U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 2004
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File No. 0-12536
China Digital Wireless, Inc.
(Exact name of Small Business Issuer as Specified in Its Charter)
Nevada 90-0093373
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
429 Guangdong Road
Shanghai, People's Republic of China 200001
(Address of Principal Executive Offices)
(86-21) 6336-8686
(Issuer's Telephone Number)
Boulder Acquisitions, Inc.
(Former Name, if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
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 [ ]
As of August 11, 2004, 17,018,692 shares of the Issuer's $.001 par value common
stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheet as of June 30, 2004 (Unaudited)...................F-1
Consolidated Statements of Operations and Comprehensive Income for the
three months and six months ended June 30, 2004 and 2003 (Unaudited)......F-2
Consolidated Statements of Shareholders' Equity (Unaudited)..................F-3
Consolidated Statements of Cash Flows for the six months ended
June 30, 2004 and 2003 (Unaudited)...................................F-4
Notes to the Consolidated Financial Statements...............................F-5
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2003 2004
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,713,748 $ 3,125,268
Accounts receivable, net of allowance for doubtful accounts by
$25,651 and $28,157 2,363,327 1,499,923
Trade receivable from a related party -- 812,550
Advances to employees, net of allowance for doubtful accounts
by $659 and $2,411 12,525 45,802
Advances to vendors 76,891 200,704
VAT recoverable 83,414 --
Inventories 1,591,223 532,796
Deposits and prepaids 248,288 305,682
Deferred tax assets 4,955 8,408
------------ ------------
Total current assets 6,094,371 6,531,133
------------ ------------
Loan receivable from a related party -- 1,449,871
Escrow receivable -- 1,500,000
Property and equipment, net 1,354,238 1,257,716
------------ ------------
Total assets $ 7,448,609 $ 10,738,720
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 111,569 $ 6,526
Deferred revenue 537,046 520,804
Employee welfare payable 67,240 76,061
VAT payable -- 184,930
Accrued liabilities 49,090 61,529
------------ ------------
Total current liabilities 764,945 849,850
------------ ------------
Total liabilities 764,945 849,850
------------ ------------
Redeemable common stock, 0.001 par value; 1,482,456 shares
issued and outstanding, with a redemption price of $1.14 per share -- 1,690,000
Commitments
Stockholders' equity:
Common stock - $0.001 par value, 100,000,000 shares
authorized, 13,782,636 shares and 15,536,236 shares issued
and outstanding 13,783 15,537
Additional paid-in capital 1,436,217 2,541,456
Retained earnings 5,233,652 5,641,713
Accumulated other comprehensive income (loss) - translation
adjustments 12 164
------------ ------------
Total stockholder's equity 6,683,664 8,198,870
------------ ------------
Total liabilities and stockholders' equity $ 7,448,609 $ 10,738,720
============ ============
See accompanying notes to financial statements.
F-1
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
hree Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2003 2004 2003 2004
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Mobile phone distribution $ 3,374,437 $ 2,788,455 $ 7,784,498 $ 4,914,465
Mobile phone sales to a related party -- 2,498,019 -- 4,273,019
Service revenue, net 969,257 837,992 1,692,010 1,688,271
------------ ------------ ------------ ------------
Total revenues 4,343,694 6,124,466 9,476,508 10,875,755
Cost of goods sold 3,107,222 2,586,342 7,026,158 4,526,396
Cost of goods sold to a related party -- 2,266,305 -- 4,005,730
Cost of service 218,509 236,136 451,754 463,909
------------ ------------ ------------ ------------
Gross profit 1,017,963 1,035,683 1,998,596 1,879,720
Operating expenses:
Selling 33,376 48,849 75,471 85,085
General and administrative 27,117 1,124,014 204,051 1,284,829
------------ ------------ ------------ ------------
Total operating expenses 60,493 1,172,863 279,522 1,369,914
------------ ------------ ------------ ------------
Income from operations 957,470 (137,180) 1,719,074 509,806
Interest income (expense) (2,416) 13,592 (9,665) 13,592
------------ ------------ ------------ ------------
Income (loss) before income taxes 955,054 (123,588) 1,709,409 523,398
Income taxes 71,629 66,813 128,206 115,337
------------ ------------ ------------ ------------
Net income (loss) $ 883,425 $ (190,401) $ 1,581,203 $ 408,061
============ ============ ============ ============
Other comprehensive income (loss):
Translation adjustments (195) 482 (102) 152
============ ============ ============ ============
Comprehensive income (loss) $ 883,230 $ (189,919) $ 1,581,101 $ 408,213
============ ============ ============ ============
Basic earnings (loss) per share $ 0.06 $ (0.01) $ 0.11 $ 0.03
============ ============ ============ ============
Weighted average common shares outstanding 13,782,636 13,959,267 13,782,636 13,871,440
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-2
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In U.S. dollars, except share data)
Additional Other Total
Common Stock Paid-in Retained Comprehensive Shareholders
Shares Amount Capital Earnings Income (Loss) Equity
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2003 13,782,636 $ 13,783 $ 1,436,217 $ 5,233,652 $ 12 $ 6,683,664
Recapitalization and
reorganization 1,585,705 1,586 308,465 -- -- 310,051
Shares issued for consulting
expense (unaudited) 167,895 168 604,254 -- -- 604,422
Shares issued for proceeds of
$190,000 (unaudited) * 166,667 -- 410,001 -- -- 410,001
Shares issued for proceeds of
$1.5 million (unaudited) * 1,315,789 -- -- -- -- --
Offset by issuing cost
(unaudited) -- -- (217,481) -- -- (217,481)
Net income (unaudited) -- -- -- 408,061 -- 408,061
Translation adjustment
(unaudited) -- -- -- -- 152 152
------------- ------------- ------------- ------------- ------------- -------------
Balance at June 30, 2004
(unaudited) 17,018,692 $ 15,537 $ 2,541,456 $ 5,641,713 $ 164 $ 8,198,870
============= ============= ============= ============= ============= =============
* According to Topic D-98 from SEC, "Classification and Measurement of
Redeemable Securities," the Company believed that these shares should be
presented outside the permanent equity section, however, these shares should be
considered to be included in determine basic earning per share as there were no
contingency surrounding these underlying shares. See Note 3 "Equity
Transaction"."
See accompanying notes to consolidated financial statements.
F-3
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended
June 30,
--------------------------
2003 2004
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 1,581,203 $ 408,061
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 110,654 138,845
Bad debt expenses 8,507 4,257
Stock compensation -- 1,014,423
Deferred tax assets (131) (3,453)
Changes in operating assets and liabilities:
Accounts receivables and advances to employees (1,011,689) 13,319
Prepaids and deposit 17,244 (57,394)
Advance to vendors (126,851) (123,813)
Inventories (1,216,588) 1,058,427
Accounts payable 140,197 (105,043)
Deferred revenue 469,886 (16,242)
Employee welfare payable 12,548 8,821
VAT recoverable (76,549) 83,414
VAT payable -- 184,930
Accrued liabilities 3,396 12,439
----------- -----------
Net cash provided by operating activities (88,173) 2,620,992
----------- -----------
Cash flows from investing activities:
Purchase of property, equipment, and software (113,009) (42,333)
Decease (Increase) in due from parent -- (1,449,871)
----------- -----------
Net cash provided by (used in) investing activities (113,009) (1,492,204)
----------- -----------
Cash flows from financing activities:
Recapitalization and reorganization -- 310,051
Proceeds from issuing redeemable common stock -- 1,690,000
Escrow receivable -- (1,500,000)
Offset offering expenses -- (217,481)
Increase (Decrease) in due to parent (604,062) --
----------- -----------
Net cash provided by (used in) financing activities (604,062) 282,570
----------- -----------
Impact of changes in foreign exchange rates (95) 162
----------- -----------
Net increase in cash and cash equivalents (805,339) 1,411,520
Cash and cash equivalents, beginning of the period 1,193,690 1,713,748
----------- -----------
Cash and cash equivalents, end of the period $ 388,351 $ 3,125,268
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 9,665 $ --
Income taxes 128,338 118,790
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the six-month period ended June 30, 2004
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
Foreign Currency Translations and Transactions
The Renminbi ("RMB"), the national currency of PRC, is the primary currency of
the economic environment in which the operations of TCH are conducted. The
Company uses the United States dollar ("U.S. dollars") for financial reporting
purposes.
