UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Six Month Period Ended June 30, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 000-53268
CHINA WI-MAX COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Nevada 61-1504884
- ------------------------ ------------------------
(State of Incorporation) (IRS Employer ID Number)
1905 Sherman Street, Suite 335, Denver, Colorado 80203
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(Address of principal executive offices)
303-993-8028
--------------------------
(Registrant's Telephone number)
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 past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No []
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of July 31, 2009 there were 14,429,657 shares of the registrant's common
stock issued and outstanding.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Balance Sheets -June 30, 2009 (Unaudited) and
December 31, 2008 4
Consolidated Statements of Operations (Unaudited) - Six months ended June
30, 2009 and 2008 and
From July 5, 2006 (Inception) to June 30, 2009 5
Consolidated Statements of Changes in Shareholders' Deficit (Unaudited) -
From July 5, 2006 (Inception) to June 30, 2009 7
Consolidated Statements of Cash Flows (Unaudited) - Six months ended June
30, 2009 and 2008 and From July 5, 2006 (Inception) to June 30, 2009
9
Notes to the Consolidated Financial Statements (Unaudited) 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable 23
Item 4. Controls and Procedures 23
Item 4T. Controls and Procedures 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -Not Applicable 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities - Not Applicable 24
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 25
Item 5. Other Information - Not Applicable 25
Item 6. Exhibits 26
SIGNATURES 26
3
PART I
ITEM 1. FINANCIAL STATEMENTS
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
ASSETS
June 30, December 31,
2009 2008
------------------- -------------------
(Unaudited)
-------------------
Current assets:
Cash $ 158,659 $ 147,889
Prepaid expenses 38,946 23,841
------------------- -------------------
Total current assets 197,605 171,730
------------------- -------------------
Property and equipment, net 582,823 531,009
Intangible assets and other, net 331,663 364,195
------------------- -------------------
914,486 895,204
------------------- -------------------
$ 1,112,091 $ 1,066,934
=================== ===================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 303,226 $ 119,830
Accrued interest 263,972 195,641
Convertible notes payable 2,551,095 2,350,100
------------------- -------------------
Total current liabilities 3,118,293 2,665,571
------------------- -------------------
Long-term liabilities:
Convertible notes payable 57,903 -
---------------- ----------------
3,176,196 2,665,571
================ ================
Shareholders' deficit:
Common stock; $.001 par value; 50,000,000 shares authorized;
14,429,657 and 10,785,002 shares issued and outstanding
as of June 30, 2009 and December 31, 2008, respectively 14,430 10,785
Additional paid-in capital 1,630,849 534,048
Accumulated other comprehensive income 25,907 25,853
Deficit accumulated during the development stage (3,735,291) (2,169,323)
------------------- -------------------
Total shareholders' deficit (2,064,105) (1,598,637)
------------------- -------------------
$ 1,112,091 $ 1,066,934
=================== ===================
See notes to unaudited financial statement.
4
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended
June 30, June 30,
2009 2008
----------------------- ------------------------
Operating expenses:
General and administrative expense $ (843,257) $ (317,690)
----------------------- ------------------------
Operating loss (843,257) (317,690)
----------------------- ------------------------
Other expense:
Interest expense (70,850) (45,715)
----------------------- ------------------------
Net loss (914,107) (363,405)
Foreign currency translation loss (532) -
----------------------- ------------------------
Comprehensive loss $ (914,639) $ (363,405)
======================= ========================
Basic and diluted net loss per share $ (0.07) $ (0.04)
======================= ========================
Weighted average number of common
shares outstanding 12,558,464 10,016,967
======================= ========================
See notes to unaudited financial statements.
5
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Period from
July 5, 2006
(inception)
Six Months Ended through
June 30, June 30, June 30,
2009 2008 2009
----------------------- --------------------------------------------------
Operating expenses:
General and administrative expense $ (1,432,291) $ (730,098) $ (3,387,188)
----------------------- ------------------------ -----------------------
Operating loss (1,432,291) (730,098) (3,387,188)
----------------------- ------------------------ -----------------------
Other expense:
Interest expense (133,677) (78,638) (348,089)
----------------------- --------------------------------------------------
Net loss (1,565,968) (808,736) (3,735,277)
Foreign currency translation gain 54 - 25,907
----------------------- --------------------------------------------------
Comprehensive loss $ (1,565,914) $ (808,736) $ (3,709,370)
======================= ======================== =======================
Basic and diluted net loss per share $ (0.13) $ (0.08)
======================= ========================
Weighted average number of common
shares outstanding 11,963,317 9,885,467
======================= ========================
See notes to unaudited financial statements.
