UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to ________________
Commission file number: 333-49388
CHINA WIRELESS COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
NEVADA 91-1966948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7365 VILLAGE SQUARE DRIVE #1611, CASTLE ROCK, COLORADO 80108
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (720) 733-6214
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: NONE
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 such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. __
State issuer's revenues for its most recent fiscal year: $301,750
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $12,026,532 AS OF MARCH 26, 2003
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 21,500,000 AS OF MARCH 26, 2003
Transitional Small Business Disclosure Format (Check one): Yes ; No X
----- -----
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Under the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 (the "PSLRA"), we caution readers regarding forward looking
statements found 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
We are in the business of providing telecommunications services,
principally in the People's Republic of China ("PRC").
BACKGROUND
We were originally incorporated by AVL Information Systems Ltd. ("AVL")
and its principal officers and directors in Nevada on March 8, 1999 under the
name AVL SYS International Inc.. AVL is a Canadian public company that owns and
licenses certain technology and automatic vehicle location systems. AVL has
incurred significant operating losses over the past six fiscal years and has a
working capital deficiency, which casts doubt upon its ability to continue as a
going concern. AVL and its principal officers and directors incorporated us in
an effort to start anew and to take advantage of what they perceived to be the
benefits of a United States publicly traded company. They believed that a U.S.
publicly traded company would provide a level of credibility in the automatic
vehicle location system industry, access to additional funding in the U.S.
markets, and the ability for us to enter into strategic alliances for the
development, manufacturing and sale of automatic vehicle location systems. We
changed our name to i-Track, Inc. on March 9, 2000.
Effective September 30, 2001, we entered into a Worldwide Exclusive
Distribution Agreement with AVL, covering all of the products manufactured by
AVL, including the Spryte System(TM) and the Chaperone Personal Tracking Unit.
These products are automatic vehicle location systems that integrate Global
Positioning System technology, cellular-wireless communications and the Internet
to enable companies to efficiently manage their mobile resources with
location-relevant and time-sensitive information. These products are designed to
enable customers to use the Internet to track the movement of their vehicles,
employees, and goods and services. While there are several ways to transmit
information from a vehicle to a central location, we believe these products
provide significant value to customers by reducing their costs of doing business
and increasing the productivity of their mobile resources.
While we were able to sell AVL's products, we realized that our level
of sales would not be sufficient to sustain the costs of operating a publicly
traded company. Our exclusive distribution agreement with AVL was cancelled
effective as of December 31, 2002 and we began to seek another business
opportunity. On March 22, 2003, we acquired all of the issued and outstanding
shares of Strategic Communications Partners, Inc., a Wyoming corporation
("Strategic"), pursuant to the terms of a Share Exchange Agreement. We issued a
total of 19,000,000 restricted shares of our common stock to the shareholders of
Strategic, so that the Strategic shareholders as a group own approximately 88.4%
of our outstanding shares of common stock.
Immediately prior to the closing of the acquisition of Strategic, we
entered into an Assignment and Assumption Agreement with AVL, under which we
transferred our business to AVL and AVL assumed our liabilities that related to
this business. Our note receivable from a related party in the amount of $31,345
at December 31, 2002, was offset against accrued
2
management fees of $30,000 owed to AVL. In addition, Peter Fisher, our sole
officer and a director, and Tyler Fisher, who were owed $257,410 at December
31, 2002 by us, agreed to accept stock as payment of this debt.
In connection with our acquisition of Strategic, we changed our name to
China Wireless Communications, Inc. effective March 24, 2003.
STRATEGIC COMMUNICATIONS PARTNERS, INC.
Strategic was incorporated in the State of Wyoming on August 13, 2002.
It provides financial, technical, and marketing services for an investment,
Goldvision Technologies Ltd. ("Goldvision") in Beijing, People's Republic of
China ("PRC"). Strategic Communications Partners Limited ("SCPL") is a
subsidiary of Strategic. SCPL was incorporated in Hong Kong on December 9, 2002.