The Company translates TCH's assets and liabilities into U.S. dollars using the
rate of exchange prevailing at the balance sheet date, and the statement of
income is translated at average rates during the reporting period. Adjustments
resulting from the translation of TCH's financial statements from RMB into U.S.
dollars are recorded in stockholders' equity as part of accumulated
comprehensive loss - translation adjustments. Gains or losses resulting from
transactions in currencies other than RMB are reflected in the statement of
income for the reporting periods.
Revenue Recognition
Revenues generated from sales of mobile phones are recognized when persuasive
evidence of an arrangement exists, delivery of the products has occurred,
customer acceptance has been obtained, which means the significant risks and
rewards of the ownership have been transferred to the customer, the price is
fixed or determinable and collectibility is reasonably assured.
The Company, through TCH, provides wireless receiver users with access to
certain financial information provided by stock exchanges, comments and analyses
on stock market provided by certain reputable security investment companies in
China, lottery information, weather forecast, etc. through signing a monthly
subscription agreement or buying a pre-charged service card. TCH purchases the
aforementioned information from respective vendors and reformats it through
decoding and recoding and transmits the reformatted information via Sifang
Information into pager users constantly and stores them in the Company's server
in order for mobile phone users to dial in via China Mobile or China Unicom. By
signing a monthly subscription agreement, wireless receiver users need to make
payments for three- to six-month subscription in advance. TCH records the
proceeds as deferred revenue and amortizes the deferred revenue over the
subscription period. When customers buy a pre-charged service card, the Company
records the proceeds as deferred revenue. When a customer starts to use this
card to access to the Company's server and starts to use a pager to access the
aforementioned information, the Company identifies the subscription period and
amortizes the deferred revenue over the subscription period.
In response to a retailer's request, the Company has an installing agent install
the Company's software on mobile phones, which are owned by the retailer. The
retailer sells these phones for a premium covering a fee to be paid to the
installing agent and pre-charged six-month subscription fees to be paid to the
Company. After a customer using such a phone dials into the server to access the
desired information, the server records a unique identification number installed
on the mobile phone which indicates that a specific phone user starts his or her
subscription period. After the Company receives a detailed list from the
installing agent regarding the number of phones that have been installed with
the Company's software, the Company matches this information with a detailed
list from the retailer setting forth how many such phones have been sold. Based
on the number of such phones sold, the Company records accounts receivable and
deferred revenue correspondingly. At the date on which a customer starts to dial
into the server, the six-month subscription period begins and the Company
amortizes deferred revenue accordingly.
F-5
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition (Continued)
Since April 2004, the revenue generated from selling pre-charged cards has
gradually decreased while the revenue generated through monthly subscription
with China Mobile and/or China Unicom (collectively "Mobile Operators") has
gradually increased as the Mobile Operators' billing systems have been enhanced.
The Company's affiliates, Sifang Information and Shanghai Tianci Industrial
Group Co., Ltd. ("Tianci"), contract with the Mobile Operators for the
transmission of the Company's value-added information service. The Mobile
Operators bill and collect from customers and then pass those fees (net of
billing and collection service fees charged by the Mobile Operators) to Sifang
Information and Tianci who in turn pass those fees to the Company. The Company
recognizes net revenues based on the total amount paid by its customers, for
which the Mobile Operators bill and collect on behalf of the Company. There is a
time lag ranging from 10 days to 45 days between the date on which service
period was cut-off and the date the Mobile Operators send out their billing
statements due to the segregated billing systems of each provincial subsidiaries
of the Mobile Operators. For the six months ended June 30, 2004, about 10% of
the Company's service revenue from mobile phone user is recognized based on
monthly billing statements prepared by the provincial subsidiaries of the Mobile
Operators. The Company has not recognized service revenue based on the records
provided by its own server. In addition, the Mobile Operators charge a network
usage fee based on a fixed per message fee multiplied by the excess of messages
sent over messages received (This type service is not covered by a monthly
service subscription and the Company has no control whether it will incur or
not.). These network usage fees charged by the Mobile Operators are reflected as
a part of cost of services in the financial statements. Network usage fees
charged by the Mobile Operators are reduced for messages received by the Company
because the Mobile Operators separately charge the sender a fee for these
transmissions.
The Company currently records the mobile phone service revenue based on the
amounts paid by its customers netting of the Mobile Operators' service charge
for billing and collection on behalf of the Company. According to EITF Issue No.
99-19, recognizing revenue on a net basis in this situation is appropriate if
the Company does not act as a principal, in connection with the provision of its
services. Factors which support a conclusion that the Company is not acting as a
principal include:
o limited ability to adjust the cost of services by adjusting the design
or marketing of the service,
o limited ability to determine prices, the Company must follow the price
policy within ranges prescribed by Mobile Operators, and
o limited ability to assume risk of non-payment by customers.
The Company has very limited ability to adjust the ratio of our revenues to cost
of services (which include the Mobile Operators' network usage fee, and other
fees, if any). In addition, the majority of service revenue derived from mobile
phone users are subject to the floor price for monthly service set by the Mobile
Operators and the Company does no have an ability to negotiate with its
customers. The Mobile Operators will normally make payments within the 30 days
after the Company receives the billing statement because it takes time for the
Mobile Operators to collect payments from the Company's customers. Consequently,
the Company bears actually less risk of non-payments by customers as Mobile
Operators need to take care of their collections first. Only about 10% of the
total service revenue derived from mobile phone users in the six months ended
June 30, 2004 was billed through the Mobile Operators' billing systems. Whereas,
there are three items of mobile phone services with which the Company does have
an ability to determine prices and the portion of this type of revenue was
immaterial in the six months ended June 30, 2004. Therefore, the Company has
concluded that reporting net revenue billed through the Mobile Operators'
billing systems is appropriate.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity of three
months or less to be cash equivalents.
Accounts Receivable, Employees Receivable, and Concentration of Credit Risk
During the normal course of business, the Company extends unsecured credit to
its retail customers who are mainly located in Shanghai metropolitan area.
F-6
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Typically, credit terms require payment to be made within 30 days of the sale.
The Company does not require collateral from its customers. The Company
maintains its cash accounts at credit worthy financial institutions.
The Company regularly evaluates and monitors the creditworthiness of each
customer on a case-by-case basis. The Company includes any account balances that
are determined to be uncollectible, along with a general reserve, in the overall
allowance for doubtful accounts. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. Based on the
information available to management, the Company believes that its allowance for
doubtful accounts was adequate as of June 30, 2003 and 2004. However, actual
write-offs might exceed the recorded allowance.
The Company advances cash to sales people for their travel and business activity
needs. Under certain circumstances, the advances to employees might not be fully
recovered by the Company. Accordingly, the Company also provides allowances
against any doubtful accounts. The following table presents combined allowance
activities in accounts receivable and advances to employees.
June 30
-----------------------
2003 2004
---------- ----------
Beginning balance $ 30,143 $ 26,310
Additions charged to expense 8,507 4,258
Recovered -- --
Actual write off -- --
---------- ----------
Ending balance $ 38,650 $ 30,568
========== ==========
Inventories
Inventories consist principally of mobile phones manufactured by name brand
manufactures with various features and are stated at the lower of cost
(first-in, first-out) or market.
Rebates and Credits Receivable
In 2004 the Company's major vendor began providing sales rebates and credits if
the Company can fulfill certain sales volume prescribed by the vendor in order
to attract its distributors to sell more of its products. As a result, the
Company is entitled to receive certain rebates and credits for the inventory
held and sold by the Company within the specified period of time as defined by
its vendor through submitting the necessary application forms. In general, once
the vendor approves these applications the amounts of these rebates and credits
will be deducted from the Company's accounts payable to its vendor and decrease
the cost of goods sold or inventory held correspondingly.
Capitalization of Software Costs
The Company's software is developed by an independent third party to enable
pager users to accept certain recoded information which is transmitted by the
Company and enable mobile phone users to dial into the Company's server. The
software is for internal use and gives the Company the ability to provide value
added information services. In accordance with SOP 98-1, the Company capitalizes
the external cost incurred to develop this internal-use software by an
engineering company at the application development stage and amortizes that cost
over the estimated economic life of the software (two or three years) which is
consistent with the expected life of a particular type of mobile phone.
Property and equipment
Properties and equipment are recorded at cost and are stated net of accumulated
depreciation. Depreciation expense is determined using the straight-line method
over the shorter of the estimated useful lives of the assets as follows:
Buildings 20 years
Software 2-3 years
Vehicles and other equipment 2-5 years
F-7
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Maintenance and repairs are charged directly to expense as incurred, whereas
betterment and renewals are generally capitalized in their respective property
accounts. When an item is retired or otherwise disposed of, the cost and
applicable accumulated depreciation are removed and the resulting gain or loss
is recognized and reflected as an item before operating income (loss).
