UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number: 000-53268
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:
303-993-8028
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
registered on which registered
- --------------------------- ------------------------
Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes |_| No |X|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
|X|
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)
- ----------------------------- ----------- -------------------------- ----------
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The aggregate market value of voting stock held by non-affiliates of the
registrant was $0, as the registrant's stock does not trade on any market at the
time of this filing.
There were 11,820,002 shares outstanding of the registrant's Common Stock as of
April 8, 2009.
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TABLE OF CONTENTS
PART I
ITEM 1 Business 4
ITEM 1 A. Risk Factors 13
ITEM 1 B. Unresolved Staff Comments 24
ITEM 2 Properties 24
ITEM 3 Legal Proceedings 24
ITEM 4 Submission of Matters to a Vote of Security Holders 24
PART II
ITEM 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 24
ITEM 6 Selected Financial Data 26
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 26
ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 32
ITEM 8 Financial Statements and Supplementary Data 32
ITEM 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 48
ITEM 9 A. Controls and Procedures 48
ITEM 9 A(T). Controls and Procedures 48
ITEM 9B Other Information 49
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 49
ITEM 11 Executive Compensation 52
ITEM 12 Security Ownership of Certain Beneficial Owners and Manage-
ment and Related Stockholder Matter 57
ITEM 13 Certain Relationships and Related Transactions, and Director
Independence 58
ITEM 14 Principal Accountant Fees and Services 60
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 60
SIGNATURES 62
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FORWARD LOOKING STATEMENTS
This document 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.
PART I
ITEM 1. BUSINESS
China Wi-Max Communications, Inc.
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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.
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 do 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) or they can be requested by sending correspondence to
1905 Sherman Street, Suite 335, Denver, Colorado 80203.
China Wi-Max maintains a website at www.chinawi-max.com, which is not
incorporated in and is not a part of this report.
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China Wi-Max Strategy
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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 Da Chuan) 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,
Da Chuan, has contractual agreements with a local Chinese company, Beijing Gao
Da Yang Guang Communication Technology Ltd. (hereafter Gao Da) to use this local
company's licenses and contract relationships to deliver wireless and "Value
Added Telecommunications Services".
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) held by Gao Da. The fiber assets and equipment
are owned by the Company's wholly owned subsidiary, Shi Dai. Da Chuan has
entered into a 20 year exclusive contract to use the assets of Shi Dai. 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. China Wi-Max has accounted for its 20 year contractual relationship with
Gao Da for wireless licenses as an intangible asset, as these licenses are not
held or owned by China Wi-Max. The primary party controlling Gao Da, Frank Jia,
owns approximately 9.3% of China Wi-Max stock.
Starting in January 2008, China Wi-Max began a 10% Convertible Promissory Note
offering. As a result of such offering, China Wi-Max received $1,524,800,
through April 8, 2009 of which $1,429,800 was received through December 31,
2008, and $95,000 was received subsequent to December 31, 2008. The funds raised
to date from this offering have been used to purchase the optical fiber in
Beijing and Hangzhou and spectrum licenses in Beijing, Hangzhou and Shanghai and
to complete the initial deployment of the fiber optics connectivity in Beijing
during 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
2009. The intent is to use these funds to acquire additional optical fiber
assets and use of wireless spectrum in up to eight additional markets in 2009
through its wholly owned subsidiary companies and associated contract
arrangements, as well as starting up the operations in Hangzhou and Shanghai and
expanding the Beijing network.
Overview of Current Corporate Structure
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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.
Da Chuan was established as a wholly owned foreign entity of the Company in
September of 2008. Da Chuan is the primary interface with end customers in China
through a contract executed between it and Gao Da (a wireless license holder),
whereby Da Chuan is to manage all aspects of Gao Da's assets and business
related to wireless and ISP licenses. 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
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
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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. 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 and other engineering
services. 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. At this time, all end
customers serviced by Da Chuan on behalf of Gao Da will be customers under Long
Teng's ISP license. 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.
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 fiber optic cable deeds for Beijing and Hangzhou.
Going forward, Shi Dai holds or will hold fiber optic cable assets and such
other physical 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 Gao Da's assets and
business related to wireless and ISP licenses. Currently, Gao Da has eight
full-time employees and business activity, which has been funded primarily 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, originally recorded by
China Wi-Max as deposits, now recorded as an intangible asset 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.
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.
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 Gao Da's assets and business
related to wireless and ISP licenses. 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 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's 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 served 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.
6
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 other than 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.
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.
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. 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.
China Wi-Max has access to 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, through its intangible
contractual rights with Gao Da. 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 4MHz x 40RMB/Year or 8MHz x 40RMB/Year.
In Beijing: x 1(yr), Shanghai: x 3(yr); Hangzhou: x 2(yr)
Three license usage period:
Beijing: January 7, 2008 through December 1, 2010
Hangzhou: November 1, 2007 through October 30, 2009
Shanghai: June 1, 2008 through 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.
7
Current Services Offered
China Wi-Max began offering broadband access services in China, starting
September, 2008. The initial high speed broadband internet connections in
Beijing are available on a pilot basis and are not yet revenue generating.
Service Delivery
China Wi-Max began deploying and delivering optical fiber network services on a
pilot basis 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 available through direct
connections to the optical fiber. Connections over licensed radio spectrum are
to begin in 2009. 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 markets are currently in
process. China Wi-Max used proceeds it has raised through its convertible bridge
loan to set up this initial Beijing network. The Board has authorized up to a
100% oversubscription (additional $1,000,000), and the $1.0 million convertible
bridge loan is expected to be completed or otherwise closed in the first half of
2009. The initial cost of equipment and installation of the base network was
approximately $100,000, with an additional cost of approximately $100,000 to
provide for router and interconnect redundancy.
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. 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 typically 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.
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:
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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
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Totals 98,200,000
===================
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.
Many telecom carriers are offering non-cable internet services. These companies,
like China Unicom (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.
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 wire line operators in terms of price, performance, discounted rates
for bundles of services, breadth of service, reliability, network security, and
ease of access and use. In particular, these competitors include traditional
wire line companies like China Telecom, China Mobile and China Unicom.
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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, hereinafter 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.
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. 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 Mobile and China Unicom 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. 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. Today's more advanced cellular
technologies, such as 3G, currently offer broadband service with data packet
transfer speeds of up to 2,000,000 bits per second for fixed applications, and
slower speeds for mobile applications.
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. 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.
10
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. 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 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.
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:
- 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
11
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).
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.
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
own any trademarks. China Wi-Max intends to apply for trademarks for the regions
in which the Company operates, including, but not limited to, the business logo
and service description tagline.
Development Activities
- ----------------------
China Wi-Max's investment in assets held by Gao Da and Shi Dai was approximately
$490,000 in 2007 and $895,000 in 2008 for the acquisition of licensed wireless
access and fiber optic cable assets. China Wi-Max 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.
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).
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.
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 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
12
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 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.
Material Contracts
- ------------------
Service agreements between:
1. Da Chuan and Shi Dai
2. Da Chuan and Gao Da
3. Gao Da and Long Teng
On December 17, 2008, China Wi-Max Communications, Inc. and Wang Zheng, the
holder of all shares of Gao Da, signed an Amended and Restated Declaration of
Trust.
On December 17, 2008 China Wi-Max Communications, Inc. also entered into a
Security and Pledge Agreement with the sole shareholder of Beijing Gao Da Yang
Guang Communication Technology, Ltd., whereby this shareholder has pledged 100%
of the issued and outstanding common stock of Gao Da as collateral to secure
certain loans and advances made by China Wi-Max.