SCPL's operations to date consist solely of supporting the Beijing investment.
On December 18, 2002, SCP entered into agreements with Goldvision, a
company incorporated in the PRC, which is engaged in the business of providing
satellite communication, broadband internet, content, wireless access and
transport in Beijing. SCP will earn an initial 18% equity interest in Goldvision
by paying $4,800,000, with the purchase price to be paid prorata over 12 months
from the effective date of the agreement, which is February 18, 2003. SCP will
have an 18% equity interest in Goldvision after these payments. SCP shall
acquire an additional 6% equity interest in Goldvision by contributing
$2,400,000 over a period of 12 months after the purchase of the initial
interest. Under these agreements, SCP will receive 49% of all future net
revenues from the sale of all services.
On March 4, 2003, SCPL set up a wholly owned foreign enterprise,
Beijing In-Touch Information System Co. Ltd. ("In-Touch") in the PRC. In-Touch
is engaged in the business of telecommunication system integration, broadband
wireless access providers and providers of VPN's and other wireless access,
transport and enhanced data services. Essentially, In-Touch is the exclusive
provider of wireless "last mile" services to large commercial users and
carriers.
As of March 24, 2003, SCP has 7 employees, 4 of which are full-time in
the United States. In-Touch in Beijing has 25 full-time employees. None of our
employees is covered by a collective bargaining agreement.
COMPETITION
The telecommunications industry is highly competitive. We compete with
a number of other companies, including major communications companies that are
more experienced and have greater financial resources. We do not hold a
significant competitive position in this industry.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
Our operations are subject to various levels of government controls and
regulations in the PRC.
ITEM 2. DESCRIPTION OF PROPERTY.
Our principal executive offices are located at 7365 Village Square
Drive #1611, Castle Rock, Colorado, where we lease approximately 850 square feet
of space on a lease expiring in July 2003.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
3
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock was approved for trading on the over-the-counter
bulletin board ("OTCBB") under the symbol "ITRK" on August 7, 2001. On December
2, 2002, the symbol was changed to "ITCK" to reflect a 1-for-20 reverse stock
split. The following table sets forth the range of high and low closing bid
quotations of our common stock for each fiscal quarter since August 2001, as
adjusted to reflect the reverse stock split:
BID OR TRADE PRICES
2001 FISCAL YEAR HIGH LOW
---------------- ---- ---
Quarter Ending 09/30/01............... $20.00 $20.00
Quarter Ending 12/31/01............... $30.00 $12.00
2002 FISCAL YEAR HIGH LOW
---------------- ---- ---
Quarter Ending 03/31/02............... $ 8.80 $ 3.60
Quarter Ending 06/30/02............... $ 4.80 $ 2.40
Quarter Ending 09/30/02............... $ 2.50 $ 0.80
Quarter Ending 12/31/02............... $ 1.20 $ 0.12
As of March 26, 2003, there were approximately 130 record holders of
our common stock
On March 26, 2003, the closing price for our common stock on the OTCBB
was $0.75.
The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
During the last two fiscal years, no cash dividends have been declared
on our common stock and we do not anticipate that dividends will be paid in the
foreseeable future.
As of December 31, 2002, we had an equity compensation plan that had
been approved by the board of directors but not adopted by the shareholders. A
2003 Stock Plan was adopted in January 2003.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
Effective March 22, 2003, an arrangement was completed between i-Track,
Inc. and Strategic Communications Partners, Inc., whereby the shareholders of
Strategic exchanged all of their common shares for 19,000,000 shares of
i-Track's common stock.
Following the acquisition the former shareholders of Strategic held
approximately 88.4% of our total issued and outstanding common shares.