Impairment of Long-Lived Assets
The Company applies the provisions of Statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"), issued by the Financial Accounting Standards Board ("FASB"). SFAS No.
144 requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable through the estimated undiscounted cash flows expected to
result from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value. There was no impairment of long-lived
assets in the six months ended June 30, 2003 and 2004.
Fair Value of Financial Instruments
The carrying amount of cash, notes receivable, accounts receivable, other
receivables, advances to vendor, accounts payable and accrued liabilities are
reasonable estimates of their fair value because of the short maturity of these
items. Loan receivable from a related party bear interest at 5% per annum which
is similar to the market interest rate in China as of June 30, 3004.
Value Added Tax
TCH is subject to value added tax ("VAT") imposed by the PRC on TCH's domestic
product sales. The output VAT is charged to customers who purchase mobile phones
from TCH and the input VAT is paid when TCH purchases mobile phones from its
vendors. The VAT rate ranges from 13% to 17%, in general, depending on the types
of products purchased and sold. The input VAT can be offset against the output
VAT. The VAT payable or receivable balance presented on the Company's balance
sheets represents the input VAT either less than or larger than the output VAT.
The debit balance represents a credit against future collection of output VAT
instead of a real receivable.
Employee Welfare and Retirement Benefits
The PRC has been undergoing significant reforms with regard to its employee
welfare and fringe benefits administration. Any enterprise operating in the PRC
is subject to government-mandated employee welfare and retirement benefit
contribution as a part of operating expense to State Administration of Labor
Affairs. In accordance with PRC laws and regulations, TCH participates in a
multi-employer defined contribution plan pursuant to which TCH is required to
provide employees with certain retirement, medical and other fringe benefits.
PRC regulations require TCH to pay the local labor administration bureau a
monthly contribution at a stated contribution rate based on the monthly basic
compensation of qualified employees. The local labor administration bureau,
which manages various investment funds, will take care of employee retirement,
medical and other fringe benefits. TCH has no further commitments beyond its
monthly contribution. TCH contributed a total of $23,781, and $29,273 to these
funds as part of selling, general and administrative expenses for the six months
ended June 30, 2003 and 2004, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No 109, "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109 requires an entity to recognize deferred tax liabilities and
assets. Deferred tax assets and liabilities are recognized for the future tax
consequence attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements. Deferred tax
assets and liabilities are measured using the enacted tax rate expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that included the
enactment date.
F-8
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company's Chinese subsidiary TCH is registered at Pudong District in
Shanghai and subject to a favorable income tax rate of 15% compared to a normal
income tax rate of 33% (30% for the central government and 3% for the local
government) under current PRC tax laws. However, Sifang Information registered
in the Shanghai downtown and area has been treated by the Shanghai Municipal
Administration of Labor as an enterprise that provides unemployed and
handicapped people with jobs. Accordingly, Sifang Information is entitled to be
subject to a favorable income tax rate of 15% and qualifies for income tax
exemption for three years from January 1, 2000 to December 31, 2002, and 50% of
income tax reduction for three years from January 1, 2003 to December 31, 2005.
The income tax provisions presented on the Company's financial statements are
based on the historical actual income tax rates of Sifang Information at 7.5%
for the six months ended June 30, 2003 and 2004. The deferred tax assets are
determined based on the historical income tax rates applicable at the Sifang
Information level.
There is no income tax for companies domiciled in the Cayman Islands.
Accordingly, the Company's financial statements do not present any income tax
provisions related to Cayman Islands tax jurisdiction.
Use of Estimates
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 period. Actual results could differ materially from those
estimates.
Comprehensive Income (Loss)
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), issued by the FASB. SFAS No.
130 establishes standards for reporting and presentation of comprehensive income
(loss) and its components in a full set of general-purpose financial statements.
The Company has chosen to report comprehensive income (loss) in the statements
of income and comprehensive income. Comprehensive income (loss) is comprised of
net income and all changes to stockholders' equity except those due to
investments by owners and distributions to owners.
Earnings (Loss) Per Share
The Company presents earnings per share in accordance with the Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
The statement replaces the calculation of primary and fully diluted earnings
(loss) per share with basic and diluted earnings (loss) per share. Basic
earnings (loss) per share includes no dilution and is computed by dividing
income (loss) available to common shareholders by the weighted average number of
shares outstanding during the period. Diluted earnings (loss) per share reflects
the potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings (loss) per share. The Company has no
any potential common share equivalents as of June 30, 2004.
NOTE 2 - Recapitalization and Reorganization
On June 23, 2004, Boulder Acquisitions, Inc. (Boulder Acquisitions) entered into
a stock exchange agreement with Sifang Holdings Co. Ltd. Pursuant to the stock
exchange agreement, Boulder Acquisitions issued 13,782,636 shares of its common
stock in exchange of 100% equity interest in Sifang Holdings Co. Ltd., making
Sifang Holdings a wholly owned subsidiary of Boulder Acquisitions.
Boulder Acquisitions was incorporated under the laws of the State of Colorado on
May 8, 1980 as Boulder Brewing Company (Boulder Brewing). Boulder Brewing was
the successor to a general partnership formed in 1979. From the initial
inception of the original partnership through 1990, Boulder Brewing was in the
business of operating a microbrewery (generally defined as a brewery which
produces less than 15,000 barrels per year) in Boulder, Colorado. During 1990,
as a result of various debt defaults, Boulder Brewing's assets were foreclosed
upon and the Company ceased all business operations. Boulder Brewing has
effectively had no operations, assets or liabilities since its fiscal year ended
December 31, 1990.
F-9
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In September 2001, Boulder Brewing changed its state of Incorporation from
Colorado to Nevada by means of a merger with and into Boulder Acquisitions,
Inc., a Nevada corporation formed on September 6, 2001 solely for the purpose of
effecting the reincorporation. The Articles of Incorporation and Bylaws of the
Nevada corporation are the Articles of Incorporation and Bylaws of the surviving
corporation. Such Articles of Incorporation eliminated the provision for Boulder
Acquisitions to issue preferred stock.
Sifang Holdings Co. Ltd. (Sifang Holdings) was incorporated under the laws of
the Cayman Islands on March 8, 2004 for the purpose of holding a 100% equity
interest in TCH Data Technology Co. Ltd. ("TCH"). TCH was established as a
foreign investment enterprise in Shanghai under the laws of People's Republic of
China ("PRC") on May 25, 2004 with a registered capital of $7.2 million.
The above stock exchange transaction resulted in those shareholders of Sifang
Holdings obtaining a majority voting interest in Boulder Acquisitions. Generally
accepted accounting principles require that the company whose shareholders
retain the majority interest in a combined business be treated as the acquirer
for accounting purposes. Consequently, the stock exchange transaction has been
accounted for as a recapitalization of Sifang Holdings as Sifang Holdings has
acquired controlling equity interest in Boulder Acquisitions, as of June 23,
2004. The reverse acquisition process utilizes the capital structure of Boulder
Acquisitions and the assets and liabilities of Sifang Holdings are recorded at
historical cost.
Sifang Holdings is the continuing operating entity for financial reporting
purposes, and the financial statements prior to June 23, 2004 represent Sifang
Holdings' financial position and results of operations. As of June 23, 2004,
Boulder Acquisitions had only cash of $310,051, and stockholders' equity of
$310,051 with 1,585,705 shares of common stock outstanding, all of which were
included in the consolidated financial statements of Sifang Holdings. Please see
the unaudited stockholders' equity statement for the period from January 1, 2004
to June 30, 2004. Although Sifang Holdings is deemed to be the acquiring
corporation for financial accounting and reporting purposes, the legal status of
Boulder Acquisitions as the surviving corporation did not change. Subsequent to
June 30, 2004, Boulder Acquisitions, Inc. changed its name to China Digital
Wireless, Inc.
NOTE 3 - Equity Transactions
On June 23, 2004 the Company issued 167,895 share of its common stock to a
consultant in lieu of cash payment. The trading price on June 23, 2004 was $3.60
per share, accordingly, the fair value of 167,895 shares was $604,422.