ITEM 1A. RISK FACTORS
- ----------------------
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. 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 no 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, no revenue 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
13
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" emphasis paragraph 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, 2008 and December 31, 2007,
and for the periods then ended, includes an explanatory paragraph expressing
substantial doubt about China Wi-Max's ability to continue as a going concern.
As a result of this going concern modification in the Company's auditor's report
on China Wi-Max's financial statements, the Company may have a difficult time
obtaining significant additional financing. If China Wi-Max is unable to secure
significant additional financing, the Company may be obligated to seek
protection under the bankruptcy laws and China Wi-Max shareholders may lose
their investment.
China Wi-Max has 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 require in
excess of $9,000,000 in the next twelve months. Such funds are not currently
committed, and China Wi-Max has cash as of December 31, 2008 of approximately
$147,000.
China Wi-Max and its Chinese subsidiaries have no operating history and no
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 December 31, 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
14
part-time basis as required. Investors will not be able to directly manage the
Company's business. As such, they should critically assess all of the
information concerning the Company's officers and directors. A portion of China
Wi-Max's officers and directors are not employed full-time by the Company, which
could be detrimental to the business.
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 51).
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
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
15
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
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.
- ---------------------------------------
16
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.
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.
- ------
17
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
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 is 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
18
effect on China Wi-Max's business, financial condition and results of
operations. Conversely, if China Wi-Max decides to convert Chinese RMB into
United States dollars for other business purposes and the United States dollar
appreciates against this currency, the United States dollar equivalent of the
Chinese RMB that China Wi-Max converts would be reduced.
China Wi-Max's ability to bid for and acquire businesses in new regions is
dependent on favorable exchange rates between the U.S. dollar and the Chinese
Renminbi. The value of the Renminbi may fluctuate according to a number of
factors. Since 1994, the exchange rate for RMB against the United States dollars
has remained relatively stable, generally in the region of RMB 8.0 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 6.8 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
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
19
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,
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.
20
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.
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;
21
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.
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 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.
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
22
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. We have filed a Form 10-12g registering shares held by
officers, directors and affiliates and such individuals are now able to sell
their shares 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.
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.
23
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 1B. UNRESOLVED STAFF COMMENTS
- ----------------------------------
Not Applicable.
ITEM 2. PROPERTIES
- -------------------
China Wi-Max's operations are principally located at 1905 Sherman Street, Suite
335, Denver, Colorado 80203. As of December 31, 2008, the Company's lease for
the use of the offices at 1905 Sherman Street is month to month. The monthly
rental approximates $1,100.
ITEM 3. 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 December 31, 2008.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted during the period covered by this report to a vote of
security holders of the Company, through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
- --------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
- -------------------------------------
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. In January 2009,
China Wi-Max submitted a Form 15c211 to FINRA to apply for trading on the
over-the-counter bulletin board trading facility ("OTCBB"). At the time of this
filing, the Form 15c211 was still under review by FINRA. The Company cannot
assure that its shares will trade at or above the Company's net asset value.
Holders
There are approximately 55 holders of record of China Wi-Max common stock as of
December 31, 2008.
24
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 December 31, 2008, China Wi-Max currently has 10,785,002 shares of common
stock outstanding (11,820,002 at April 2, 2009). A current shareholder who is an
"affiliate" of China Wi-Max, defined in Rule 144 as a person who directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with China Wi-Max will be required to comply with the
resale limitations of Rule 144. Of these shares a total of 10,535,002 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.
Recent Sales of Unregistered Securities
We made the following unregistered sales of its securities from August 5, 2008
through December 31, 2008.
Investor Name Title of Securities Amount Date of Issuance
------------- ------------------- ------ ----------------
Ralph Ruschel Convertible $110,000 29-August-08
Promissory Note
Ralph Ruschel Convertible $38,200 30-September-08
Promissory Note
Ralph Ruschel Convertible $14,000 6-October-08
Promissory Note
Timothy Gill Convertible $10,000 24-October-08
Promissory Note
Ralph Ruschel Convertible $30,000 27-October-08
Promissory Note
Owen Hahn Convertible
Promissory Note $50,000 7-November-08
Ralph Ruschel Convertible
Promissory Note $152,800 20-November-08
Jackie Lindsey Convertible
Promissory Note $43,000 01-December-08
Ralph Reuschel Convertible
Promissory Note $61,050 04-December-08
25
Investor Name Title of Securities Amount Date of Issuance
------------- ------------------- ------ ----------------
Ralph Ruschel Convertible
Promissory Note $15,750 30-December-08
Frank Jia Common Stock 250,000 shares for 17-October-08
$62,500 in services
Convertible Promissory Notes are due December 31, 2009 and are convertible at
$0.50 per share into common shares.
Exemption From Registration Claimed
- -----------------------------------
All of the sales by us of our unregistered securities were made in reliance upon
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). The
entity listed above that purchased the unregistered securities was an existing
shareholder, known to us and our management, through pre-existing business
relationships, as a long standing business associate. The entity was provided
access to all material information, which it requested, and all information
necessary to verify such information and was afforded access to our management
in connection with the purchases. The purchaser of the unregistered securities
acquired such securities for investment and not with a view toward distribution,
acknowledging such intent to us. 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 6. SELECTED FINANCIAL DATA
- --------------------------------
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below.
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2008, and for each of the periods then
ended, includes a "going concern" explanatory paragraph, that describes
substantial doubt about the Company's ability to continue as a going concern.
Plan of Operations
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
26
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.
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 employees and one part-time employee 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 in a pilot program.
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.
During 2008, the Company continued to put in place the structure and resources
necessary to provide the services contemplated in its business plan. The Company
put into place the corporate structure of subsidiaries, licenses and contract
relationships necessary to provide services in China. Filings with the United
States Securities and Exchange Commission were successfully completed to
position the Company to file for trading status on the Over The Counter Bulletin
Board exchange. Initial office space and personnel resources were obtained in
China. Late in the year, the fiber network was placed in initial service and
customer testing was initiated. In summary, 2008 was a year of preparation and
staging to support the launch of customer acquisition in 2009.
The Company plans to begin delivering revenue generating services on a
commercial basis during the second quarter of 2009 in Beijing. Our subsidiaries
are currently recruiting sales and engineering staff to support these efforts. A
Terabit optical router was installed and in use in the first quarter of 2009.
Additional pilot level testing in the first quarter of 2009 provided the basis
for a successful full scale launch of services in the second quarter. The
addition of customers will require additional capital to acquire access to new
buildings, purchase and install equipment, etc. The company is also pursuing
opportunities to utilize its access to use wireless licenses to provide last
mile bridging services for potential customers during the second or third
quarter of 2009.
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 were due December 31, 2008. As of
December 31, 2008, eighteen of the note holders converted their shares and
accrued interest into 391,002 shares of the Company's common stock, representing
$84,000 in principal and $13,753 of accrued interest. The remainder of the notes
was extended to July 1 2009, except for two note holders, the first with a
principal balance of $25,050 extended to April 15, 2009, and the second note
holder with a balance of $25,050 extended to May 1, 2009.
In the continuance of our business operations, we do not intend to purchase or
sell any significant assets and we do not expect a significant change in the
number of employees, until additional capital is raised. We can make no
assurances that we will be able to raise any such capital.
At this time, it is difficult to raise capital as the United States and the
global business community are experiencing severe instability in the commercial
and investment banking systems. This instability 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.
27
RESULTS OF OPERATIONS
- ---------------------
Results of Operations for the Year Ended December 31, 2008 Compared to the Year
Ended December 31, 2007
During the years ended December 31, 2008 and 2007, China Wi-Max recognized no
revenues. Revenues of approximately $15,000 had been recognized in the quarter
ended September 30, 2008, but were subsequently credited due to customer
dissatisfaction resulting from poor interconnection quality delivered by a China
Wi-Max supplier.