6
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIODS FROM JULY 5, 2006 (INCEPTION) THROUGH JUNE 30, 2009
(Unaudited)
Accumulated Deficit
Additional other accumulated Total
Common stock paid-in comprehension during the shareholders'
---------------------
Shares capital income development
stage deficit
---------- -------- ------------------ -------- -------------- ------------
Common stock issued for
cash between July 5,
2006 (inception) and
December 31, 2006 at
par value ($0.0001 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 shares 455,000 455 113,295 - - 113,750
Net loss - - - - (444,590) (444,590)
---------- -------- ------------------ ------------- -------------- ------------
Balances, December 31, 2007 9,770,000 9,770 113,295 - (453,128) (330,063)
Shares of common stock
cancelled at par value (260,000) (260) - - - (260)
Common stock issued for
services, 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 period - - 103,275 - - 103,275
Net loss - - - - (1,716,195) (1,716,195)
7
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIODS FROM JULY 5, 2006 (INCEPTION) THROUGH JUNE 30, 2009
(Unaudited)
Accumulated Deficit
Additional other accumulated Total
Common stock paid-in comprehension during the shareholders'
---------------------
Shares capital income development
stage deficit
---------- -------- ------------------ -------- -------------- ------------
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)
Common stock issued for
service, valued at $0.25
per share 2,035,000 2,035 506,715 - - 508,750
Common stock issued upon
conversion of notes and
accrued interest in June
2009 1,609,655 1,610 406,362 - - 407,972
Fair value of options vesting
during the period - - 183,724 - - 183,724
Net loss - - - - (1,565,968) (1,565,968)
Other comprehensive income
adjustments, gain on foreign
currency translation - - - 54 - 54
---------- -------- ------------------ ------------- -------------- ------------
Balances, June 30, 2009 14,429,657 14,430 $ 1,630,849 $ 25,907 $ (3,735,291) $ (2,064,105)
========== ======== ================== ============= ============== ============
See notes to unaudited financial statements.
8
CHINA WI-MAX COMMUNICATIONS,INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
July 5, 2006
(Inception)
Six Months Ended through
June 30, 2009 June 30, 2008 June 30, 2009
------------------ -------------------- --------------
Cash flows from operating activities:
Net loss $ (1,565,968) $ (808,736) $ (3,735,277)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 508,750 158,500 843,500
Accrued interest converted to common stock 65,712 - 79,465
Non-cash stock option expense 183,724 71,925 286,999
Depreciation 18,565 - 24,888
Amortization 12,227 1,901 17,497
Changes in assets and liabilities:
Increase in prepaid expenses (15,105) (8,746) (72,099)
Increase (decrease) in accounts payable 183,397 (47,877) 303,227
Increase in accrued interest 67,990 78,638 263,632
Decrease in other assets 20,400 20,400
Decrease in accrued expenses - (5,000) (5,000)
------------------ -------------------- --------------
Net cash used in operating activities (520,308) (559,395) (1,972,769)
------------------ -------------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (70,325) (360,664) (581,804)
Purchase of intangible assets - (326,056)
------------------ -------------------- --------------
Net cash used in investing activities (70,325) (360,664) (907,860)
------------------ -------------------- --------------
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable 601,403 770,300 3,035,503
Proceeds from issuance of common stock - 2,310 9,055
Debt issue costs - - (5,270)
------------------ -------------------- --------------
Net cash provided by financing activities 601,403 772,610 3,039,288
------------------ -------------------- --------------
Net increase (decrease) in cash 10,770 (147,449) 158,659
Cash, beginning of period 147,889 182,401 -
------------------ -------------------- --------------
Cash, end of period $ 158,659 $ 34,952 $ 158,659
================== ==================== ==============
Supplemental disclosure of non-cash investing
and financing activities:
Convertible notes converted to common stock $ 342,260 $ - $ 440,013
================== ==================== ==============
Receivable from issuance of common stock $ - $ 50 $ 5,720
================== ==================== ==============
See notes to unaudited financial statement.