On June 23, 2004, the Company issued 166,667 share of its common stock to an
existing stockholder at a price of $1.14 per share in exchange for gross
proceeds of $190,000 based on a stock purchase agreement. Pursuant to the signed
stock purchase Agreement, the Company granted to the existing stockholder an
option which requires the Company to purchase up to the aforementioned 166,667
shares of common stock at a price of $1.14 per share, such option being
exercisable at any time after the date that is six months after the company
files a registration statement on Form SB-2 with the SEC, registering the shares
purchased by the existing stockholder, up to and including the earlier of the
date that such registration statement is declared effective by the SEC or the
existing stockholder's shares are eligible for resale under Rule 144 under the
Securities Act of 1933. According to Topic D-98 from SEC, "Classification and
Measurement of Redeemable Securities," the Company believed that these shares
should be presented outside the permanent equity section, however, these shares
should be considered to be included in determine basic earning per share as
there were no contingency surrounding these underlying shares. In the above
transaction of issuing 166,667 shares incurred on June 23, 2004, the trading
price on that day was $3.60 per share. Due to the nature of insider transaction,
the difference between the price of $1.14 per share and the price of $3.60 per
share was recorded as deemed compensation to an existing stockholder by
presenting the increase of $410,001 in additional paid-in capital and the
increase of $410,001 in general and administrative expenses.
On June 28, 2004, the Company issued, in aggregate, 1,315,789 of its common
stock to three investors at a price of $1.14 per share in exchange for gross
proceeds of $1,500,000 based on a stock purchase agreement. Pursuant to the
signed stock purchase Agreement, the Company granted to each of three investors
an option which requires the Company to purchase up to the aforementioned
1,315,789 shares, in aggregate, of common stock at a price of $1.14 per share,
F-10
CHINA DIGITAL WIRELESS INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
such option being exercisable at any time after the date that is six months
after the company files a registration statement on Form SB-2 with the SEC,
registering the shares purchased by the existing stockholder, up to and
including the earlier of the date that such registration statement is declared
effective by the SEC or the existing stockholder's shares are eligible for
resale under Rule 144 under the Securities Act of 1933. As of June 30, 2004, the
proceeds of $1.5 million were kept in an escrow which is related to a
stockholder. Due to the uncertainty when a Form SB-2 will be declared effective,
the Company treated this escrow receivable a long-term assets instead a current
asset. According to Topic D-98 from SEC, "Classification and Measurement of
Redeemable Securities," the Company believed that these shares should be
presented outside the permanent equity section, however, these shares should be
considered to be included in determine basic earning per share as there were no
contingency surrounding these underlying shares.
The Company incurred issuing expense of $217,481 (mainly audit and legal
expense) and accounted it for a reduction to additional paid-in capital.
NOTE 4 - Related Party Transactions
During the six months ended June 30, 2004, the Company paid to Sifang
Information the amount of $283,919 for transmitting value-added information to
pager users pursuant to an information service and cooperation agreement between
the Company and Sifang Information.
On June 30, 2004 TCH signed an agreement with Sifang Information Co. Ltd. for
developing a smart card information system related to citizen health and
exercise. This project is approved by the Shanghai Municipal Government.
Pursuant to the signed agreement, Sifang Information will develop smart card
information system in terms of the specifications contained the design
blueprint. This card can be used for accessing gym facilities and other
approved, related health facilities under the program. In accordance with the
financial terms on the signed agreement, Sifang Information will take care of
expenses related to the smart card marketing and related customer after-market
services. TCH will take care of expenses related to the detailed smart card
information system design and development, hardware and software maintenance,
and related information service. In return, TCH is entitled to share a major
portion of the future revenue generated by this smart card information system.
In order to initiate this project, TCH gave Sifang Information a line of credit
up to RMB20,000,000 (equivalent approximately $2,418,000) for financing its
market promotion and penetration and deployment, with an interest rate based on
the market interest rate (at June 30, 2004 the interest rate was 5%), interest
payable monthly and principal shall be repaid by Sifang Information no later
than June 30, 2006 resulting in an estimated total expense of RMB40,000,000
(equivalent of $2.8 million). The aforementioned $2.4 million includes the
outstanding balance of amounts due from Sifang of $1,449,871 as of June 30,
2004. The interest income incurred on the outstanding balance due from Sifang
Information for the six months ended June 30, 2004 was $12,082, based on 5% as
the annual interest rate.
During the six months ended June 30, 2004, TCH sold Samsung GSM mobile phones
valued at $4,273,019 including a 6% mark-up to the Shanghai Shantian
Telecommunication Technology Inc. (Shantian), a related party, where Sifang
Information holds 51% equity interest. As of June 30, 2004 the accounts
receivable (trade) balance due from Shantian was $812,550.
F-11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Caution Concerning Forward-Looking Statements/Risk Factors
----------------------------------------------------------
The following discussion should be read in conjunction with the Company's
financial statements and the notes thereto and the other financial information
appearing elsewhere in this document. In addition to historical information, the
following discussion and other parts of this document contain certain
forward-looking information. When used in this discussion, the words "believes,"
"anticipates," "expects," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected due to a number of factors beyond our control. The Company does not
undertake to publicly update or revise any of its forward-looking statements
even if experience or future changes show that the indicated results or events
will not be realized. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. You are also
urged to carefully review and consider our discussions regarding the various
factors, which affect our business, included in this section and elsewhere in
this report.
Factors that might cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements
include, among other things: (i) the impact of competitive products; (ii)
changes in law and regulations; (iii) adequacy and availability of insurance
coverage; (iv) limitations on future financing; (v) increases in the cost of
borrowings and unavailability of debt or equity capital; (vi) the effect of
adverse publicity regarding our products; (vii) the inability of the Company to
gain and/or hold market share; (viii) exposure to and expense of resolving and
defending product liability claims and other litigation; (ix) consumer
acceptance of the Company's products; (x) managing and maintaining growth; (xi)
customer demands; (xii) market and industry conditions including pricing and
demand for products, (xiii) the success of product development and new product
introductions into the marketplace; (xiv) the departure of key members of
management; (xv) the ability of the Company to efficiently market its products;
as well as other risks and uncertainties that are described from time to time in
the Company's filings with the Securities and Exchange Commission.
Overview of Business Background
Sifang Holdings Co. Ltd. ("Sifang") was incorporated under the laws of the
Cayman Islands on March 8, 2004 for the purpose of holding 100% equity interest
in TCH Data Technology Co. Ltd. ("TCH"). TCH was established as a foreign
investment enterprise in Shanghai under the laws of the PRC on May 25, 2004,
with a registered capital of $7.2 million.
Sifang Information Technology Co. Ltd. ("Sifang Information") is a
Shanghai-based privately owned enterprise established under the laws of the PRC
on August 14, 1998. Sifang Information is engaged in the business of pager and
mobile phone distribution and provides value added information services to the
customers in the Shanghai metropolitan areas. In March 2004, Sifang Information
spun off its pager and mobile phone distribution business and the majority of
its value added information services business by presenting a set of carve-out
financial statements for the years ended December 31, 2002 and 2003 and three
months ended March 31, 2004 as if the spun-off business had been a stand-alone
company for two years and one quarter. On March 31, 2004 Sifang Information
transferred the spun-off business into TCH. Being a receiving entity under the
common control, TCH initially recognized all the assets and liabilities
transferred at their carrying amounts in the accounts of Sifang Information at
the date of transfer under the guidance of SFAS No. 141, Appendix D. On May 26,
2004 Sifang Information transferred its 100% of equity interest in TCH in
exchange for 100% of equity interest in Sifang. Because the ultimate owners of
the three entities are the same group of owners and the three entities are under
the common control, the transaction of exchanging ownership is accounted for at
historical costs under the guidance of SFAS No. 141, Appendix D. Prior to May
26, 2004 there were no activities in Sifang. As a result of exchanging the
ownership between TCH and Sifang, TCH's historical financial statements become
the historical financial statements of Sifang.
Sifang Information operates in a business segment that is subject to certain
restrictions imposed by the government of the PRC, for example, paging
facilities, radio transmitting stations and transmitting equipment owned by
Sifang Information are not allowed to be owned by foreign investment enterprises
in accordance with PRC government regulations. Therefore, Sifang Information
still keeps a small part of its business and paging facilities in compliance
with the relevant regulations and laws in PRC.
As a result of the spin-off, TCH is engaged in the business of mobile phone
distribution and provides pager and mobile phone (collectively "wireless
receiver") users with access to certain information reformatted by TCH. TCH
purchases mobile phone products from first tier distributors and sells to
retailers with a mark-up. In the process of providing value-added information
services through entering into monthly subscription agreements with various
users, TCH purchases trading activity information from stock exchanges, comments
and analysis on PRC stock markets provided by certain reputable security and
investment companies, lottery information, weather forecast, etc. and reformats
the aforementioned information through decoding and recoding and then has the
reformatted information transmitted by Sifang Information, via service
contracts, to pager users. The information is constantly saved in TCH's server
in order for mobile phone users to dial in via China Mobile or China Unicom. By
signing a monthly subscription agreement, wireless users are asked to make
advance payments for either three- or six-month subscription periods.