During the year ended December 31, 2008, China Wi-Max incurred general and
administrative expenses of $1,520,271 compared to $426,102 for the year ended
December 31, 2007. The $1,094,169 increase was primarily the result of an
increase in the Company's operational activities compared to the prior period.
During the year ended December 31, 2008, the Company hired its 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 $430,000 in salary and wages, increased
consulting and professional fees of $190,000, expenses for operations in China
increased of $185,000 and increased travel expense of $14,000. During the year
ended December 31, 2008, China Wi-Max incurred $221,000 in expenses related to
common stock and expense of $103,275 in options issued as payment for services
totaling $324,275 compared to $113,750 for the year ended December 31, 2007.
During the year ended December 31, 2008, China Wi-Max recognized a net loss of
$1,716,195 compared to a net loss of $444,590 during the year ended December 31,
2007. The $1,271,605 increase in net losses was primarily the result of the
$1,076,169 increase in general and administrative expenses, discussed above
combined with the $177,436 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 $0.17 during the year ended December 31,
2008 versus a net loss per share of $0.06 during the year ended December 31,
2007.
LIQUIDITY
- ---------
Cash flow from operations has not historically been sufficient to sustain China
Wi-Max's operations without additional sources of capital. At December 31, 2008,
the Company had total current assets of $171,730, consisting of cash of $147,889
and prepaid expenses of $23,841. At December 31, 2008, the Company had total
current liabilities of $2,665,571. Total current liabilities consist of accounts
payable of $119,830, accrued interest of $195,641 and current convertible notes
payable of $2,350,100. At December 31, 2008, the Company had a working capital
deficit of $2,493,841.
During the year ended December 31, 2008, China Wi-Max used $1,172,914 in its
operating activities. The net loss of $1,716,195 was adjusted for $221,000 of
services paid for by the issuance of common stock, $13,753 of accrued interest
converted to stock, $103,275 in non-cash option expenses, depreciation of $6,323
and $3,162 in amortization of debt issuance costs. During the year ended
December 31, 2008, there was a $15,822 increase in prepaid expenses, a $32,329
increase in accounts payable and a $179,261 increase in accrued interest.
During the year ended December 31, 2007, China Wi-Max used $241,399 in its
operating activities. A net loss of $444,590 was adjusted for $113,750 of
services paid for by the issuance of common stock and $2,108 in amortization of
debt issuance costs. During the year ended December 31, 2007, there was an
$8,019 increase in prepaid expenses, $78,972 increase in accounts payable and a
$16,380 increase in accrued interest.
During the year ended December 31, 2008, China Wi-Max used $384,008 in its
investing activities, of which $205,133 was for purchases of optical fiber and
$178,875 was used primarily 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 year ended December 31, 2007, China Wi-Max used $491,666 in its
investing activities, of which $306,666 was for purchases of optical fiber and
$185,000 was used primarily for deposits for the acquisition of long-lived
assets, which relate to the acquisition of business and wireless licenses in
Beijing, China.
28
During the year ended December 31, 2008, China Wi-Max received $1,522,410 from
its financing activities. During year ended December 31, 2007, China Wi-Max
received $914,350 from its financing activities.
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 year
ended December 31, 2008, China Wi-Max issued an additional $1,429,800 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 December 31, 2008,
there is $2,350,100 in outstanding convertible notes payable and accrued
interest of $195,641. China Wi-Max is not in default with regard to these notes.
During the year ended December 31, 2008, China Wi-Max issued 884,000 shares of
its common stock to individuals as employment signing bonuses and payments for
services performed for China Wi-Max, valued at $221,000. In addition, China
Wi-Max issued 391,002 shares for the conversion of $84,000 in principal and
$13,753 in interest of the notes issued in 2007, convertible at $.25 per share.
During the year ended December 31, 2007, China Wi-Max issued 455,000 shares of
its common stock for payment of services performed for China Wi-Max, valued at
$113,750.
Going Concern
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2008 and 2007 includes a "going concern"
explanatory paragraph that describes substantial doubt about the Company's
ability to continue as a going concern.
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 39 for the years ended December 31, 2008 and 2007, and page 39. 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.
29
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 China Wi-Max beginning July, 2006.
Long-Lived Assets
Property and equipment, which consists of fiber optic cable and network support
equipment, are stated at cost, less accumulated depreciation. Depreciation is
calculated using the straight-line method over the estimated useful lives
ranging from five to twenty five years. Depreciation is commenced when the
assets are placed in service. The economic lives are estimated at the time
assets are placed in service and are based on industry experience and
anticipated technological or other changes. If technological changes were to
occur more rapidly than anticipated or in a different form than anticipated, the
useful lives assigned to these assets may need to be shortened, resulting in the
recognition of increased depreciation expense in future periods. The Company's
intangible asset, contractual license rights, represents the Company rights to
certain frequency licenses held by Gao Da. The Company amortizes this intangible
asset over the twenty-year term of the agreement. The Company evaluates this
intangible asset for impairment annually, and between annual evaluations if
events or changes in circumstances indicate that the carrying amount of the
asset may not be fully recoverable. In cases where required, an impairment
provision is recognized in an amount by which the carrying value exceeds the
estimated fair value of the asset.
Recoverability of the contractual license rights is dependent upon the
recoverability of the underlying licenses of Gao Da. The underlying value of the
frequency licenses held by Gao Da is dependent on numerous factors, including
successful deployment of networks and connectivity, and/or radio links. The
Company considers the underlying licenses to have an indefinite useful life
under the provisions of SFAS 142, Goodwill and Other Intangible Assets. These
licenses are typically renewed if the licensee files a renewal application prior
to license expiration wherein the licensee demonstrates its engagement in
supplying services or related activities to satisfy the appropriate criteria for
renewal. If at any time the Company determines that these criteria will most
likely not be met or if there is a change in management's future business plans
or disposition of one or more licenses underlying the contractual license
rights, the Company will first test the contractual license rights for
impairment and then the Company will modify the life of the contractual license
rights and begin amortizing the cost over the remaining underlying license
period. The Company also tests its long-lived assets for impairment if there are
any legal, regulatory, contractual, competitive, and economic or other factors
that are determined to limit the useful lives of the respective assets.
In assessing the recoverability of long-lived assets, the Company must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. Long-lived assets are evaluated for
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss is recognized whenever
(i) the estimated undiscounted future cash flows expected to result from the use
of the asset plus net proceeds expected from disposition of the asset, if any,
are less than the carrying value of the asset and (ii) the fair value of the
asset is less than its carrying value. When an impairment loss is identified,
the carrying value of the asset is reduced to its fair value.
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
30
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
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. SFAS No.
157 defines fair value as the price that would be received to sell an asset or
pay to transfer a liability in an orderly transaction between market
participants at the measurement date. Additionally, SFAS No. 157 requires the
use of valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active markets
for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are
corroborated by market data.
Level 3: Unobservable inputs for which there is little or no market data,
which require the use of the reporting entity's own assumptions.
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 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
31
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 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 was adopted by the Company on January 1, 2009. The Company does not
expect the adoption of FSP APB 14-1 to have a material effect on its results of
operations and financial condition.
ITEM 7A. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of China Wi-Max Communications, Inc. for the
year ended December 31, 2008, period from July 5, 2006 (inception) through
December 31, 2007, and period from July 5, 2006 through December 31, 2008,
appear as pages 33 through 48.
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
China Wi-Max Communications, Inc.
