------------------- -------------------- -----------------
Cash, end of period $ 120,984 $ 37,380 $ 120,984
==================== ==================== =================
Supplemental disclosure of non-cash investing
and financing activities:
Receivable from issuance of common stock $ - $ 5,430 $ -
==================== ==================== =================
See notes to unaudited financial statements.
88
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 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 is implementing 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 plans to position itself to
bypass the local loop facilities of the current local exchange
carriers to connect enterprise customers directly to a global
communications network.
In September 2008, the Company effectuated the formation and control of
two wholly-owned subsidiaries in China: Beijing Yuan Shan Da Chuan
Business Development Ltd. ("Da Chuan") and Beijing Yuan Shan Shi Dai
Technology Ltd. ("Shi Dai"). Da Chuan has contractual agreements with
two local Chinese companies to use licenses to deliver "Value Added
Telecommunications Services". Shi Dai owns optical fiber assets located
in Beijing and Hangzhou; Shi Dai's purchases of optical fiber assets
were made at the direction of and with funding from China Wi-Max prior
to consolidation. The Company began generating revenue in September
2008, when it began initial operation of its network in Beijing.
The Company's financial statements as of September 30, 2008, and for
the period from September 24, 2008 (the date at which the Company
gained 100% ownership of Da Chuan and Shi Dai) through September 30,
2008, include the accounts of Da Chuan and Shi Dai.
The accompanying unaudited 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
nine-month period ended September 30, 2008 are not necessarily
indicative of the results expected for the year ending December 31,
2008. These interim financial statements should be read in conjunction
with the financial statements and notes included in the Company's
Registration Statement on Form 10/A, as filed with the SEC.
89
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(Unaudited)
1. Organization, basis of presentation, going concern and management's
plans (continued):
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 $1,152,000 for the nine months ended September 30, 2008,
and a working capital deficiency and shareholders' deficit of approxi-
mately $1,033,000 and 1,210,000, respectively, at September 30, 2008.
The Company has a limited operating history and minimal revenue produc-
ing 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 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,
subsequently increased to $1.5 million, which consists of 10%
convertible notes maturing in December 2009, convertible at $0.50 per
share. The 10% convertible note debt issuance is expected to be
completed in the fourth quarter of 2008. In addition, the Company is
planning a $5 million private placement of stock in early 2009.
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.
90
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(Unaudited)
2. Summary of significant accounting policies (continued):
International operations:
The Company's foreign operations are located in China. Foreign
transactions are conducted in currencies other than the U.S. dollar,
primarily the Chinese Renmimbi (RMB). As a result, the Company is
exposed to movements in foreign currency exchange rates. In addition,
the Company is 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.
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 September 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 Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock.
Revenue recognition:
The Company has minimal revenue-producing operations. The Company
recognizes 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.
91
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(Unaudited)
2. Summary of significant accounting policies (continued):
Revenue recognized through September 30, 2008 represents broadband
service revenue which has been recognized as the service was purchased.
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. Common
shares issuable upon the conversion of stock options and debt
securities (8,323,600 at September 30, 2008; 406,000 at September 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, 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 it's current fiscal year.
92
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(Unaudited)
2. Summary of significant accounting policies (continued):
In March 2008, the FASB issued SFAS No. 161, Disclosures about Deriva-
tive Instruments and Hedging Activities. SFAS No. 161 requires addition
-al disclosure related to derivative 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.
3. Property and equipment and deposits for acquisition of long-lived
assets:
As of September 30, 2008, property and equipment consists of fiber
optic cable owned by Shi Dai and located in Beijing and Hangzhou,
China. These assets are recorded at cost and are depreciated over their
estimated useful lives of 25 years. As these assets were placed in
service in late September 2008, depreciation expense and related
accumulated depreciation was immaterial for the period.
As of September 30, 2008, the Company has made a non-refundable deposit
of $368,042 with a Chinese company, Beijing Gao Da Yang Guang
Communication Technology Ltd. ("Gao Da") in Beijing, China. Gao Da, at
the direction of the Company, is acquiring long-lived assets on the
Company's behalf. These long-lived assets are to consist of an ISP and
three wireless licenses and are to be held by Gao Da for use by the
Company. The Company is planning to acquire a 50% ownership interest in
Gao Da, at a future date. The Company currently has a pledge of all
shares of Gao Da collateralizing the deposits. In September 2008, Da
Chuan has entered into a contractual agreement to use the licenses of
Gao Da for business operations (Note 7).