Critical Accounting Policies
The Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Management periodically evaluates the estimates and judgments made.
Management bases its estimates and judgments on historical experience and on
various factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates as a result of different
assumptions or conditions.
The following critical accounting policies affect the more significant judgments
and estimates used in the preparation of the Company's consolidated financial
statements.
Revenue Recognition
Revenues generated from sales of mobile phones are recognized when persuasive
evidence of an arrangement exists, delivery of the products has occurred,
customer acceptance has been obtained, which means the significant risks and
rewards of the ownership have been transferred to the customer, the price is
fixed or determinable and collectibility is reasonably assured.
The Company, through TCH, provides wireless receiver users with access to
certain financial information provided by stock exchanges, comments and analyses
on stock market provided by certain reputable security investment companies in
China, lottery information, weather forecast, etc. through signing a monthly
subscription agreement or buying a pre-charged service card. TCH purchases the
aforementioned information from respective vendors and reformats it through
decoding and recoding and transmits the reformatted information via Sifang
Information into pager users constantly and stores them in the TCH's server in
order for mobile phone users to dial in via China Mobile or China Unicom. By
signing a monthly subscription agreement, wireless receiver users need to make
payments for three- to six-month subscription in advance. The Company records
the proceeds as deferred revenue and amortizes the deferred revenue over the
subscription period. When customers buy a pre-charged service card, the Company
records the proceeds as deferred revenue. When a customer starts to use this
card to access to the Company's server and starts to use a pager to access the
aforementioned information, the Company identifies the subscription period and
amortizes the deferred revenue over the subscription period.
In response to a retailer's request, the Company has an installing agent install
the Company's software on mobile phones, which are owned by the retailer. The
retailer sells these phones for a premium covering a fee to be paid to the
installing agent and pre-charged six-month subscription fees to be paid to the
Company. After a customer using such a phone dials into the server to access the
desired information, the server records a unique identification number installed
on the mobile phone which indicates that a specific phone user starts his or her
subscription period. After the Company receives a detailed list from the
installing agent regarding the number of phones that have been installed with
the Company's software, the Company matches this information with a detailed
list from the retailer setting forth how many such phones have been sold. Based
on the number of such phones sold, the Company records accounts receivable and
deferred revenue correspondingly. At the date on which a customer starts to dial
into the server, the six-month subscription period begins and the Company
amortizes deferred revenue accordingly.
Since April 2004, the revenue generated from selling pre-charged cards has
gradually decreased while the revenue generated through monthly subscription
with China Mobile and/or China Unicom (collectively "Mobile Operators") has
gradually increased as the Mobile Operators' billing systems have been enhanced.
The Company's affiliates, Sifang Information and Shanghai Tianci Industrial
Group Co., Ltd. ("Tianci"), contract with the Mobile Operators for the
transmission of the Company's value-added information service. The Mobile
Operators bill and collect from customers and then pass those fees (net of
billing and collection service fees charged by the Mobile Operators) to Sifang
Information and Tianci who in turn pass those fees to the Company. The Company
recognizes net revenues based on the total amount paid by its customers, for
which the Mobile Operators bill and collect on behalf of the Company. There is a
time lag ranging from 10 days to 45 days between the date on which service
period was cut-off and the date the Mobile Operators send out their billing
statements due to the segregated billing systems of each provincial subsidiaries
of the Mobile Operators. For the six months ended June 30, 2004, about 10% of
the Company's service revenue from mobile phone user is recognized based on
monthly billing statements prepared by the provincial subsidiaries of the Mobile
Operators. The Company has not recognized service revenue based on the records
provided by its own server. In addition, the Mobile Operators charge a network
usage fee based on a fixed per message fee multiplied by the excess of messages
sent over messages received (This type service is not covered by a monthly
service subscription and the Company has no control whether it will incur or
not.). These network usage fees charged by the Mobile Operators are reflected as
a part of cost of services in the financial statements. Network usage fees
charged by the Mobile Operators are reduced for messages received by the Company
because the Mobile Operators separately charge the sender a fee for these
transmissions.
The Company currently records the mobile phone service revenue based on the
amounts paid by its customers netting of the Mobile Operators' service charge
for billing and collection on behalf of the Company. According to EITF Issue No.
99-19, recognizing revenue on a net basis in this situation is appropriate if
the Company does not act as a principal, in connection with the provision of its
services. Factors which support a conclusion that the Company is not acting as a
principal include:
o limited ability to adjust the cost of services by adjusting the design
or marketing of the service,
o limited ability to determine prices, the Company must follow the price
policy within ranges prescribed by Mobile Operators, and
o limited ability to assume risk of non-payment by customers.
The Company has very limited ability to adjust the ratio of our revenues to cost
of services (which include the Mobile Operators' network usage fee, and other
fees, if any). In addition, the majority of service revenue derived from mobile
phone users are subject to the floor price for monthly service set by the Mobile
Operators and the Company does no have an ability to negotiate with its
customers. The Mobile Operators will normally make payments within the 30 days
after the Company receives the billing statement because it takes time for the
Mobile Operators to collect payments from the Company's customers. Consequently,
the Company bears actually less risk of non-payments by customers as Mobile
Operators need to take care of their collections first. Only about 10% of the
total service revenue derived from mobile phone users in the six months ended
June 30, 2004 was billed through the Mobile Operators' billing systems. Whereas,
there are three items of mobile phone services with which the Company does have
an ability to determine prices and the portion of this type of revenue was
immaterial in the six months ended June 30, 2004. Therefore, the Company has
concluded that reporting net revenue billed through the Mobile Operators'
billing systems is appropriate.
Accounts Receivable, Employees Receivable, and Allowance for Doubtful Accounts
During the normal course of business, the Company extends unsecured credit to
its retail customers who are mainly located in Shanghai metropolitan area.
Typically credit terms require payment to be made within 30 days of the sale.
The Company does not require collateral from its customers. The Company
maintains its cash accounts at credit worthy financial institutions.
The Company regularly evaluates and monitors the creditworthiness of each
customer on a case-by-case basis. The Company includes any account balances that
are determined to be uncollectible, along with a general reserve, in the overall
allowance for doubtful accounts. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. Based on the
information available to management, the Company believes that its allowance for
doubtful accounts was adequate as of June 30, 2003 and 2004. However, actual
write-offs might exceed the recorded allowance.
The Company advances cash to sales people for their travel and business activity
needs. Under certain circumstances, the advances to employees might not be fully
recovered by the Company. Accordingly, the Company also provides allowances
against any doubtful accounts.
Inventories
Inventories consist principally of mobile phones manufactured by name brand
manufactures with various features and are stated at the lower of cost
(first-in, first-out) or market.
Rebates and Credits Receivable
In 2004 the Company's major vendor began providing sales rebates and credits if
the Company fulfilled certain sales volume prescribed by the vendor in order to
attract its distributors to sell more of its products. As a result, the Company
is entitled to receive certain rebates and credits for the inventory held and
sold by the Company within the specified period of time as defined by its vendor
through submitting the necessary application forms. In general, once the vendor
approves these applications the amounts of these rebates and credits will be
deducted from the Company's accounts payable to its vendor and decrease the cost
of goods sold or inventory held correspondingly.
Impairment of Long-Lived Assets
The Company applies the provisions of Statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"), issued by the Financial Accounting Standards Board ("FASB"). SFAS No.
144 requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable through the estimated undiscounted cash flows expected to
result from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value. There was no impairment of long-lived
assets in the six months ended June 30, 2003 and 2004.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No 109, "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109 requires an entity to recognize deferred tax liabilities and
assets. Deferred tax assets and liabilities are recognized for the future tax
consequence attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements. Deferred tax
assets and liabilities are measured using the enacted tax rate expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that included the
enactment date.
TCH is registered at Pudong District in Shanghai and subject to a favorable
income tax rate of 15% compared to a normal income tax rate of 33% (30% for the
central government and 3% for the local government) under current PRC tax laws.
However, Sifang Information registered in the Shanghai downtown and area has
been treated by the Shanghai Municipal Administration of Labor as an enterprise
that provides unemployed and handicapped people with jobs. Accordingly, Sifang
Information is entitled to be subject to a favorable income tax rate of 15% and
qualifies for income tax exemption for three years from January 1, 2000 to
December 31, 2002, and 50% of income tax reduction for three years from January
1, 2003 to December 31, 2005. The income tax provisions presented on the
Company's financial statements are based on the historical actual income tax
rates of Sifang Information at 7.5% for the six months ended June 30, 2003 and
2004. The deferred tax assets are determined based on the historical income tax
rates applicable at the Sifang Information level.