We have audited the accompanying consolidated balance sheets of China Wi-Max
Communications, Inc. and subsidiaries (a Development Stage Enterprise) (the
"Company") as of December 31, 2008 and 2007, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for the years
ended December 31, 2008 and 2007, and the period from July 5, 2006 (inception)
through December 31, 2008. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of China Wi-Max
Communications, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
results of their operations and their cash flows for the years ended December
31, 2008 and 2007, and the period from July 5, 2006 (inception) through December
31, 2008, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated 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
$1,716,000 during the year ended December 31, 2008, and has a working capital
deficiency and a shareholders' deficit of approximately $2,494,000 and
$1,599,000 respectively, at December 31, 2008. 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 consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ GHP Horwath P.C.
GHP Horwath P.C.
Denver, Colorado
April 10, 2009
33
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2008 2007
------------------ ------------------
Current assets:
Cash $ 147,889 $ 182,401
Receivable from issuance of common stock - 2,570
Prepaid expenses 23,841 8,019
------------------ ------------------
Total current assets 171,730 192,990
------------------ ------------------
Property and equipment, net 531,009 -
------------------ ------------------
Other assets:
Debt-issue costs, net - 3,162
Intangible and other assets 364,195 491,666
------------------ ------------------
364,195 494,828
------------------ ------------------
Total assets $ 1,066,934 $ 687,818
================== ==================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 119,830 $ 87,501
Accrued interest 195,641 16,380
Convertible notes payable 2,350,100 914,000
------------------ ------------------
Total liabilities (all current) 2,665,571 1,017,881
------------------ ------------------
Shareholders' deficit:
Common stock; $.001 par value; 50,000,000 shares authorized;
10,785,002 and 9,770,000 shares issued and outstanding as of
December 31, 2008 and December 31, 2007, respectively 10,785 9,770
Additional paid-in capital 534,048 113,295
Accumulated other comprehensive income 25,853 -
Deficit accumulated during the development stage (2,169,323) (453,128)
------------------ ------------------
Total shareholders' deficit (1,598,637) (330,063)
------------------ ------------------
$ 1,066,934 $ 687,818
================== ==================
See notes to financial statements.
34
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Period from
July 5, 2006
(inception)
Year ended Year ended through
December 31, December 31, December 31,
2008 2007 2008
---------------- ---------------- ---------------
Operating expenses:
General and administrative expense $ (1,520,271) $ (426,102) $ (1,954,911)
---------------- ---------------- ---------------
Operating loss (1,520,271) (426,102) (1,954,911)
---------------- ---------------- ---------------
Other expense:
Interest expense (195,924) (18,488) (214,412)
---------------- ---------------- ---------------
Net loss (1,716,195) (444,590) (2,169,323)
Foreign currency translation gain 25,853 - 25,853
---------------- ---------------- ---------------
Comprehensive loss $ (1,690,342) $ (444,590) $ (2,143,470)
================ ================ ===============
Basic and diluted net loss per share $ (0.17) $ (0.06)
================ ================
Weighted average number of common
shares outstanding 10,087,814 7,136,096
================ ================
See notes to financial statements.
35
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIODS FROM JULY 5, 2006 (INCEPTION) THROUGH DECEMBER 31, 2008
Deficit
Accumulated accumulated Total
Common stock Additional other during the share-
----------------------------- paid in comprehensive 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 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
between January and March 2008 at
par value ($0.001 per share) (260,000) (260) - - - (260)
Common stock issued for services,
between January and October 2008,
valued at $0.25 per share
884,000 884 220,116 - - 221,000
Common stock issued upon conversion
of notes and accrued interest in December,
2008, valued at $0.25 per share 391,002 391 97,362 97,753
Fair value of options vested during
the year - - 103,275 - - 103,275
Net loss - - - - (1,716,195) (1,716,195)
Other comprehensive income adjustments
Gain on foreign currency translation
- - - 25,853 - 25,853
----------- ------------ ----------- ------------ ------------ ------------
Balances, December 31, 2008 10,785,002 $ 10,785 $ 534,048 $ 25,853 $(2,169,323) $(1,598,637)
=========== ============ =========== ============ ============ ============
See notes to financial statements.
36
CHINA WI-MAX COMMUNICATIONS,INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
July 5, 2006
(Inception)
through
Year ended Year ended December 31,
December 31, 2008 December 31, 2007 2008
-------------------- ------------------ -------------
Cash flows from operating activities:
Net loss $ (1,716,195) $ (444,590) $ (2,169,323)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 221,000 113,750 334,750
Accrued interest converted to common stock 13,753 - 13,753
Non-cash stock option expense 103,275 - 103,275
Depreciation 6,323 - 6,323
Amortization of debt-issue costs 3,162 2,108 5,270
Changes in assets and liabilities:
Increase in prepaid expenses (15,822) (8,019) (23,841)
Increase in accounts payable 32,329 78,972 119,830
Increase in accrued interest 179,261 16,380 195,641
-------------------- -------------------- -----------------
Net cash used in operating activities (1,172,914) (241,399) (1,414,322)
-------------------- -------------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (205,133) (306,346) (511,479)
Purchase of intangible and other assets (178,875) (185,320) (364,195)
-------------------- -------------------- -----------------
Net cash used in investing activities (384,008) (491,666) (875,674)
-------------------- -------------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable 1,520,100 914,000 2,434,100
Proceeds from issuance of common stock 2,310 5,620 9,055
Debt issue costs - (5,270) (5,270)
-------------------- -------------------- -----------------
Net cash provided by financing activities 1,522,410 914,350 2,437,885
-------------------- -------------------- -----------------
Net (decrease) increase in cash (34,512) 181,285 147,889
Cash, beginning of period 182,401 1,116 -
-------------------- -------------------- -----------------
Cash, end of period $ 147,889 $ 182,401 $ 147,889
==================== ==================== =================
Supplemental disclosure of non-cash investing
and financing activities:
Convertible notes and interest converted to common stock $ 97,753 $ $ 97,753
==================== ==================== =================
Receivable from issuance of common stock $ - $ 2,570 $ 5,720
==================== ==================== =================
See notes to financial statements.
37
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 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 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" (Note 4). 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 initial operation of its network in Beijing in 2008, but has
not generated any revenue to date.
The Company's financial statements as of December 31, 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 December 31, 2008, include the
accounts of Da Chuan and Shi Dai. Intercompany balances and transactions
have been eliminated in consolidation.
The Company's foreign subsidiaries (Da Chuan and Shi Dai) are located in
China, and foreign transactions are conducted in currencies other than the
U.S. dollar, primarily the Chinese Renmimbi (RMB). Da Chuan and Shi Dai
financial statements are maintained in the functional currency. For
financial reporting purposes, the financial statements of the subsidiaries
have been translated into United States (U.S.) dollars. Assets and
liabilities are translated into U.S. dollars at year-end exchange rates.
Income and expense items are translated at weighted-average rates of
exchange prevailing during the year, and equity is translated at historical
exchange rates. Any resulting translation adjustments are charged or
credited to other comprehensive income in shareholders' deficit. Gains and
losses on foreign currency transactions are included in other income and
expense.
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.