Accordingly, Strategic was thereby deemed to be the acquiror. Accordingly, the
transaction has been accounted for as a reverse takeover using the purchase
method whereby the assets and liabilities of i-Track have been recorded at their
fair market values and operating results have been included in our financial
statements from the effective date of purchase. The fair value of the net assets
acquired is equal to their book values.
Included in this report are the audited financial statements of i-Track
as of and for the year ended December 31, 2002, the audited financial statements
of Strategic as of and for the period ended December 31, 2002, and the pro forma
combined balance sheet and statement of operations reflecting the acquisition
transaction.
4
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions; however, we believe
that our estimates, including those for the above-described items, are
reasonable.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the approximate
rates of exchange on the dates of transactions. Monetary assets and liabilities
denominated in foreign currencies at year end are translated at the approximate
rates ruling at the balance sheet date. Non-monetary assets and liabilities are
translated at the rates of exchange prevailing at the time the asset or
liability was acquired. Exchange gains and losses are recorded in the statement
of operations.
I-TRACK, INC.
RESULTS OF OPERATIONS. i-Track generated sales of $301,750 for the year
ended December 31, 2002, as compared to $60,000 for the preceding year. Cost of
sales, as a percentage of sales, decreased to 83.1% from 85.6%. Accordingly,
gross profit increased from $8,640 for fiscal 2001 to $51,115 for fiscal 2002.
Administrative and selling expenses increased 147.9% from $34,165 in 2001 to
$84,697 in 2002 due to the higher level of activity in 2002. Management and
other fees to stockholders increased from $0 in 2001 to $258,000 in 2002. The
increase was due to the accrual of compensation to Peter Fisher and Tyler Fisher
in the aggregate amount of $258,000. They had not received any compensation in
2001. In 2001, we expensed the amounts loaned to AVL Information Systems Ltd.
and its subsidiary and the accrued interest on those loans as bad debts, as we
did not believe that the loans would be repaid. As a result, we incurred a net
loss of $1,334,786 for the year ended December 31, 2001, as compared to $291,582
for the year ended December 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES. For the year ended December 31, 2002,
we used cash of $1,894 in our operations. There were no cash financing or
investing activities in 2002. In comparison, for the year ended December 31,
2001, we used cash of $30,141 in our operations, which was offset by net cash
provided by financing activities of $28,334. Our public offering and the
exercise of warrants resulted in net proceeds of $250,095. Of this amount,
$20,000 was used to repay related party advances and $201,761 was loaned to AVL
and its subsidiary.
We loaned funds to AVL and its subsidiary in 2001 to enable those
entities to get the Chaperone units to market more quickly. However, we wrote
off those loans as bad debts due to AVL's poor financial condition.
At December 31, 2002, we had a working capital deficiency of $294,034,
as compared to a deficiency of $1,107 at December 31, 2001. Of the 2002 amount,
$257,410 was due to Peter Fisher and Tyler Fisher for compensation.
The report of our independent auditor on the financial statements for
the period ended December 31, 2002, includes an explanatory paragraph relating
to the uncertainty of our ability to continue as a going concern. As explained
elsewhere in this report, we have been dependent upon AVL and AVL's financial
condition is also uncertain.
STRATEGIC COMMUNICATIONS PARTNERS, INC.
RESULTS OF OPERATIONS. Strategic was incorporated on August 13, 2002.
It is considered to be in the development stage and has not yet generated
revenues from planned principal operations. The period from inception
5
to December 31, 2002, it has incurred general and administrative expenses
of $1,015,482 and a net loss of $1,014,999.
LIQUIDITY AND CAPITAL RESOURCES. For period ended December 31, 2002,
Strategic used cash of $134,874 for operating activities. The most significant
adjustment to reconcile the net loss to net cash used in operations is $809,350,
which is the valuation of the shares of common stock issued as compensation.
Investing activities also used cash of $60,000, which was an advance to a
related party. See Item 12. Certain Relationships and Related Transactions. Cash
of $392,450 was provided by financing activities, in the form of proceeds from
the issuance of stock ($367,950) and net borrowing of $24,500.