There is no income tax for companies domiciled in the Cayman Islands.
Accordingly, the Company's financial statements do not present any income tax
provisions related to Cayman Islands tax jurisdiction.
Use of Estimates
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 period. Actual results could differ materially from those
estimates.
Discussion and Analysis of Operating Results
Six Months Ended June 30, 2004 Comparing to Six Months Ended June 30, 2003
Revenue
Mobile phone distribution
The Company's mobile phone distribution in the six months ended June 30, 2004
increased by approximately $1,403,000, representing an 18% increase, to
approximately $9,187,000 including product sales to a related party (Shanghai
Shantian) as compared to $7,784,000 for the same period of the prior year. The
increase was due mainly to the Company's marketing effort and further
facilitated by Samsung's marketing promotion. For the six months ended June 30,
2004, Samsung's mobile phones accounted for about 95% of total product sales and
the other name brands mobile phones accounted for the remaining 5%. Compared to
the six months ended June 30, 2003, Samsung's mobile phones accounted for 99% of
total product sales and other brands accounted for the balance. Market
competition for mobile phone sales is so intensive that the Company decreased
its overall mark-up ratio to 7% in order to maintain its market position,
compared to the mark-up ratio of 10% for the same period the prior year.
Mobile phone sales to a related party
Before January 1, 2004 the Company only distributed CDMA mobile phones in the
Shanghai area. Beginning in January 2004 the Company entered into the GSM mobile
phone distribution business. Because the retail market channel related to the
Company's GSM mobile phone distribution was developed and maintained by Shanghai
Shantian Telecommunication Technology Inc. ("Shantian"), in which Sifang
Information holds a 51% equity interest, all of the Company's Samsung GSM mobile
phones were sold to Shantian, which made Shantian the Company's second tier
distributor. During the six months ended June 30, 2004, the Company sold
approximately $4,273,000 of mobile phones with a reasonable mark-up of 6% as
compared to the aggregate mark-up ratio of 7% for the products sold to third
party customers. Comparing the mark-up ratio of 2% in the first quarter of 2004,
the increase in mark-up ratio was due to the fact that two types of products had
high market acceptance and that TCH kept a part of the credit and rebates
received from vendors while all credits and rebates received in the first
quarter of 2004 were distributed to Shantian in order to support start-up stage
of Shantian's business
Service revenue, net
Total service revenue net of the related business tax and surcharge for six
months ended June 30, 2004 decreased by approximately $4,000, representing a
0.2% decrease, to $1,688,000 compared to $1,692,000 for the same period of the
prior year.
Although the total service revenue for the six months ended June 30, 2004 did
not significantly change as compared to the total service revenue for the same
period of the prior year, the components of service revenue changed
significantly. Service revenue from mobile phone users for the six months ended
June 30, 2004 increased by approximately $675,000 to $1,079,000 (of which about
$960,000 was derived from an independent installing agent) compared to
approximately $404,000 for the same period of the prior year, representing an
increase of 167%.
Service revenue from pager users for the six months ended June 30, 2004
decreased by $679,000 to $609,000 compared to $1,288,000 for the same period of
the prior year, representing a 53% decrease. The Company believes that service
revenue from pager users will continue to decrease given the increased
popularity of mobile phones over beepers and pagers. The decrease in service
revenue from pager users will likely plateau at a certain level as most lower
income pager users still like to use pagers to access the Company's information
services.
Cost of goods sold
The cost of goods sold for the six months ended June 30, 2004 increased by
approximately $1,506,000 to $8,532,000 compared to $7,026,000 for the same
period of the prior year, representing an approximately 21% increase. The
increase was consistent with the increases in revenue from product sales.
Cost of service
The cost of service for the six months ended June 30, 2004 increased by $12,000
to $464,000 compared to $452,000 for the same period of the prior year,
representing an approximately 3% increase. The cost for pager value-added
information service did not materially change. The increase was due mainly to
the increase in service fees charged by Mobile Operators along with the increase
in mobile phone users for value-added information service and the increase in
purchasing costs related to more information content. The Company is intending
to expand the contents included in its value-added service within the current
fee-charge level and trying to establish collaborative relationships or
partnerships with certain information content providers. If this effort results
in any success, the increase in cost of service will be expected.
Gross profit
After considering the cost of goods sold and cost of service, the Company's
gross profit for the six months ended June 30, 2004 decreased by approximately
$119,000 to approximately $1,880,000, representing an approximately 6% decrease,
compared to the gross profit of approximately $1,999,000 for the same period of
the prior year. The percentage of gross profit over the total revenue for the
six months ended June 30, 2004 was approximately 17.3% compared to 21.1% for the
same period of the prior year, representing an 18% decrease. The decrease was
attributable to: (i)service revenue generated in the six months ended June 30,
2004 accounted for only 15.5% of the total revenue whereas the service revenue
generated in the same period of the prior year accounted for 17.9% of total
revenue and service revenue is more profitable than mobile phone distribution
revenue; and (ii) the mark-up ratio for the mobile phone distribution decreased
from 10% to 7% in order to maintain the Company's position in the Shanghai
market.
The following table presents in summary certain information related to the
various components of revenue in a manner similar to segment reporting
information.
Information Information
Mobile Phone Service - Service -
Distribution Mobile Phone Pager Total
------------ ------------ ------------ ------------
For six months ended June 30, 2004
Revenue $ 9,187,484 $ 1,079,440 $ 608,831 $ 10,875,755
Cost 8,532,126 109,211 354,698 8,996,035
Gross profit 655,358 970,229 254,133 1,879,720
Gross profit ratio 7% 90% 42% 17%
For six months ended June 30, 2003
Revenue $ 7,784,498 $ 404,208 $ 1,287,802 $ 9,476,508
Cost 7,026,158 97,365 354,389 7,477,912
Gross profit 758,340 306,843 933,413 1,998,596
Gross profit ratio 10% 76% 72% 21%
Selling expenses
Selling expenses for the six months ended June 30, 2004 increased by
approximately $10,000 to $85,000 compared to $75,000 for the same period of the
prior year, representing an approximately 13% increase. The increase was due to
promotion expenses for value-added information service related to mobile phone
users
General and administrative expenses
General and administrative expenses for the six months ended June 30, 2004
increased by approximately $1,081,000 to $1,285,000 compared to $204,000 for the
same period of the prior year, representing an approximately 530% increase. The
increase was due mainly to the stock-based compensation expenses of
approximately $1,014,000 incurred in US and a $24,000 increase in software
amortization expenses from $46,000 to $70,000. In addition, office rental
expense increased by approximately $21,000 and payroll expense and related
employee retirement and fringe benefit expense increased by approximately
$10,000 at the TCH level in the six months ended June 30, 2004. Other
miscellaneous items accounted for the remaining increase of $12,000 for the six
months ended June 31, 2004. The increase was related to the Company's expansion
at the TCH level.
The above stock-based compensation for the six months ended June 30, 2004 was
approximately $1,014,000 of which $604,000 was the fair value of the 167,895
shares issued for a consultant in lieu of cash payment, and other $410,000 was
total premium difference between the trading price ($3.60 per share) and the
stock purchase price ($1.14 per share) per a stock purchase agreement for
issuing 166,667 redeemable shares.
Interest income (expense)
For the six months ended June 30, 2004, the interest income was approximately
$14,000, which was mainly derived from the amount due from Sifang Information.
For the six months ended June 30, 2003, interest expense was approximately
$10,000, which was paid to Sifang Information for temporary money borrowing used
for mobile phone distribution business.
Income tax
The Company's Chinese subsidiary is subject to taxation under the laws of the
PRC, and the statutory income tax rate for the six months ended June 30, 2003
and 2004 was 7.5%. In the six months ended of June 30, 2003 and 2004, income tax
expense was approximately $128,000 and $115,000, respectively, based on pretax
income of $1,709,000 and $523,000 (which included the stock compensation of
$1,014,000 incurred in the U.S.). Because the loss of approximately $1,014,000
incurred in the U.S. did not offset the taxable income in China, the income tax
expense of $115,000 incurred in China was based on the taxable income of
approximately $1,537,000.