38
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
1. Organization, basis of presentation, going concern and management's
plans (continued):
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 $1,716,000 for the year ended December
31, 2008, and a working capital deficiency and shareholders' deficit of
approximately $2,494,000 and $1,599,000, respectively, at December 31,
2008. The Company has a limited operating history and no current 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.
The Company's continuance as a going concern is dependent on its future
profitability and on the on-going support of its shareholders and
creditors. In order to mitigate the going concern issues, the Company is
continuing to raise capital through its $2.0 million bridge loan financing,
which consists of 10% convertible notes maturing on December 31, 2009 (Note
5). The Company raised approximately $1,430,000 through December 31, 2008,
and has raised an additional $95,000 during the first quarter of 2009. The
10% convertible note placement is anticipated to be completed in the second
quarter of 2009. The Company is also planning a $1million to $5 million
private placement of stock in mid 2009. However, additional financing may
not be available in amounts or on terms acceptable to the Company or at
all. As a consequence, if the Company is unable to obtain any additional
financing in the near term, the Company will be required to delay its
business plan implementation, and/or the Company may be required to cease
operations in order to offset the lack of available funding, which would
have a material adverse impact on the Company.
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.
Property and equipment:
Property and equipment are stated at cost, and depreciation is provided by
use of the straight-line method over the estimated useful lives of the
related assets. Major improvements are capitalized, while expenditures for
repairs and maintenance are expensed when incurred. Estimated useful lives
of property and equipment are as follows:
Fiber optic cable 25 years
Network support equipment 5 years
39
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
2. Summary of significant accounting policies (continued):
Impairment of 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. Management does not believe any
impairment has occurred as of December 31, 2008. The accounting estimates
for the Company's long-lived assets require management to make significant
assumptions about fair value. Management's assumptions regarding fair value
require significant judgments about economic factors, industry factors and
technology considerations, as well as about the Company's business
prospects. Changes in these judgments may have a significant effect on the
estimated fair values of the Company's long-lived assets and could result
in an impairment charge that could have a material adverse effect on our
results of operations. Debt issue costs:
Debt issue costs of approximately $5,000 were fully amortized to interest
expense on a straight-line basis over the term of the related debt, which
matured in December 2008 (Note 5).
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:
As of December 31, 2008, the Company has no revenue-producing operations.
When revenue generating operations begin, the Company will 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) collectability is reasonably
assured.
40
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
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
(7,178,300 at December 31, 2008 and 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.
2. Summary of significant accounting policies (continued):
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, unless the Company
enters into business acquisitions in the future.
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 an 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
41
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
value measurement of accounting for financial instruments, and the fair
value option established by this statement permits all entities to measure
eligible items at fair value at specified election dates. This statement
was effective for the Company on January 1, 2008. The Company did not apply
the fair value option to any of its outstanding instruments and therefore
SFAS No. 159 did not have an impact on the Company's financial statements.
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
2. Summary of significant accounting policies (continued):
Recent Accounting Pronouncements (continued)
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. SFAS No. 157 defines fair value as the price that would be
received to sell an asset or pay to transfer a liability in an orderly
transaction between market participants at the measurement date.
Additionally, SFAS No. 157 requires the use of valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable
inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in
active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable
inputs that are corroborated by market data.
Level 3: Unobservable inputs for which there is little or no
market data, which require the use of the reporting
entity's own assumptions.
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 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 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 was adopted by the Company on
January 1, 2009. The Company does not expect the adoption of FSP APB 14-1
to have a material effect on its results of operations and financial
condition.
42
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
3. Property and equipment:
In 2008, the Company placed property and equipment into service. As of
December 31, 2008, property and equipment consists of the following:
Fiber optic cable $506,616
Network equipment 30,716
-----------
537,332
Less: accumulated depreciation (6,323)
------------
$531,009
============
4. Intangible and other assets:
At December 31, 2008 and 2007, intangible and other assets consist of the
following:
2008 2007
---- ----
Contractual license rights $ 326,056 $ -
Deposits 38,139 491,666
------- ---------
$ 364,195 $ 491,666
======= =========
The Company's intangible asset, contractual license rights, represents the
Company rights to certain frequency licenses held by Gao Da Yang Guang
Communication Technology Ltd. ("Gao Da"). The Company entered into this
contract with Gao Da in September 2008. Previous to the contract date, the
Company had recorded deposits, which represented cash paid to Gao Da for
the purpose of acquiring frequency licenses.
The contractual license rights represent the right to revenue generated
from customers who contract to utilize frequency licenses held by Gao Da
(Note 8). The Company amortizes this intangible asset over the twenty-year
term of the agreement (amortization was not considered material in 2008).
The Company evaluates this intangible asset for impairment annually, and
between annual evaluations if events or changes in circumstances indicate
that the carrying amount of the asset may not be fully recoverable. In
cases where required, an impairment provision is recognized in an amount by
which the carrying value exceeds the estimated fair value of the asset.
Recoverability of the contractual license rights is dependent upon the
recoverability of the underlying licenses of Gao Da. The underlying value
of the frequency licenses held by Gao Da is dependent on numerous factors,
including successful deployment of networks and connectivity, and/or radio
links. The Company considers the underlying licenses to have an indefinite
useful life under the provisions of SFAS 142, Goodwill and Other Intangible
Assets. These licenses are typically renewed if the licensee files a
renewal application prior to license expiration wherein the licensee
demonstrates its engagement in supplying services or related activities to
satisfy the appropriate criteria for renewal. If at any time the Company
determines that these criteria will most likely not be met, or if there is
a change in management's future business plans or disposition of one or
more licenses underlying the contractual license rights, the Company will
first test the contractual license rights for impairment, and then the
Company will modify the life of the contractual license rights and begin
amortizing the cost over the remaining underlying license period. The
Company also tests its contractual license rights for impairment if there
are any legal, regulatory, contractual, competitive, and economic or other
factors that are determined to limit the useful lives of the licenses.
The expected amortization for the next five years is approximately $16,300
per year, and approximately $244,500 in aggregate for the years thereafter.
43
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
5. Convertible notes payable:
In 2007, the Company issued $914,000 of 12% convertible notes payable; an
additional $90,300 of 12% convertible notes was issued in January 2008.
These notes bear interest at 12% per annum, they are unsecured, and their
maturity date was December 31, 2008. 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. During 2008, notes for $84,000 and
related accrued interest of $13,753 were converted into 391,002 shares of
common stock. As of December 31, 2008, the remaining note holders agreed to
extend the maturity date; notes for $25,050 were extended to April 15,
2009, notes for $25,050 were extended to May 1, 2009, and notes for
$870,200 were extended to July 1, 2009.
During the year ended December 31, 2008, the Company issued an additional
$1,429,800 of 10% convertible notes payable which mature December 31, 2009.
These notes 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.
6. Income taxes:
Based on statutory rates, the Company's expected income tax benefit was
approximately $584,000 and $153,000 for the years ended December 31, 2008
and 2007, 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, 2008 and
2007:
2008 2007
------------- --------------
Deferred non-current tax assets:
Net operating loss carryforwards $ 739,000 $ 153,000
Valuation allowance (739,000) (153,000)
------------- --------------
Net non-current deferred tax assets $ - $ -
============= ==============
The Company's subsidiaries operate in the PRC and are therefore subject to
the PRC tax laws and regulations. The Peoples Republic of China (PRC)
federal statutory income tax rate is 25% and the local income tax rate is
3%. At December 31, 2008, the Company has U.S. net operating loss
carryforwards of approximately $2,137,000 and PRC net operating
carryforwards of approximately $32,000, which expire through 2028. 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 U.S. and
PRC net operating loss carryforwards, a valuation allowance has been
established against this asset.
44
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
7. 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 in 2008.
Stock option plan:
Effective January 1, 2008, the Company established a Stock Option Award and
Compensation Plan (the "Plan") covering up to 4,000,000 shares of the
Company's common stock. Any employee, consultant or Director of the
Company, any parent or any subsidiary is eligible to participate. The
exercise prices of the options granted are 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 granted to date
have terms that do not exceed five years. There were 637,500 vested options
as of December 31, 2008. Before any options may be delivered or exercised,
the shareholders must ratify the Plan. The Company is planning a
shareholder meeting to ratify the Plan once the Company's stock has been
approved for market trading.