4. Convertible notes payable:
In June 2007, the Company authorized the sale of up to $1 million of
convertible notes payable. During 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 September 30, 2008, the Company issued $1,053,200 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 $391,000 and $27,000 for the nine month periods ended
September 30, 2008 and 2007, respectively., 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.
93
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(Unaudited)
6. Shareholders' deficit:
Receivable from issuance of common stock:
At December 31, 2007, the Company had a receivable for common stock
issued of $2,570. All payments were 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 and its subsidiaries are 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 581,250 vested options as of
September 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 $15,650 and
$87,575 for the three and nine months ended September 30, 2008,
respectively, for options that vested during the periods. These costs
are included in general and administrative expense. As of September 30,
2008, the estimated fair value of unvested stock options was
approximately $206,000, which is expected to be recognized over a
weighted average period of approximately one year.
94
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(Unaudited)
6. Shareholders deficit (continued):
Stock option plan:
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 nine months ended September 30,
2008 was $0.13 per option. The assumptions utilized to determine the
fair value of options granted during the nine months ended September
30, 2008 are provided in the following table. There were no options
granted during 2007.
Risk free interest rates 1.61% - 2.89%
Expected volatility 80% - 89%
Expected term in years 2 - 3
Expected dividend yield -
The following table sets forth the activity in the Company's Stock
Option Plan since its January 1, 2008 establishment:
Weighted
Number of Average
Shares Under Exercise Average
-lying Options Price Exercisable Fair Value
------------- ------------- --------------- -------------
Outstanding January 1, 2008 - - - -
Granted during period 2,600,000 $0.25 681,250 $0.13
Forfeited/expired (400,000) 0.25 (100,000) 0.14
------------- ------------- --------------- -------------
Outstanding September 30, 2008 2,200,000 $0.25 581,250 $0.13
============= ============= =============== =============
It was determined that there was no intrinsic value attributable to
options granted during the nine months ended September 30, 2008, as the
estimated market price of the Company's common stock of $.25 per share
was the same as the exercise price of the options.
Common stock issued for services:
During the nine months ended September 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). No shares were issued for services in the
three months ended September 30, 2008. There were 100,000 shares of
common stock issued for services during the nine months ended September
30, 2007, valued at $25,000. No shares were issued for services in the
three months ended September 30, 2007.
95
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
(Unaudited)
7. Commitment:
In September 2008, the Company, through Da Chuan, entered into a
20-year contract with Gao Da, in which the Company is entitled to
utilize and manage all aspects of Gao Da's business assets (which
primarily consist of optical fiber assets and licenses) for the
Company's benefit, as defined. In September 2008, Gao Da also assigned
the rights, title and interest in certain customer accounts to the
Company. As consideration for the service agreement, the Company is to
pay or reimburse Gao Da for any licensing fees for base stations or
license renewal expenses, and the Company is to pay a quarterly fee to
Gao Da based on a percentage of net revenue generated from Gao Da's
business operations, as defined. At September 30, 2008, the accounts
receivable balance of $21,882 is due from Gao Da. This balance was
collected subsequent to September 30, 2008.
Gao Da's president and sole shareholder owns approximately 7.4% of the
Company's common stock.
96
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Audited financial statements for December 31, 2006 and 2007
Unaudited financial statements for September 30, 2008
(b) EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Articles of Incorporation of China Wi-Max Communications, Inc. - 7/5/06 (2)
3.2 Certificate of Amendment - 9/1/06
(Stock amount changed to 50,000,000 @ $.001) (2)
3.3 Bylaws of China Wi-Max Communications, Inc. (1)
10.1 Shares Transfer Agreement between Zhouwei and China Wi-Max Communications, Inc. (2)
10.2 Employment Agreement - George E. Harris (2)
10.3 Employment Agreement - Allan Rabinoff (2)
10.4 2008 China Wi-Max Communications, Inc. Stock Option Award and Compensation Plan (2)