Net income
The Company recorded net income of $408,000 for the six months ended June 30,
2004, a $1,173,000 decrease in net income compared to a net income of $1,581,000
for the same period of the prior year, representing a 74% decrease. The decrease
in net income was attributable to: (i) the increase in general and
administrative expenses for the six months ended June 30, 2004 compared to
general and administrative expenses for the same period of the prior year, and
(ii) the decrease of the gross profit generated from mobile phone distribution
business.
Earnings per share
The earnings per share for the six months ended June 30, 2004 decreased by $0.08
to $0.03 compared to $0.11 for the same period of the prior year, representing
an approximately 73% decrease. The decrease was due mainly to the decrease in
the Company's net income and the increase in the total outstanding shares of
common stock as the weighted average number of shares of common stock
outstanding for the six months ended June 30, 2004 increased by approximately
0.6%, compared the weighted average number of common stock outstanding for the
same period of the prior year.
The Three Months Ended June 30, 2004 Compared to The three Months Ended June 30,
2003
Revenue
Mobile phone distribution
The Company's mobile phone distribution in the three months ended June 30, 2004
increased by approximately $1,912,000 (including sales to Shanghai Shantian, a
related party), representing an approximately 57% increase, compared to
$3,374,000 for the same period of the prior year. The increase was due mainly to
the Company's marketing effort and further facilitated by Samsung's marketing
efforts. In addition, the Company entered into the GSM mobile phone distribution
business resulted in an increase in product sales revenue. Regarding mark-up
ratios, there was little change in the mark-up ratio of about 8% during the
three months ended June 30, 2003 and 2004. Compared to the six months' mark-up
ratio, the slight fluctuation was mainly due to different mark-up ratios for
different mobile phone models in terms of the market reaction to different
models of mobile phone.
Mobile phone sales to a related party
Before January 1, 2004, the Company had only distributed CDMA mobile phones in
the Shanghai area. Beginning in January 2004, the Company entered into the GSM
mobile phone distribution business. Since the retailer market channel related to
the Company's GSM mobile phone distribution was developed and maintained by
Shanghai Shantian Telecommunication Technology Inc. (Shantian), a related party
in which Sifang Information holds a 51% equity interest, all of the Company's
Samsung GSM mobile phones were sold to Shantian, which made Shantian the
Company's second tier distributor. During the three months ended June 30, 2004,
the Company sold $2,498,000 in mobile phones that included a 6% mark-up as a
result of credit and rebates received at the TCH level.
Service revenue, net
Total service revenue net of related business tax and surcharges for three
months ended June 30, 2004 decreased by approximately $131,000 to $838,000, as
compared to $969,000 for the same period of the prior year, representing a 13.5%
decrease. The overall decrease was due primarily because the decrease of service
revenue for pager users was higher than the increase of service revenue for
mobile phone users. Service revenue for mobile phone users for three months
ended June 30, 2004 increased by approximately $260,000 to $566,000 compared to
$306,000 for the same period of the prior year, representing a 85% increase.
Service revenue for pager users for three months ended June 30, 2004 decreased
by $391,000 to $273,000 compared to $664,000 for the same period of the prior
year. The Company believes that service revenue from pager users will continue
to decrease along with the increased popularity of mobile phones over pagers.
Cost of goods sold
The cost of goods sold for the three months ended June 30, 2004 increased by
approximately $1,746,000 to $4,853,000 as compared to $3,107,000 for the same
period of the prior year, representing an approximately 56% increase. The
increase was consistent with the increase in revenue from mobile phones.
Cost of service
The cost of service for the three months ended June 30, 2004 increased by
approximately $17,000 to $236,000 compared to $219,000 for the same period of
the prior year, representing an approximately 8% increase. The increase was due
mainly to the increase in service fees charged by Mobile Operators along with
the increase in mobile phone users for value-added information service and the
increase in purchasing costs related to more information content. The Company is
intending to expand the contents included in its value-added services within the
current fee-charge level and trying to establish collaborative relationships or
partnerships with certain information content providers. If this effort results
in any success, an increase in cost of service will be expected.
Gross profit
After considering the cost of goods sold and cost of service, the Company's
gross profit for the three months ended June 30, 2004 increased by approximately
$18,000, representing an approximately 2% increase, to approximately $1,036,000
as compared a the gross profit of approximately $1,018,000 for the same period
of the prior year. The percentage of gross profit over the total revenue for the
three months ended June 30, 2004 was only approximately 16.9% compared to 23.4%
for the same period of the prior year, representing a 28% decrease. The decrease
was due to the fact that the service revenue generated in the three months ended
June 30, 2004 accounted for only approximately 13.7% of the total revenue
whereas the more profitable service revenue generated in the same period of the
prior year accounted for 22.3% of the total revenue.
The following table presents in summary certain information related to the
various components of revenue in a manner similar to segment reporting
information.
Information Information
Mobile Phone Service - Service -
Distribution Mobile Phone Pager Total
------------ ------------ ------------ ------------
For three months ended June 30, 2004
Revenue $ 5,286,474 $ 566,269 $ 271,723 $ 6,124,466
Cost 4,852,647 63,244 172,892 5,088,783
Gross profit 433,827 503,025 98,831 1,035,683
Gross profit ratio 8% 89% 36% 17%
For three months ended June 30, 2003
Revenue $ 3,374,437 $ 305,671 $ 663,586 $ 4,343,694
Cost 3,107,222 46,999 171,510 3,325,731
Gross profit 267,215 258,672 492,076 1,017,963
Gross profit ratio 8% 85% 74% 23%
Selling expenses
Selling expenses for the three months ended June 30, 2004 increased by
approximately $16,000 to $49,000 compared to $33,000 for the same period of the
prior year, representing an approximately 46% increase. The increase was due to
promotion expenses for mobile phone value-added services.
General and administrative expenses
General and administrative expenses for the three months ended June 30, 2004
increased by approximately $1,097,000 to $1,124,000 compared to $27,000 for the
same period of the prior year, representing a material increase. The increase
was due mainly to the stock-based compensation expenses of approximately
$1,014,000 incurred in the U.S. For comparison, the Company recovered
approximately $19,000 in bad debts that offset the general and administrative
expenses in the three months ended June 30, 2004 whereas there was $49,000 of
such recovery in the same period of the prior year, which represented a $30,000
expenses increase for the three months ended June 30, 2004. In addition,
software amortization expense increased by approximately $8,000 to $35,000
compared to approximately $27,000 incurred in the same period of the prior year.
Furthermore, payroll expense and related employee retirement and fringe benefit
expenses increased by approximately $10,000 at the TCH level. Other
miscellaneous items, which mainly included rental, utilities, entertainment,
post and telephone expenses, accounted for the remaining increase of $35,000 for
the three months ended June 31, 2004. The increase was related to the Company's
expansion at the TCH level.
The above stock-based compensation for the three months ended June 30, 2004 was
approximately $1,014,000 of which $604,000 was the fair value of the 167,895
shares issued for a consultant in lieu of cash payment, and other $410,000 was
total premium difference between the trading price ($3.60 per share) and the
stock purchase price ($1.14 per share) per a stock purchase agreement for
issuing 166,667 redeemable shares.
Interest income (expense)
For the three months ended June 30, 2004, interest income was approximately
$14,000, which was mainly derived from money lent to Sifang Information. For the
three months ended June 30, 2003, the interest expenses was approximately
$2,000, which was paid to Sifang Information for temporary money borrowing for
mobile phone distribution business.
Income tax
The Company's Chinese subsidiary is subject to taxation under the laws of the
PRC, and the statutory income tax rate for the three months ended June 30, 2003
and 2004 was 7.5%. In the three months ended of June 30, 2003 and 2004, income
tax expense was approximately $72,000 and $67,000, respectively, based on pretax
income of $955,000 and pretax loss $124,000 (which included the stock
compensation of $1,014,000 incurred in the U.S.). Because the loss of
approximately $1,014,000 incurred in the U.S. did not offset the taxable income
in China, the income tax expense of $67,000 incurred in China was based on the
taxable income of approximately $890,000.
Net income (loss)
The Company recorded a net loss of $190,000 for the three months ended June 30,
2004, a $1,073,000 decrease in net income compared to a net income of $883,000
for the same period of the prior year, representing a 122% decrease. The
decrease in net income was mainly attributable to the increase in general and
administrative expenses for the three months ended June 30, 2004 compared to
general and administrative expenses for the same period of the prior year.
Earnings (loss) per share
The earnings (loss) per share for the three months ended June 30, 2004 decreased
by $0.07 to loss per share $0.01 compared to earnings per share $0.06 for the
same period of the prior year, representing an approximately 117% decrease. The
decrease was due mainly to the decrease in net income and the increase in the
total outstanding shares of common stock because the weighted average number of
shares of common stock outstanding for the three months ended June 30, 2004
increased by approximately 1.3%, comparing the weighted average number of shares
of common stock outstanding for the same period of the prior year.