At December 31, 2002, Strategic had a working capital surplus of
$162,301, of which $197,576 was in the form of cash and cash equivalents.
PLAN OF OPERATION
As described above, i-Track completed the acquisition of Strategic in a
reverse takeover transaction. Accordingly, this plan of operation discussion
focuses on the proposed operations of Strategic.
Strategic will market and sell services over the existing operational
Goldvision delivery networks. These services comprise telecommunications
services, broadband access, and VSAT (satellite) internet services in Beijing,
PRC. Goldvision has a monopoly right to wireless spectrum in this market.
Goldvision has built a 155Mbps wireless ring in Beijing around its 3-Ring Road.
The Company is in discussion with several investment sources to provide
the capital required to fund operations over the next several years. The Company
will need to raise substantial capital over the next year to fund its commitment
to Goldvision and its operations. The continuation of the Company as a going
concern is dependent upon the successful implementation of its business plan,
raising capital, and ultimately achieving profitable operations. However, there
can be no assurance that the business plan will be successfully implemented. The
inability of the company to implement the business plan successfully could
adversely impact the Company's business and prospects.
The Company is also in discussions with several large Chinese national
companies to provide wireless access to their customers.
The Company plans currently to increase its staffing levels only as
required by its operations. The Company currently has no plans to significantly
increase the number of its employees.
ITEM 7. FINANCIAL STATEMENTS.
See pages beginning with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Effective October 5, 2001, we changed our independent auditors from
Stark Winter Schenkein & Co., LLP, f/k/a Stark Tinter, & Associates, LLC,
Denver, Colorado, to Edward, Melton, Ellis, Koshiw & Company, P.C., Troy,
Michigan. The change was not related to the competence, practices and procedures
of Stark Winter Schenkein & Co., LLP.
We believed that it would be more convenient and cost effective for us
to retain auditors with offices located in the State of Michigan. Stark Winter
Schenkein & Co, LLP did not maintain offices in the State of Michigan, and we
identified Edward, Melton, Ellis, Koshiw & Company, P.C. as independent auditors
with offices
6
in Troy and Ann Arbor, Michigan. Our board of directors has approved the
engagement of Edward, Melton, Ellis, Koshiw & Company, P.C.
Stark Winter Schenkein & Co., LLP audited our financial statements for
the period March 9, 1999 (inception) to December 31, 1999 and the year ended
December 31, 2000. Stark Winter Schenkein & Co., LLP's reports for such periods
did not contain an adverse opinion or disclaimer of opinion, nor were the
reports qualified or modified as to uncertainty, audit scope or accounting
principles, except for our ability to continue as a going concern. There were no
disagreements with Stark Winter Schenkein & Co., LLP on any matter of accounting
principles or practices, financial statements disclosure, or auditing scope
procedure, which disagreements, if not resolved to the satisfaction of Stark
Winter Schenkein & Co., LLP, would have caused such firm to make reference to
the subject matter of the disagreements in connection with its report on our
financial statements. In addition, there were no such events as described under
Item 304 of Regulation S-B during the period March 9, 1999 (inception) to
December 31, 1999 and the year ended December 31, 2000, or through and to
October 5, 2001.
We did not consult with Edwards, Melton, Ellis, Koshiw & Company, PC as
to (i) our registration statement filed on Form SB-1; (ii) the application of
accounting principles to a specific completed or contemplated transaction, or
the type of audit opinion that might be rendered on our financial statements,
and no written or oral advice was provided that was an important factor
considered by us in reaching a decision as to an accounting, auditing or
financial reporting issue.
Effective December 19, 2002, Edwards, Melton, Ellis, Koshiw & Company,
P.C. ("Edwards") resigned as our independent accountant. Edwards had informed us
that it was no longer going to be conducting audits of public companies.