9
CHINA WI-MAX COMMUNICATIONS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Unaudited)
1. Organization, basis of presentation, going concern and management's plans:
Organization and basis of presentation:
China Wi-Max Communications, Inc. (the "Company") is a development stage
telecommunications broadband provider. The Company is a Nevada corporation
formed in July 2006, and is focused on providing commercial customers with high
bandwidth connections throughout first and second tier markets in China. For
accounting purposes, the Company is classified as a development stage enterprise
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 7.
The Company plans to build, own, and operate metropolitan area Internet
Protocol (IP)-based broadband networks using a combination of Company-owned
optical fiber and licensed Wi-Max (Worldwide Interoperability for Microwave
Access) capable wireless spectrum. These networks are designed to provide the
reliability, redundancy, scalability, and other features expected of a carrier
class network. The Company intends to provide value-added services such as IP
transport, Internet Service Provider (ISP) services, and broadband internet
access. The Company 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 June 30, 2009, and for the
period from September 24, 2008, the date at which the Company gained 100%
ownership of Da Chuan and Shi Dai, through June 30 2009, 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 period-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
10
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.
In the opinion of the management of the Company, the accompanying
unaudited financial statements include all material adjustments, including all
normal and recurring adjustments, considered necessary to present fairly the
financial position and operating results of the Company for the periods
presented. The financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2008. Amounts as of
December 31, 2008 are derived from the audited consolidated financial
statements. It is the Company's opinion that when the interim financial
statements are read in conjunction with the December 31, 2008 Annual Report on
Form 10-K, the disclosures are adequate to make the information presented not
misleading. Interim results are not necessarily indicative of results for a full
year or any future period.
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 $1,596,000 for the six months ended June
30, 2009, and a working capital deficiency and shareholders' deficit of
approximately $2,921,000, and $3,735,000, respectively, at June 30, 2009. The
Company has a limited operating history and no revenue producing operations. In
addition, the Company does not have a revolving loan agreement with any
financial institution, nor can the Company provide any assurance it will be able
to enter into any such agreement in the future, or be able to raise funds
through a future issuance of debt or equity. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
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 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, approximately $601,403 during the six
months ended June 30, 2009, and has raised an additional $600,725 subsequent to
June 30, 2009.
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.
11
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 June
30, 2009. 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 the
Company's results of operations.
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 measurements:
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.
The fair value of the Company's cash, accounts payable and convertible notes
approximate their carrying amounts due to the short maturities of these
instruments.
Revenue recognition:
As of June 30, 2009, the Company has no revenue-producing operations. At such
time 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
12
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.
Loss per share:
Basic loss per share of common stock is computed based on the weighted
average number of common shares outstanding during the period. Stock options and
common shares issuable upon the conversion of debt securities (11,967,890 at
June 30, 2009 and 5,377,200 at June 30, 2008) are not considered in the
calculation, as the effect would be antidilutive. Therefore, diluted loss per
share is equivalent to basic loss per share.
Recently Issued and Adopted Accounting Pronouncements:
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value
Measurements. SFAS No. 157 establishes a framework for measuring the fair value
of assets and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under various existing
accounting standards which permit, or in some cases require, estimates of fair
market value. SFAS No. 157 also expands financial statement disclosure
requirements about a company's use of fair value measurements, including the
effect of such measures on earnings. In February 2008, the FASB issued Staff
Position FAS 157-2, which delayed the effective date of SFAS 157 for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The Company adopted Staff Position FAS 157-2 on
January 1, 2009. At June 30, 2009, the Company has no financial assets or
liabilities subject to recurring fair value measurements.
SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, allows entities to voluntarily choose to measure certain financial
assets and liabilities at fair value (fair value option). The fair value option
may be elected on an instrument-by-instrument basis and is irrevocable, unless a
new election date occurs. If the fair value option is elected for an instrument,
SFAS No. 159 specifies that unrealized gains and losses for that instrument be
reported in earnings at each subsequent reporting date. The Company did not
elect to apply the fair value option to any outstanding instruments.