Liquidity and Capital Resources
The Company's cash balance increased by approximately $2,737,000 from
approximately $388,000 as of June 30, 2003 to approximately $3,125,000 as of
June 30, 2004. This increase in cash was due primarily to the decrease in
inventory and accounts receivable, and the cash proceeds obtained through
issuing shares of its common stock.
The cash flow provided by operating activities for the six months ended June 30,
2004 increased by approximately $2,709,000 to approximately $2,621,0000 compared
to the cash used in operating activities of approximately negative $88,000 for
the same period of the prior year, representing a significant increase. The
Company believes that the increase was due mainly to the cash of $1,058,000
generated in inventory compared to the net cash used of $1,217,000 in the same
period of the prior year, representing a change of $2,275,000. In addition, the
cash of $13,000 generated in accounts receivable and advance to employees in the
six months ended June 30, 2004 compared to the net cash used of $1,012,000 in
the same period of the prior year, represented a change of $1,025,000. VAT
recoverable in the six months ended June 30, 2004 was a cash generator
representing a positive change of approximately $160,000 compared to that in the
same period of the prior year. However, deferred revenue and accounts payable
were in a net cash used position in the six months ended June 30, 2004,
representing a negative change of approximately $290,000 and $486,000 as
compared in the same period of the prior year.
The cash flow used in investing activities for the six months ended June 30,
2004 increased by $1,379,000 to approximately $1,492,000 compared to $113,000
for the same period of the prior year, representing a significant increase. The
increase in cash used in investing activities was due mainly to the increase in
loan receivables from Sifang Information, the parent company before the reverse
acquisition. See our Note 4, "Related Party Transactions".
The cash flow provided by financing activities for six months ended June 30,
2004 increased by approximately $887,000 to approximately $283,000 compared to
the negative cash flow of approximately $604,000 for the same period of the
prior year, representing a significant increase. The Company believes that the
increase was due mainly to the proceeds from issuing its common stock in
addition to the fact that the Company did not have any payment for amount due to
Sifang Information in the six month period ended June 30, 2004.
Management estimates that the Company will continue to have positive cash flow
provided by operating activities in the remaining six months of 2004. The
Company may continue to lend money to Sifang Information on an as-needed basis.
However, management expects to collect certain part of the amount due form
Sifang Information in the second half year of 2004.
Management believes that current cash balance and cash flows from operations, if
any, will be sufficient to meet present growth strategies and related working
capital. In regards to the capital expenditures, the Company had sufficient
funds to expand its operations. The Company plans to utilize a combination of
internally generated funds from operations with potential debt and/or equity
financings to fund its longer-term growth over a period of two to five years.
The availability of future financings will depend on market conditions. There is
no assurance that the future funding will be available.
The forecast of the period of time through which the Company's financial
resources will be adequate to support operations is a forward-looking statement
that involves risks and uncertainties. The actual funding requirements may
differ materially from this as a result of a number of factors including plans
to fully support the Company's expansion.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." FIN 46, as amended by FIN 46(R),
issued in January 2003, requires an investor with a majority of the variable
interests in a variable interest entity to consolidate the entity and also
requires majority and significant variable interest investors to provide certain
disclosures. A variable interest entity is an entity in which the equity
investors do not have a controlling financial interest or the equity investment
at risk is insufficient to finance the entity's activities without receiving
additional subordinated financial support from other parties. The provisions of
FIN 46(R) are applicable for fiscal years ending after December 15, 2004. The
Company does not have any variable interest entities that must be consolidated.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14(c) as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedures are effective. There were no changes in our internal control over
financial reporting during the quarter ended June 30, 2004 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
On June 23, 2004, the Company completed a stock exchange transaction with the
shareholders of Sifang Holdings Co., Ltd., an exempted company incorporated in
the Cayman Islands with limited liability ("Sifang Holdings"). The exchange was
consummated under Nevada and Cayman Islands law and pursuant to the terms of the
Securities Exchange Agreement dated effective as of June 23, 2004 (the "Exchange
Agreement").
Pursuant to the Exchange Agreement, the Company issued 13,782,636 shares of its
common stock to the shareholders of Sifang Holdings, representing approximately
89.7% of its issued and outstanding common stock, in exchange for 100% of the
outstanding capital stock of Sifang Holdings. After giving effect to the
exchange, the Company had 15,368,341 shares of common stock outstanding.
Pursuant to the exchange, Sifang Holdings became a wholly-owned subsidiary of
the Company.
The shares of common stock issued to stockholders of Sifang Holdings in
connection with the exchange were not registered under the Securities Act of
1933, as amended (the "Securities Act") in reliance upon Section 4(2) under the
Act and, as a result, are "restricted securities" that may not be offered or
sold in the United States absent registration or an applicable exemption from
registration requirements.
On June 23, 2004 the Company issued 167,895 shares of its common stock to a
consultant in lieu of a cash payment for the services provided. The trading
price of the Company's common stock on June 23, 2004, the date of issuance, was
$3.60 per share, accordingly, the fair value of the securities issued was
$604,422. The shares were issued in reliance on the exemption from registration
afforded under Section 4(2) of the Act.
On June 28, 2004, the Company concluded a private placement of an aggregate of
1,482,456 restricted shares of common stock for aggregate proceeds of
$1,690,000, or $1.14 per share sold. The initial sale of 166,667 shares of
common stock occurred on June 23, 2004. The shares were purchased by an existing
shareholder of the Company pursuant to a written Stock Purchase Agreement. The
offering was closed on June 28, 2004 following the sale of 1,315,789 shares of
common stock to three purchasers (the "Second Tranche Purchasers") for aggregate
proceeds of $1,500,000. Participants in the offering were granted an option to
require the Company to re-purchase all of their respective shares of common
stock at the original offering price, with such option being exercisable at any
time after the date that is six months after the Company files a registration
statement on Form SB-2 with the SEC, registering the shares purchased, up to and
including the earlier of the date that such registration statement is declared
effective by the SEC or the shares are eligible for resale under Rule 144 under
the Securities Act. The Company and the Second Tranche Purchasers entered into
an Escrow Agreement pursuant to which the $1,500,000 invested by them will not
be released to the Company until a registration statement, registering all
1,315,789 shares of common stock purchased by said investors, has been declared
effective by the SEC. The shares of common stock issued in connection with this
offering were purchased by accredited investors and were not registered under
the Securities Act in reliance upon the exemption afforded by Section 4(2)
thereunder.
In the above transaction of issuing 166,667 shares incurred on June 23, 2004,
the trading price on that day was $3.60 per share. Due to the nature of insider
transaction, the difference between the price of $1.14 per share and the price
of $3.60 per share was recorded as deemed compensation to an existing
stockholder by presenting the increase of $410,001 in additional paid-in capital
and the increase of $410,001 in stock compensation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Information Service and Cooperation Agreement by and among
Shanghai Sifang Information Technology Co. Ltd. and Shanghai
TCH Data Technology Co. Ltd. dated as of June 1, 2004.
10.2 Information Service and Cooperation Agreement by and among
Shanghai Sifang Information Technology Co. Ltd. and Shanghai
TCH Data Technology Co. Ltd. dated as of June 1, 2004.
10.3 Information Service and Cooperation Agreement by and among
Shanghai Sifang Information Technology Co. Ltd., Shanghai
Chengao Industrial Co. Ltd. and Shanghai TCH Data Technology
Co. Ltd. dated as of June 1, 2004.
10.4 Information Service and Cooperation Agreement by and among
Shanghai Tianci Industrial (Group), Co. Ltd. and Shanghai TCH
Data Technology Co. Ltd. dated as of June 1, 2004.
10.5 Business and Related Assets Transfer Agreement between
Shanghai Sifang Information Technology Co. Ltd. and Shanghai
TCH Data Technology Co. Ltd. dated as of May 26, 2004.
31.1 Chief Executive Officer Certification filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Chief Financial Officer Certification filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Chief Executive Officer Certification furnished pursuant to
Section 906 of the Sarbanes Oxley Act of 2002
32.2 Chief Financial Officer Certification furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CHINA DIGITAL WIRELESS, INC.
Date: August 20, 2004 /s/ Tai Caihua
-----------------------------------------------
Tai Caihua, Chairman of the Board and President
Date: August 20, 2004 /s/ Lu Qin
-----------------------------------------------
Chief Financial Officer