10.5 Cooperation Agreement - English Translation and Chinese (2)
10.6 Services Agreement between Beijing Yuan Shan Shi Dai Technology Development Ltd.
and Beijing Yuan Shan Da Chuan Business Development Ltd. - ENGLISH (3)
10.7 Services Agreement between Beijing Gao Da Yang Guang Technology Ltd. and Beijing
Yuan Shan Da Chuan Business Development Ltd. - ENGLISH (3)
10.8 Cooperation Agreement Long Teng Jia Xun - ENGLISH (3)
10.9 Business License of Beijing Yuan Shan Da Chuan Business Development Ltd. - CHINESE
and ENGLISH (3)
10.10 Business License of Beijing Shan Shi Dai Technology Development Ltd. - CHINESE and
ENGLISH (3)
10.11 Declaration of Trust - CHINESE and ENGLISH
21.1 List of Subsidiaries of China Wi-Max Communications, Inc.
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. (2)
99.4 English Translation of Business License of Yuan Shan Shi Dai Technology
Development, Ltd. (2)
99.5 Frequency License Explanation Letter (2)
- --------------------------
(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.
(2) Incorporated by reference from the exhibits included in the Company's Form
10/A filed with the Securities and Exchange Commission (www.sec.gov), dated
September 25, 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.
(3) Incorporated by reference from the exhibits included in the Company's Form
10/A filed with the Securities and Exchange Commission (www.sec.gov), dated
November 5, 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: November 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
(a) Audited financial statements for December 31, 2006 and 2007
Unaudited financial statements for September 30, 2008
(b) EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Articles of Incorporation of China Wi-Max Communications, Inc. - 7/5/06 (2)
3.2 Certificate of Amendment - 9/1/06
(Stock amount changed to 50,000,000 @ $.001) (2)
3.3 Bylaws of China Wi-Max Communications, Inc. (1)
10.1 Shares Transfer Agreement between Zhouwei and China Wi-Max Communications, Inc. (2)
10.2 Employment Agreement - George E. Harris (2)
10.3 Employment Agreement - Allan Rabinoff (2)
10.4 2008 China Wi-Max Communications, Inc. Stock Option Award and Compensation Plan (2)
10.5 Cooperation Agreement - English Translation and Chinese (2)
10.6 Services Agreement between Beijing Yuan Shan Shi Dai Technology Development Ltd.
and Beijing Yuan Shan Da Chuan Business Development Ltd. - ENGLISH (3)
10.7 Services Agreement between Beijing Gao Da Yang Guang Technology Ltd. and Beijing
Yuan Shan Da Chuan Business Development Ltd. - ENGLISH (3)
10.8 Cooperation Agreement Long Teng Jia Xun - ENGLISH (3)
10.9 Business License of Beijing Yuan Shan Da Chuan Business Development Ltd. - CHINESE
and ENGLISH (3)
10.10 Business License of Beijing Shan Shi Dai Technology Development Ltd. - CHINESE and
ENGLISH (3)
10.11 Declaration of Trust - CHINESE and ENGLISH
21.1 List of Subsidiaries of China Wi-Max Communications, Inc.
23.1 Consent of Independent Registered Public Accounting Firm
99.1 Appendix A - Diagram
99.2 Appendix B - Network Overview (2)
99.3 English Translation of Business License of Gao Da Yang Guang Communication
Technology Ltd. (2)
99.4 English Translation of Business License of Yuan Shan Shi Dai Technology
Development, Ltd. (2)
99.5 Frequency License Explanation Letter (2)
- --------------------------
(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.
(2) Incorporated by reference from the exhibits included in the Company's Form
10/A filed with the Securities and Exchange Commission (www.sec.gov), dated
September 25, 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.
(3) Incorporated by reference from the exhibits included in the Company's Form
10/A filed with the Securities and Exchange Commission (www.sec.gov), dated
November 5, 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
EXHIBIT 10.11
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF CHINA WI-MAX COMMUNICATIONS, INC.
1. Beijing Yuan Shan Da Chuan Business Development Ltd.
2. Beijing Yuan Shan Shi Dai Technology CO, Ltd.
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Amendment No. 3 to Form
10/A of our report dated March 18, 2008 (which expresses an unqualified opinion
and includes an explanatory paragraph relating to the Company's ability to
continue as a going concern), relating to the financial statements of China
Wi-Max Communications, Inc. (a Development Stage Enterprise).
/s/GHP HORWATH, P.C.
- --------------------
November 25, 2008
Denver, Colorado
EXHIBIT 99.1