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. As of December 31, 2008, the
Company's Board of Directors was serving as the compensation committee.
In 2008, the Company recorded total stock-based compensation of $103,275
for options that vested during the year, which is included in general and
administrative expense. As of December 31, 2008, the fair value of
1,562,500 unvested stock options was $190,275, which is expected to be
recognized over a weighted average period of approximately one year.
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 2008 was $0.13 per share. The assumptions utilized
to determine the fair value of options granted during the year ended
December 31, 2008 are provided in the following table:
Risk free interest rates 1.61% - 2.89%
Expected volatility 80% - 89%
Expected term in years 2 - 3
Expected dividend yield -
45
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
7. Shareholders deficit (continued):
The following table sets forth the activity in the Company's Plan since its
January 1, 2008 establishment:
Weighted
Average
Number of Exercise Average
Options Price Exercisable Fair Value
--------------- --------------- ---------------- ------------
Outstanding, January 1, 2008 - - - -
Granted during period 2,600,000 $0.25 737,500 $0.13
Forfeited/expired (400,000) 0.25 (100,000) 0.14
-------------- --------------- ---------------- ------------
Outstanding, December 31, 2008 2,200,000 $0.25 637,500 $0.13
=============== =============== ================ ============
It was determined that there was no intrinsic value attributable to options
granted during the year ended December 31, 2008, as the estimated market
price of the Company's common stock of $.25 per share is the same as the
exercise price of the options.
Common stock issued for services:
During the year ended December 31, 2008, the Company issued 884,000 shares
of common stock to various parties as employment signing bonuses and
payments for services performed for the Company, valued at $221,000 ($0.25
per share). During 2007, the Company issued 380,000 shares of common stock
to various third parties who performed development stage 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.
Subsequent to December 31, 2008 and through April 2, 2009, the Company
issued an additional 1,035,000 common shares of stock as signing bonuses
and payments for services performed for the Company, valued at
approximately $259,000 ($.25 per share).
8. Commitments:
Contract with Gao Da
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 Gao Da's
licenses and contracts that relate to the Company's deployment of fiber and
wireless assets for the Company's benefit, as defined. 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 equal to one percent of net
revenue generated from the use of Gao Da's contracts and licenses in the
Company's business operations, as defined. No fees were payable as of
December 31, 2008 under the contract.
Gao Da's president and sole shareholder owns approximately 9.3% of the
Company's common stock at December 31, 2008.
46
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2008 AND 2007
Lease
In 2008, the Company began leasing office space in Denver, Colorado on a
month-to-month basis. Rent expense is approximately $1,100 per month. Total
lease expense for 2008 was approximately $11,000.
9. Subsequent event:
In March 2009, the Company entered into a three-year employment agreement
with an individual to serve as President and Director of the Company. The
base salary is established at $10,000 per month, beginning June 1, 2009.
The Agreement also provides a signing bonus of 250,000 shares and options
to purchase up to 300,000 shares at $.25 per share when vested over three
years.
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------
The Company maintains a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in our SEC reports is recorded, processed, summarized, and reported within the
time periods specified in the SEC rules and forms, and that such information is
accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer as appropriate to allow timely decisions
regarding required disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures as defined in Exchange Act Rules 13a-14(c) as of December 31, 2008
(the "Evaluation Date") concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were ineffective to ensure that material
information relating to the Company would be made known to them by individuals
within those entities, particularly during the period in which this annual
report was being prepared and that information required to be disclosed in our
SEC reports is recorded, processed, summarized, and reported within the time
periods specified in the SEC's rules and forms.
ITEM 9A(T). CONTROLS AND PROCEDURES
- -----------------------------------
This annual report does not include a report of management's assessment
regarding internal control over financial reporting or an attestation report of
the Company's independent registered public accounting firm due to a transition
period established by rules of the Securities and Exchange Commission for newly
public companies.
48
ITEM 9B. OTHER INFORMATION
- ---------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
- ----------------------------------------------------------------
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
December 31, 2008.
Name Age Position Term
- ------------------------ ---------- ------------------------------------------- --------------------------------
Dr. Allan Rabinoff 63 Chairman and Executive Director - China Annual- Board, Officer and 3
Business Development years executive position
Steven T. Berman (1) 46 President and Director Annual- Board, Officer and 3
George E. Harris (2) 59 Chief Financial Officer and Director; Annual- Board, Officer and 3
Buck Krieger 68 Director Annual - Board
Jenny Wang (4) 45 Former Chief Administrative Officer and Annual - Officer
Daniel Najor (5) 54 Former Director Annual
Sharon Xiong (3) 47 Director Annual
(1) Effective March 5, 2009, Mr. Berman was appointed President and Director of
China Wi-Max Communications, Inc.
(2) Mr. Harris resigned as President effective March 5, 2009. He retains the
title Chief Financial Officer and remains a Board member.
(3) Effective March 9, 2009, Ms. Xiong was appointed a Director of China Wi-Max
Communications, Inc.
(4) Ms. Wang resigned as a Director and as Chief Administrative Officer
effective March 5, 2009.
(5) Mr. Najor resigned as a Director effective March 1, 2009.
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. Steven T. Berman is expected to devote
substantially all of his time to the affairs of China Wi-Max beginning June 1,
2009. 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.
49
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 and Director: Mr. Steven T. Berman was appointed as President and
Director on March 5, 2009. Mr. Berman has a B.A. from the University of
Wisconsin (1984) and a J.D. from the University of Wisconsin (1987). He served
as Assistant General Counsel from 1989-1994 for the National Rural Utilities
Cooperative Finance Corp. He became Senior VP, General Counsel, and
Secretary/Treasurer of National Rural Telecommunications Cooperative from
1994-2004. In 2005-2006, he was President/CEO of First Capital Surety & Trust
Company. He founded EBC Enterprises, LLC in 2004 as a consulting company.
Chief Financial Officer and Director; Former President: 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. Mr. Harris resigned as President on March 5, 2009. He retains his
positions as Chief Financial Officer and Director.
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: Ms. Sharon Xiong was appointed to the Company's Board on March 9,
2009. Ms. Xiong received her education in Computer Science from the University
of Colorado, Denver and holds an EMBA from the University of Colorado, Denver, a
Ph.D. from the Medical school at the University of South Dakota, and an M.S and
B.S. from Peking University, China. Ms. Xiong currently leads and manages system
verification of High Density SIP Trunk Gateway at Avaya Communication Inc. Prior
to working for Avaya, Sharon worked at Lucent Technologies on 10G optical router
(Bandwidth Manager) development and Rhythm Netconnections, Inc., for DSL
management software development. Ms. Xiong is the president of XBC Consulting
firm which offers business consulting services to people who intend to expand
their business in China's emerging market. She understands Chinese culture, has
a broad Chinese network, many years hands-on experience in US corporate business
operation, and corporate management skills.
Former Chief Administrative Officer - China and Director: 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. Ms. Wang resigned as Director on March 5,
2009. She retains her position as Chief Administrative Officer.
50
Former Director: Mr. Daniel Najor was appointed to the Company's Board in May
2008 and resigned effective March 1, 2009. 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 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 Annual Report. 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 established a
Compensation Committee in 2008. As a result of two of the three committee
members no longer being associated with the Company, the Board has assumed this
committee's responsibilities on an interim basis. 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.
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten percent stockholders are
required by regulation to furnish to the Company copies of all Section 16(s)
forms they file.
The following persons failed to file forms on a timely basis during the past two
fiscal years as required under Section 16(a) as follows:
None.