In April 2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board
Opinion ("APB") 28-1, Interim Disclosures about Fair Value of Financial
Instruments, (FSP 107-1), which will require that the fair value disclosures
required for all financial instruments within the scope of SFAS 107, Disclosures
about Fair Value of Financial Instruments, be included in interim financial
statements. This FSP also requires entities to disclose the method and
significant assumptions used to estimate the fair value of financial instruments
on an interim and annual basis and to highlight any changes from prior periods.
FSP 107-1 is effective for interim periods ending after June 15, 2009. The
adoption of FSP 107-1 did not have a material impact on the Company's
consolidated financial statements.
On January 1, 2009, the Company adopted SFAS No. 141(Revised 2007), Business
Combinations, (SFAS No. 141R). SFAS No. 141R provides revised guidance on how
acquirers recognize and measure the consideration transferred, identifiable
assets acquired, liabilities assumed, noncontrolling interests, and goodwill
13
acquired in a business combination. SFAS No. 141R also expands required
disclosures surrounding the nature and financial effects of business
combinations. Management believes that the adoption of SFAS 141 (revised 2007)
could have an impact on the accounting for any future acquisition, if one were
to occur. The Company is required to apply the guidance in SFAS 141R for any
future business combinations.
On January 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements. SFAS 160 establishes accounting and
reporting standards for a noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. Because all of the
Company's subsidiaries are wholly-owned by the Company, there are no
noncontrolling interests, and as a result, the adoption of this standard had no
effect on the Company's consolidated financial statements.
On January 1, 2009, the Company adopted the provisions of Emerging Issues Task
Force ("EITF") 07-05, Determining whether an Instrument (or Embedded Feature) Is
Indexed to an Entity's Own Stock, which provides guidance on determining what
types of instruments or embedded features in an instrument held by a reporting
entity can be considered indexed to its own stock for the purpose of evaluating
the first criteria of the scope exception in paragraph 11(a) of SFAS 133. The
adoption of this EITF did not have an impact on the Company's consolidated
financial statements.
In March 2008 the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities -- an amendment of FASB Statement No. 133.
SFAS 161 amends and expands the disclosure requirements of FASB Statement No.
133, requiring enhanced disclosures about the Company's derivative and hedging
activities. The adoption of SFAS 161 did not have a material impact on the
Company's financial statements.
In June 2009, the FASB approved its Accounting Standards Codification or
Codification, as the single source of authoritative United States accounting and
reporting standards applicable for all non-governmental entities, with the
exception of the SEC and its staff. The Codification, which changes the
reference of financial standards, is effective for interim or annual financial
periods ending after September 15, 2009. Therefore, in the third quarter of
fiscal 2009, all references made to US GAAP will use the new Codification
numbering system prescribed by the FASB. As the Codification is not intended to
change or alter existing US GAAP, it is not expected to have any impact on the
Company's consolidated financial position or results of operations.
3. Property and equipment:
As of June 30, 2009 and December 31, 2008, property and equipment consists of
the following:
June 30, 2009 December 31, 2008
Fiber optic cable $507,312 $506,616
Network equipment 100,140 30,716
----------- -----------
607,452 537,332
Less accumulated depreciation (24,629) (6,323)
----------- -----------
$582,823 $531,009
=========== ===========
14
4. Intangible and other assets:
As of June 30, 2009 and December 31, 2008, intangible assets and other consist
of the following:
June 30, 2009 December 31, 2008
Contractual license rights $326,056 $ 326,056
Less accumulated amortization (12,227) -
--------- ---------
$313,829 $ 326,056
Deposits 17,834 38,139
---------- ---------
$331,663 $ 364,195
========== =========
The Company's intangible assets, contractual license rights, represent 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.
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 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. During the six months ended June 30, 2009, notes of
$332,260 and related accrued interest of $64,597 were converted into 1,600,655
shares of common stock. As of June 30, 2009, all remaining note holders had
extended the maturity date to December 31, 2009.
15
In 2008, the Company issued $1,429,800 of 10% convertible notes payable. As
of June 30, 2009, the Company had issued $2,031,248 of 10% convertible notes
payable of which $1,963,310 mature within one year while $57,903 mature at
December 31, 2010. In the six months ended June 30, 2009, $601,403 of the notes
were issued. Additionally, $10,000 of these notes and related interest of $1,115
were converted into 22,230 shares of common stock. 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 $473,000 and $278,000 for the six months ended June 30, 2009 and
2008, respectively. The expected income tax benefit differs from the actual
benefit of $0 each period, due primarily to the valuation allowance.