During the two most recent fiscal years and the subsequent interim
period, neither we nor anyone on our behalf consulted any other accountant
regarding any of the matters identified in Item 304(a)(2) of Regulation S-B.
Edwards audited our financial statements for the year ended December
31, 2001. Edwards' report for such periods did not contain an adverse opinion or
a disclaimer of opinion, nor was the report qualified or modified as to
uncertainty, audit scope or accounting principles except for our ability to
collect on $1,289,761 of loans receivable shown on our balance sheet at December
31, 2001 and our ability to continue as a going concern. The Edwards' report was
subsequently reissued to reflect our assessment that the above loans receivable
should have been written off as bad debts as of December 31, 2001.
During the two most recent fiscal years and the subsequent interim
period ending December 19, 2002, there were no disagreements with Edwards on any
matter of accounting principles or practices, financial statements disclosure,
or auditing scope procedure, which disagreements, if not resolved to the
satisfaction of Edwards, would have caused such firm to make reference to the
subject matter of the disagreements in connection with its report on our
financial statements. In addition, there were no such events as described under
Item 304 of Regulation S-B during our two most recent fiscal years and the
subsequent interim period ending December 19, 2002.
Effective February 19, 2003, we engaged The Rehmann Group, Troy,
Michigan, as our principal accountant. Our board of directors has approved the
engagement of The Rehmann Group.
Prior to our engagement of The Rehmann Group, we had not consulted with
The Rehmann Group as to the application of accounting principles to any specific
completed or contemplated transaction, or the type of audit opinion that might
be rendered on our financial statements, and no written or oral advice was
provided that was an important factor considered by us in reaching a decision as
to an accounting, auditing or financial reporting issue.
7
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Our executive officers and directors are:
NAME AGE POSITION
Phillip Allen 54 President, Chief Executive Officer
and Director
Brad Woods 44 Chief Financial Officer, Secretary,
Treasurer and Director
Peter W. Fisher 55 Director
Our shareholders elect our directors annually and our board of
directors appoints our officers annually. Vacancies in our board are filled by
the board itself. Set forth below are brief descriptions of the recent
employment and business experience of our executive officers and directors.
PHILLIP ALLEN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Phillip Allen became our president, chief executive officer and a
director upon the acquisition of Strategic. He has been involved in the
telecommunications industry since 1990. Mr. Allen has held senior management
positions with a number of development stage and startup companies including
Capital Acceleration Corporation, Athena International, STA Telecommunications,
GTE, VDC Telecommunications and Strategic Communications. From September 1998 to
April 1999, he was the sales director for VDC Telecommunications, Denver,
Colorado, where he hired and trained sales staff, negotiated carrier contracts,
and defined product and service offering. From April 1999 to April 2000, he was
the president of In-Touch Communications, Littleton, Colorado, a
telecommunications consulting firm, which provided international enhanced
services. He founded Strategic Communications Partners International in April
2000, which provided telecommunications consulting services in the area of
international carrier terminations and enhanced services. He served as president
of this company until July 2002. In August 2002, he founded Strategic to take
advantage of the wireless broadband opportunity in China. He graduated from
Central Michigan University with a B.S. degree in Business, Education and Social
Sciences and an M.A. in General Educational Administration and has completed
work on a doctorate program in Labor and Industrial Relations at Michigan State
University.
BRAD WOODS, CHIEF FINANCIAL OFFICE, SECRETARY, TREASURER AND DIRECTOR
Mr. Brad Woods became our chief financial officer, secretary, treasurer
and a director upon the acquisition of Strategic. He is a member of Breckenridge
Capital Consulting Group, LLC. He has extensive experience in international
investments, acquisitions, taxation, and computer applications with both public
and private companies. Mr. Woods has also worked for Arthur Andersen & Co.,
where he executed projects for and on behalf of clients in the oil and gas,
financial services, leasing, lodging, retail and light manufacturing industries.