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.
51
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 Annual Report on Form
10-K, 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.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to officers and board
members during the fiscal years ended December 31, 2008, 2007 and 2006. 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
December 31, 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
Rabinoff, Chairman 2008 $100,000 0 0 0 0 0 $20,000 $120,000
and Executive 2007 0 0 $20,000 0 0 0 $42,000 $62,000
Director(1) 2006 0 0 $1,500 0 0 0 0 $1,500
- -------------------- -------- ---------- ------- --------- --------- --------------- ------------ --------------- ----------
George E. Harris, 2008 $105,000 0 $50,000 $39,900 0 0 0 $194,900
CFO and Director; 2007 0 0 0 0 0 0 0 0
Former President(2) 2006 0 0 0 0 0 0 0 0
- -------------------- -------- ---------- ------- --------- --------- --------------- ------------ --------------- ----------
Buck Krieger, 2008 0 0 0 0 0 0 $62,500 $62,500
Director(3) 2007 0 0 0 0 0 0 $20,975 $20,975
2006 0 0 0 0 0 0 $800 $800
- -------------------- -------- ---------- ------- --------- --------- --------------- ------------ --------------- ----------
Daniel Najor, 2008 0 0 $12,500 $22,500 0 0 0 $35,000
Former Director(4) 2007 0 0 0 0 0 0 0 0
2006 0 0 0 0 0 0 0 0
- -------------------- -------- ---------- ------- --------- --------- --------------- ------------ --------------- ----------
Jenny Wang, Former 2008 0 0 0 0 0 0 $80,600 $80,600
Former Chief 2007 0 0 $13,400 0 0 0 $21,000 $34,400
Administrative 2006 0 0 $100 0 0 0 0 $100
Officer and
Director(5)
- -------------------- -------- ---------- ------- --------- --------- --------------- ------------ --------------- ----------
(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. During 2008, Mr. Rabinoff received
$20,000 for his services as a director and on March 1, 2008, he 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 and 300,000 vested options with an exercise price of $.25,
valued at $39,900. Prior to January 1, 2008, Mr. Harris did not receive a salary
from China Wi-Max. Mr. Harris resigned his position as President on March 5,
2009.
52
(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. During the year 2008, Mr. Krieger
received cash of $60,000 for services and other compensation of $2,500 in
connection with his services.
(4) In March 2008, Mr. Najor was issued 50,000 shares of common stock valued at
$12,500 and 187,500 vested options with an exercise price of $.25, valued at
$22,500 for his services. Mr. Najor resigned as a Director effective March 1,
2009.
(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. During 2008, Ms. Wang received
$80,600 in cash for her services as a director and officer of the Company. Ms
Wang resigned as Chief Administrative Officer and Director effective March 5,
2009.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
In February 2008, China Wi-Max implemented a Corporation Stock Option Plan. The
Board of Directors set aside 4,000,000 shares of its common stock to be issued
under the 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 year ended December 31, 2008, the
Company granted 2,600,000 options, cancelled 400,000 options, leaving 2,200,000
exercisable upon vesting.
The options have a term of five years and an exercise price of $0.25 per share.
The options all have vesting rates. At December 31, 2008, 637,500 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 March 5, 2009, the Mr. Harris resigned as
President, with no other changes to his employment agreement.
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.
53
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.
On March 5, 2009 China Wi-Max entered into a three year employment agreement
with Mr. Berman to serve as President and Director providing for normal
executive participation in the employee benefit plans, expense reimbursements
and paid vacations. The Agreement contains normal duties, responsibilities,
termination, non-competition, and compensation clauses. The base salary is
established at $10,000 per month, beginning June 1, 2009. The Agreement also
provides a signing bonus of 250,000 shares and options vesting over three years
for 100,000 shares per year at $.25.
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.
DIRECTOR COMPENSATION
---------------------
The following table sets forth certain information concerning compensation paid
to the Company's directors for services as directors, but not including
compensation for services as officers reported in the "Summary Executives'
Compensation Table" during the year ended December 31, 2008:
Non-qualified
Non-equity deferred
Fees earned or incentive plan compensation All other
paid in cash Stock awards Option awards compensation earnings compensation Total
Name ($) ($) ($) ($) ($) ($) (1) ($)
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------- ---------------- ----------
Allan $ 20,000 $ -0- $ -0- $ -0- $ -0- $ -0- $20,000
Rabinoff(1)
Buck $ 62,500 $ -0- $ -0- $ -0- $ -0- $ -0- $ 62,500
Krieger(2)
Daniel Najor(3) $35,000 $ -0- $ -0- $ -0- $ -0- $ -0- $ 35,000
Jenny Wang(4) $ 80,600 $ -0- $ $ -0- $-0- $ -0- $ 80,600
(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. During 2008, Mr. Rabinoff received
$20,000 for his services as a director and on March 1, 2008, he entered into an
employment agreement with China Wi-Max, prior to that Mr. Rabinoff did not
receive a salary.
54
(2) 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. During the year 2008, Mr. Krieger
received cash of $60,000 and other compensation of $2,500 in connection with
services he provided in developing the business plan, seeking out potential new
management and Board members, and other business matters.
(3) In March 2008, Mr. Najor was issued 50,000 shares of common stock valued at
$12,500 and 187,500 vested options with an exercise price of $.25, valued at
$22,500 for his services. Mr. Najor resigned as a Director effective March 1,
2009.
(4) 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. During 2008, Ms. Wang received
$80,600 in cash for her services as a director and officer of the Company. Ms
Wang resigned as Chief Administrative Officer and Director effective March 5,
2009.
Compensation Committee Interlocks and Insider Participation
Through December 31, 2008, 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. As a result of two of the three committee members no longer being
associated with the Company, the Board has assumed this committee's
responsibilities on an interim basis
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 December 31, 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
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
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.
55
The NRS provides that a Nevada corporation may indemnify a person made a party
to a Proceeding because the person is or was a director against any obligation
incurred with respect to a Proceeding to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an employee benefit plan)
or reasonable expenses incurred in the Proceeding if the person conducted
himself or herself in good faith and the person reasonably believed, in the case
of conduct in an official capacity with the corporation, that the person's
conduct was in the corporation's best interests and, in all other cases, his or
her conduct was at least not opposed to the corporation's best interests and,
with respect to any criminal proceedings, the person had no reasonable cause to
believe that his or her conduct was unlawful. The Company's articles of
incorporation and bylaws allow for such indemnification. A corporation may not
indemnify a director in connection with any Proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation or, in
connection with any other Proceeding charging that the director derived an
improper personal benefit, whether or not involving actions in an official
capacity, in which Proceeding the director was judged liable on the basis that
he or she derived an improper personal benefit. Any indemnification permitted in
connection with a Proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with such Proceeding. Under the NRS,
unless otherwise provided in the articles of incorporation, a Nevada corporation
may indemnify an officer, employee, fiduciary, or agent of the corporation to
the same extent as a director and may indemnify such a person who is not a
director to a greater extent, if not inconsistent with public policy and if
provided for by its bylaws, general or specific action of its Board of Directors
or shareholders, or contract. China Wi-Max articles of incorporation provide for
indemnification of directors, officers, employees, fiduciaries and agents of
China Wi-Max to the full extent permitted by Nevada law.
China Wi-Max articles of incorporation also provide that China Wi-Max may
purchase and maintain insurance on behalf of any person who is or was a director
or officer of China Wi-Max or who is or was serving at the request of China
Wi-Max as a director, officer or agent of another enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity or arising out of his or her status as such, whether or not China
Wi-Max would have the power to indemnify him or her against such liability.