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%. 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.
7. Shareholders' deficit:
Stock option plan:
Effective January 1, 2008, the Company established a Stock Option Award and
Compensation Plan (the "Plan") originally covering up to 4,000,000 shares of the
Company's common stock (increased to 5,200,000 in May 2009). 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 1,675,000 vested options as of
June 30, 2009. 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 June 30, 2009, the Company's
Board of Directors was serving as the compensation committee.
16
In the six month periods ended June 30, 2009 and 2008, the Company recorded
total stock-based compensation of $183,724 and $71,925 for options that vested
during the periods, which is included in general and administrative expense. As
of June 30, 2009, the Company has 3,150,000 unvested stock options of which
2,450,000 vesting is contingent on future events. As of June 30, 2009, the
estimated fair value of the remaining 700,000 unvested stock options was
approximately $68,800, 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 $0.43 per share. There were 2,350,000 options
granted in the period ended June 30, 2009 that have a weighted average fair
value of $0.49 per share. None of the options granted in the period ended June
30, 2009 had vested as of June 30, 2009. The assumptions utilized to determine
the fair value of options granted during the periods ended through June 30, 2009
and 2008 are provided in the following table:
2009 2008
--------------------- -------------
Risk free interest rates 1.34% - 2.75% 1.61% - 2.89%
Expected volatility 135% - 145% 80% - 89%
Expected term in years 2 - 3 2 - 3
Expected dividend yield 0% 0%
The following table sets forth the activity in the Company's Plan since its
January 1, 2009:
Weighted
Average
Number of Exercise Average
Options Price Exercisable Fair Value
--------------- --------------- ----------- ------------
Outstanding, January 1, 2009 2,200,000 $0.25 637,500 $0.13
Granted/vested during period 3,150,000 $0.43 1,037,500 $0.18
Forfeited (525,000) $0.25 - $0.13
-------------- --------------- ---------------- ------------
Outstanding, June 30, 2009 4,825,000 $0.35 1,675,000 $0.16
=============== =============== ================ ============
There was no intrinsic value attributable to options granted through the
period ended June 30, 2009, as the estimated market price of the Company's
common stock of $0.25 per share is the same as the exercise price of the
options.
Common stock issued for services:
During the six month period ended June 30, 2009, the Company issued 2,035,000
shares of common stock to various parties as employment bonuses and payments for
services performed for the Company, valued at $508,750 ($0.25 per share). During
the six month period ended June 30, 2008, the Company issued 634,000 shares of
common stock to various third parties who performed services for the Company.
These shares were valued at $158,500 ($0.25 per share).
17
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 incurred through June 30, 2009 under the contract.
Gao Da's shareholder owns approximately 8.5% of the Company's common stock at
June 30, 2009.
Employment Agreement
In April 2009, the Company entered into a one-year employment agreement with
an individual to serve as Chief Financial Officer of the Company. The full time
base salary is established at approximately $6,500 per month, beginning May 1,
2009. The Agreement also provides a signing bonus of 50,000 options to purchase
common shares at $.25 per share over three years.
In April 2009, the Company entered into a separation agreement with the
former President and Chief Financial Officer. The agreement provided for the
payment of previously deferred and other compensation of approximately $98,000
over the next ten months and vesting of 200,000 previously unvested stock
options.
Consulting Agreements:
In June 2009, the Company entered into a one-year consulting agreement with two
third parties, in which these parties agreed to provide the Company with
investor relations' services and access to financing sources. The Company is to
pay a fee of 5% of the amount of any financing transaction completed by or
through a financing source, as defined, which they bring to the Company, up to a
maximum of $5 million. The Company also issued to these parties, three-year
options to purchase up to 1,000,000 shares of the Company's common stock at
$0.50 per share, of which options to purchase 450,000 shares were fully-vested
and non-forfeitable at the date of grant. These options were valued (using the
Black Scholes option pricing model) at approximately $97,000, which has been
recorded as general and administrative expense. The remaining options to
purchase up to 550,000 shares vest upon completion of specific performance
objectives.
In June 2009, the Company entered into a one-year agreement with a third party,
in which this party agreed to provide investor communications and consulting
services. The Company is to reimburse this consultant for any expenses incurred
in connection with services provided and also granted fully-vested,
non-forfeitable options to purchase up to 100,000 shares of the Company's common
stock at $0.50 per share. The term of these options are five years and were
valued (using the Black Scholes option pricing model) at approximately $22,000,
which has been recorded as general and administrative expense.
18
For options issued under the agreements described above, the variables used in
the Black Scholes option pricing model were as follows:
Risk free interest rate 1.34 %- 2.75%
Term 3 - 5 years
Volatility 135% - 145%
Dividend yield 0%
9. Subsequent events:
On July 1, 2009, the Company issued option to purchase 25,000 shares of the
Company's common stock for consulting services.
The Company evaluated events through August 19, 2009 for consideration as a
subsequent event to be included in its June 30, 2009 financial statements issued
August 19, 2009.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
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.
The independent registered public accounting firm's report on the Company's
consolidated 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.
GENERAL
China Wi-Max plans to be a telecommunications broadband provider focused on
providing commercial customers with high bandwidth connections through first and
second tier markets in China through subsidiary companies. Through these wholly
and partially owned subsidiaries, China Wi-Max intends to build, own, and
operate metropolitan area Internet Protocol (IP) based broadband networks, using
both owned optical fiber and licensed Wi-Max capable wireless spectrum.
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 the six months ended June 30, 2009, 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
20
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.
The Company plans to begin delivering revenue generating services on a
commercial basis during the third 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 is now in use. Additional pilot level
testing performed during the six months ended June 30, 2009 is providing the
basis for a successful full scale launch of services in the third and fourth
quarters of 2009. Adding 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 wireless spectrum licenses
to provide last mile bridging services for potential customers during the 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 notes not converted to stock have been
extended to December 31, 2009. The Company continues a private offering of
unsecured convertible Notes that bear interest at 10% per annum, convertible at
the note holder's option into Common Stock of China Wi-Max at a conversion price
of $.50 per share and have due dates varying from December 31, 2009 through
December 31, 2010.
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. As of May 1, 2009, we
had retained a new President and new Chief Financial Officer. The former
President and Chief Financial Officer left the Company for other business
opportunities and will continue to assist the Company.
At this time it is difficult to raise capital as the United States and the
global business community is continuing to experience severe instability in
their 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.
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended June 30, 2009 Compared to the
Three Months Ended June 30, 2008
During the three months ended June 30, 2009 and 2008, China Wi-Max did not
recognize any revenues.
During the three months ended June 30, 2009, China Wi-Max incurred general and
administrative expenses of $843,257 compared to $317,690 for the three months
ended June 30, 2008. The $525,567 increase was a result of an increase in the
Company's operational activities compared to the prior period. As a result of
the staff increases, there was an increase of approximately $463,000 in salary
and wages, expenses for operations in China decreased by $5,000, consulting and
professional fees increased by $10,000, insurance costs increased by $6,000,
amortization costs increased by $4,000 and travel and other items increased by
$18,000 over the prior period ended June 30, 2008.
During the three months ended June 30, 2009, China Wi-Max recognized a net loss
of $914,107 compared to a net loss of $363,405 during the three months ended
June 30, 2008. The $550,702 increase in net loss was primarily a result of the
21
$525,567 increase in general and administrative expenses, discussed above
combined with the $25,135 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 $0.07 during the three months ended June
30, 2009 versus a net loss of $0.04 per share during the three months ended June
30, 2008.
Results of Operations for the Six Months Ended June 30, 2009 Compared to the Six
Months Ended June 30, 2008
During the six months ended June 30, 2009 and 2008, China Wi-Max did not
recognize any revenues.
During the six months ended June 30, 2009, China Wi-Max incurred general and
administrative expenses of $1,432,000 compared to $730,000 for the six months
ended June 30, 2008. The $702,000 increase was a result of an increase in the
Company's operational activities compared to the prior period. During the six
months ended June 30, 2009, the Company continued to increase its staff and
outside consultants, as it began implementation of its business plan. As a
result of the staff increases, there was an increase of approximately $463,000
in salary and wages, expenses for operations in China increased by $48,000,
consulting and professional fees increased by $82,000, insurance costs increased
by $15,000, amortization costs increased by $12,000 and travel and other items
increased by $7,000 over the prior period ended June 30, 2008.