EQUITY COMPENSATION PLAN INFORMATION
China Wi-Max, in February 2008, adopted an incentive stock option plan pursuant
to which the Board of Directors may grant options to key employees, consultants,
and others to purchase up to 4,000,000 shares of the Company's common stock. The
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 December 31, 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 December 31, 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 securities Number of securities remaining
to be issued upon Weighted-average available for future issuance
exercise of exercise price of under equity compensation
outstanding options, outstanding options, plans (excluding securities
warrants and rights warrants and rights reflected in column (a)
Plan Category (a) (b) (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
56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
- --------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS.
- ---------------------------
The following table sets forth information with respect to the beneficial
ownership of China Wi-Max outstanding common stock by:
o each person who is known by China Wi-Max to be the beneficial owner of
five percent (5%) or more of China Wi-Max common stock;
o China Wi-Max's President, its other executive officers, and each
director as identified in the "Management -- Executive Compensation"
section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
sixty days of the date of this document into shares of China Wi-Max common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants, or convertible securities for the purpose of computing
the percentage ownership of the person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of China Wi-Max common
stock that China Wi-Max believes was beneficially owned by each person or entity
as of December 31, 2008. The total shares outstanding as of December 31, 2008
was 10,785,002.
Title of Class Name and Address of Beneficial Owner Amount and Nature Percent of
of Beneficial Owner Class
- -------------------------- --------------------------------------- -------------------- --------------
Common shares Dr. Allan Rabinoff, Chairman of the 2,825,000 26.2%
Board and Executive Officer
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares George E. Harris, Chief Financial 470,000 4.3%
Officer and Director; Former
President
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares Frank Jia 1,000,000 9.3%
7-3-7#, No 102, Youyi Road
Haidian District
Beijing, China 100085
Common shares Chris Watson 600,000 5.6%
PO Box 398, 228 E. Union St.
Pacific, MO 63068
Common shares Buck Krieger, Director 1,800,000 16.7%
12 Shari Dr.
St. Louis, MO 63122
57
Title of Class Name and Address of Beneficial Owner Amount and Nature(1) Percent of
of Beneficial Owner Class
- -------------------------- --------------------------------------- -------------------- --------------
Common shares Jenny Wang, Chief Administrative 1,050,000 9.7%
Officer and Former Director
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares Henry Zaks 900,000 8.3%
11649 Port Washington Rd.
Ste. #224
Mequon, WI 53092
Common shares Wang, Sharon & Qi 20,000 0.2%
8552 S. Miller Ct.
Littleton, CO 80127
Common shares Daniel Najor, Director (2) 357,500 3.3%
1625 Highland Dr.
Solana Beach, CA 92075-2124
Common shares All Directors and Executive Officers
as a Group (7 persons) 6,522,500 60.4%
(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 6,540,800 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.
(2) Mr. Najor resigned as a Director effective March 1, 2009.
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 13. 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. As of December 31, 2008, Mr. Harris had a deferred
salary balance of $15,000 from the first quarter of 2008. 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 provided for him to receive a
signing bonus of 200,000 shares of China Wi-Max's common stock. Mr. Harris
ceased to serve as the President on March 5, 2009.
On March 1, 2008, China Wi-Max entered into an employment agreement with Dr.
Allan Rabinoff to serve as the Executive Director of Chinese Business
Development. Dr. Rabinoff's employment agreement has a term of three years and
provides for Dr. Rabinoff to receive a base salary of $10,000 per month. The
employment agreement provides that the base salary upon the earlier occurrence
of the closing of financing of at least $4 million or December 31, 2008, the
base salary will increase to $15,000 per month.
58
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 former 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.
On March 5, 2009 China Wi-Max entered into a three year employment agreement
with Mr. Berman to serve as President and Director providing for normal
executive participation in the employee benefit plans, expense reimbursements
and paid vacations. The Agreement contains normal duties, responsibilities,
termination, non-competition, and compensation clauses. The base salary is
established at $10,000 per month. The Agreement also provides a signing bonus of
250,000 shares and options vesting over three years for 100,000 shares per year
at $.25.
On March 9, 2009, Ms. Sharon Xiong was appointed to the Board. Ms. Xiong
received 25,000 shares in anticipation of services to be provided.
During the years ended December 31, 2008 and 2007, 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, 2007
Jenny Wang, former Director 200,000 $200 Services
Dr. Allan Rabinoff, Director 750,000 $750 Services
Buck Krieger, Director 500,000 $500 Services
Jenny Wang, former Director 100,000 $100 Services
Buck Krieger, Director 500,000 $500 Services
Dr. Allan Rabinoff, Director 500,000 $500 Services
Dr. Allan Rabinoff, Director 75,000 $18,750 Services
Jenny Wang, former Director 50,000 $12,500 Services
59
Year Ended December 31, 2008
George Harris, former President
Chief Financial 200,000 $50,000 Signing Bonus with
Employment Agreement
Daniel Najor, former Director 50,000 $12,500 Services
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
GENERAL. GHP Horwath, P.C. ("GHP") is the Company's independent registered
public accounting firm. The Company's Board of Directors has considered whether
the provision of audit services is compatible with maintaining GHP's
independence.
The following table presents aggregate fees for professional services rendered
by GHP for the years ended December 31, 2008 and December 31, 2007.
Year Ended December 31,
2008 2007
----------------------- ----------------------
Audit Fees $70,800 $20,000
Audit-related Fees $ -0- $ -0-
Tax Fees $ -0- $ -0-
All Other Fees $ -0- $ -0-
----------------------- ----------------------
Total Fees $70,800 $20,000
All work was done by the auditors' fulltime employees.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
- -------------------------------------------------
The following is a complete list of exhibits filed as part of this Form 10K.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-K.
(a) Audited financial statements for December 31, 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
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
10.7 Services Agreement between Beijing Gao Da Yang Guang Technology Ltd. and Beijing
10.8 Cooperation Agreement Long Teng Jia Xun - ENGLISH (3)
10.9 Business License of Beijing Yuan Shan Da Chuan Business Development Ltd. - CHINESE
10.10 Business License of Beijing Shan Shi Dai Technology Development Ltd. - CHINESE and
10.11 Declaration of Trust - CHINESE and ENGLISH (4)
10.12 Amended and Restated Declaration of Trust (5)
10.13 Security and Pledge Agreement (5)
10.14 Employment Agreement - Steven T. Berman
21 List of Subsidiaries
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
99.1 Appendix A - Diagram
99.2 Appendix B - Network Overview(1)
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)
60
(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.
(4) 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 18, 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.
(5) Incorporated by reference from the exhibits included in the Company's Form
8K filed with the Securities and Exchange Commission (www.sec.gov), dated
December 19, 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.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
China Wi-Max Communications, Inc.
Dated: April 13, 2009
By: /s/ Steven T. Berman
----------------------------------
Steven T. Berman
President and Director
Dated: April 13, 2009
By: /s/ George E. Harris
----------------------------------
George E. Harris
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: April 13, 2009 /s/ Steven T. Berman
-----------------------------------------
Steven T. Berman, President and Director
Dated: April 13, 2009 /s/ George E. Harris
-----------------------------------------
George E. Harris, Chief Financial Officer
and Director
Dated: April 13, 2009 /s/ Dr. Allan Rabinoff
-----------------------------------------
Dr. Allan Rabinoff, Chairman and
Executive Director - China Business
Development
Dated: April 13, 2009 /s/ Buck Krieger
-----------------------------------------
Buck Krieger, Director
Dated: April 13, 2009 /s/ Sharon Xiong
-----------------------------------------
Sharon Xiong, Director
62