During the six months ended June 30, 2009, China Wi-Max recognized a net loss of
$1,566,000 compared to a net loss of $808,000 during the six months ended June
30, 2008. The $757,000 increase in net loss was primarily a result of the
$702,000 increase in general and administrative expenses, discussed above
combined with the $55,000 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 $0.13 during the six months ended June
30, 2009 versus a net loss of $0.08 per share during the six months ended June
30, 2008.
LIQUIDITY
Historically, cash flow from operations has not been sufficient to sustain China
Wi-Max's operations without additional sources of capital. At June 30, 2009, the
Company had total current assets of $197,000, consisting of cash of $158,000 and
prepaid expenses of $39,000. At June 30, 2009, the Company had total current
liabilities of $3,118,000. Total current liabilities consisted of accounts
payable of $303,000, accrued interest of $263,000 and convertible notes payable
of $2,551,000. At June 30, 2009, the Company had a working capital deficit of
$2,921,000.
During the six months ended June 30, 2009, China Wi-Max used $520,000 in its
operating activities. The net loss of $1,566,000 was adjusted for $509,000 of
services paid for by the issuance of common stock, $184,000 in non-cash stock
option expense and $30,000 in depreciation and amortization expenses. During the
six months ended June 30, 2009, there was a $15,000, increase in prepaid
expenses, a $183,000 increase in accounts payable, a $68,000 increase in accrued
interest and a $20,000 decrease in other assets.
During the six months ended June 30, 2008, China Wi-Max used $559,000 in its
operating activities. A net loss of $808,000 was adjusted for $158,000 of
services paid for by the issuance of common stock and $71,000 in non-cash stock
option expense. During the six months ended June 30, 2008, there was an $8,000
decrease in prepaid expenses, a $47,000 increase in accounts payable and a
$78,000 increase in accrued interest.
22
During the six months ended June 30, 2009, China Wi-Max used $70,000, in its
investing activities, primarily for the purchase of property and equipment.
During the six months ended June 30, 2008, China Wi-Max used $360,000 in its
investing activities for access to wireless licenses and optical fiber payments
in China.
During the six months ended June 30, 2009, China Wi-Max received $601,000 from
its financing activities. During the six months ended June 30, 2008, China
Wi-Max received $773,000, 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. Notes not yet
converted have been extended to December 31, 2009. In April 2008, the Board of
Directors authorized the sale of an additional $1 million of unsecured
convertible promissory notes, bearing interest at 10% per annum, and are
unsecured. The Board of Directors subsequently increased the offering to $2
million. 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 note holders.
During the six months ended June 30, 2009, China Wi-Max issued an additional
$601,400 in unsecured convertible promissory notes, which mature on varying
dates in December 31, 2009 through December 31, 2010, bearing interest at 10%
per annum, and are unsecured. Principal and interest are convertible at any time
into shares of China Wi-Max's common stock at $0.50 per share, at the option of
the promissory note holders. China Wi-Max has not paid nor is any principal or
interest due on these notes. As of June 30, 2009, there is $2,608,000 in
outstanding convertible notes payable and accrued interest of $263,000. China
Wi-Max is not in default with regard to these notes.
During the six months ended June 30, 2009, China Wi-Max issued 2,035,000 shares
of its common stock to individuals as employment signing bonuses and payments
for services performed for China Wi-Max, valued at $509,000. During the six
months ended June 30, 2008, China Wi-Max issued 634,000 shares of its common
stock to individuals as employment signing bonuses and payments for services
performed for China Wi-Max, valued at $158,500.
During the six months ended June 30, 2009, China Wi-Max issued stock options
exercisable for 3,150,000 shares of its common stock, with an exercise price of
$0.25 per share and a term of 3 to 5 years. The options have variable vesting
rates. During the six months ended June 30, 2009, options exercisable for
1,037,000 shares were vested. These options were valued using the Black-Scholes
model, and the Company has recorded $184,000 of stock based compensation expense
during the six months ended June 30, 2009.
During the six months ended June 30, 2008, China Wi-Max issued stock options
exercisable for 2,200,000 shares of its common stock, with an exercise price of
$0.25 per share and a term of 5 years. The options have variable vesting rates.
During the six months ended June 30, 2008, options exercisable for 425,000
shares were vested. These options were valued using the Black-Scholes model, and
the Company has recorded $71,000 of stock based compensation expense during the
six months ended June 30, 2008.
To the extent China Wi-Max's operation are not sufficient to fund its capital
requirements, China Wi-Max may enter into a revolving loan agreement with
financial institutions or attempt to raise capital through the sale of
additional capital stock or through the issuance of debt. At the present time
China Wi-Max does not have a revolving loan agreement with any financial
institution nor can it provide any assurance that it will be able to enter into
any such agreement in the future or be able to raise funds through the further
issuance of debt or equity.
23
In the event that our operating plan changes due to changes in our strategic
plans, lower than expected revenues, unanticipated expenses, increased
competition, unfavorable economic conditions or other unforeseen circumstances,
including the continued turmoil and tightening of the credit markets, and
further weakening of consumer confidence and spending, our liquidity may be
negatively impacted. If so, we could be required to adjust our expenditures for
the remainder of 2009 and for 2010 to conserve working capital or raise
additional capital, possibly including debt or equity financing, to fund
operations and our growth strategy.
Need for Additional Financing
China Wi-Max's business plan requires funding to develop and expand a new
capital intensive business. China Wi-Max has been addressing funding needs for
the next twelve months estimated at $10 to $15 million dollars to carry out the
business plan. To continue to expand and grow the business beyond twelve months
will require significant additional capital and China Wi-Max expects to be
continually raising funds for at least the next twenty-four months to thirty-six
months. Although management believes there is tremendous upside potential,
failure to raise sufficient additional capital could result in reduced growth,
or in the worst case, failure of the business. These ongoing capital needs are
reflected in the Company's independent registered public accounting firm's Going
Concern comments for the audited period ending December 31, 2008.
No commitments to provide additional funds have been made by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover our expenses as they may be
incurred.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer (Principal
Executive Officer)and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), we carried out an evaluation under the
supervision and with the participation of our management, including the Chief
Executive Officer/Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 15d-14 as of the end of the period covered by this report. Based on the
foregoing evaluation, our Chief Executive Officer/Chief Financial Officer has
concluded that our disclosure controls and procedures are not effective in
timely alerting him to material information required to be included in our
periodic SEC filings and to ensure that information required to be disclosed in
our periodic SEC filings is accumulated and communicated to our management,
including our Chief Executive Officer/Chief Financial Officer, to allow timely
decisions regarding required disclosure.
24
ITEM 4T. CONTROLS AND PROCEDURES
Management's Report on Internal Control over Financial Reporting
This quarterly report does not include a report of management's assessment
regarding internal control over financial reporting or an attestation report of
the Company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission of newly public
companies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company made the following unregistered sales of its securities from April
1, 2009 through June 30, 2009.
- -------------------- ------------------ ------------------ -------------------------- ---------------------
TITLE OF
DATE OF SALE SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
- -------------------- ------------------ ------------------ -------------------------- ---------------------
06/30/2009 Common stock 375,000 $ 93,750 in Services Business Associates
- -------------------- ------------------ ------------------ -------------------------- ---------------------
6/30/09 Common stock 1,609,655 Conversion of $407,972 Business Associates
in Convertible
Promissory Notes and
accrued interest
- -------------------- ------------------ ------------------ -------------------------- ---------------------
Exemption From Registration Claimed
All of the sales by the Company of its unregistered securities were made by the
Company in reliance upon Section 4(2) of the Securities Act of 1933, as amended
(the "1933 Act"). All of the individuals and/or entities listed above that
purchased the unregistered securities were almost all existing shareholders, all
known to the Company and its management, through pre-existing business
relationships, as long standing business associates. All purchasers were
provided access to all material information, which they requested, and all
information necessary to verify such information and were afforded access to
management of the Company in connection with their purchases. All purchasers of
the unregistered securities acquired such securities for investment and not with
a view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits. The following is a complete list of exhibits filed as part of this
Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act
Exhibit 32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act
26
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHINA WI-MAX COMMUNICATIONS, INC.
(Registrant)
Dated: August 19, 2009 By: /s/ Michael Willis
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Michael Willis
Chief Executive Officer
Dated: August 19, 2009 By: /s/ Steve Berman
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Steven Berman
President and Secretary
Dated: August 19, 2009 By: /s/ Frank Ventura
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Frank Ventura
Chief Financial Officer
Treasurer
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