His experience includes practicing before the Securities and Exchange
Commission, both with existing public companies and initial public offerings. He
has also served as an advisor to numerous companies. Mr. Woods is a CPA in
Colorado and received his bachelor's degree in Business Administration with an
emphasis in Accounting from Colorado State University.
PETER W. FISHER, DIRECTOR
Mr. Fisher has been our director since April 2000, and was an officer
from April 2000 until the acquisition of Strategic. Since 1992, Mr. Fisher has
been the chairman and chief executive officer of AVL Information Systems Ltd.,
Ontario, Canada, a Canadian public company listed over-the-counter in Toronto.
AVL Information Systems Ltd. develops and markets automatic vehicle location
systems. From 1987 to 1992, Mr. Fisher was the president and chief executive
officer of Tyrae Resources, Sarnia, Ontario, a junior capital pool corporation
listed on the Alberta Stock Exchange. In that capacity, Mr. Fisher assisted in
the development of stolen vehicle recovery
8
technology. From 1982 to 1987, he was the president of Par Sar Investment
Limited, Sarnia, Ontario, a Canadian private company that provided consulting
services relating to funding and structuring of private and public companies.
From 1979 to 1982, Mr. Fisher was a registered representative with Richardson
Securities of Canada, and from 1974 to 1979, he was an account manager and
registered representative for Midland Doherty Inc. of Canada, in Sarnia,
Ontario.
CONFLICTS OF INTEREST
Our officers and directors are, so long as they are our officers or
directors, subject to the restriction that all opportunities contemplated by our
plan of operation which come to their attention, either in the performance of
their duties or in any other manner, will be considered opportunities of, and be
made available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies with which the officers and
directors are affiliated both desire to take advantage of an opportunity, then
said officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if we should decline to do so. Except as set forth above, we have
not adopted any other conflict of interest policy with respect to such
transactions.
COMMITTEES
We do not have any standing audit, nominating, or compensation
committees of our board of directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
We are not subject to Section 16(a) of the Securities Exchange Act of
1934.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information about the remuneration of
our chief executive officers for the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
ANNUAL COMPENSATION
AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL COMPENSA- AWARD(S) OPTIONS/ PAYOUTS COMPENSA-
NAME AND YEAR SALARY ($) BONUS ($) TION ($) ($) SARS (#) ($) TION ($)
---------------------------------------------------------------------------------------------------------------------
Peter W. Fisher 2002 -0- -0- -0- -0- -0- -0- 150,000
President (1)
---------------------------------------------------------------------------------------------------------------------
Barbara Castanon 2002 -0- -0- -0- -0- -0- -0- -0-
President (2) 2001 -0- -0- -0- -0- -0- -0- -0-
2000 -0- -0- -0- -0- -0- -0- -0-
---------------------------------------------------------------------------------------------------------------------
-------------------
(1) Mr. Fisher was the President from October 21, 2002 to March 22, 2003.
(2) Ms. Castanon was the President until October 20, 2002.
There have been no grants of stock options, stock appreciation rights,
benefits under long-term incentive plans or other forms of compensation
involving our officers, through December 31, 2002.
We reimburse our officers and directors for reasonable expenses
incurred during the course of their performance. We have not paid our outside
directors fees for their services. However, we propose to pay them in the
future.
9
By resolution dated March 17, 2003, our board of directors approved
compensation of $150,000 and $108,000 to Peter Fisher and Tyler Fisher,
respectively, retroactive to December 31, 2002. Such compensation was paid by
issuing 764,624 and 550,529 shares of our common stock in March 2003.
EMPLOYMENT AGREEMENTS
On March 25, 2003, we entered into employment agreements with Phillip
Allen, our president and chief executive officer, and Brad Woods, our chief
financial officer, secretary and treasurer. The agreements are identical. Each
is for an initial term of ten years and requires an annual salary of $120,000
for the first year, with a cumulative annual increase of 10% every year
commencing on the first anniversary of the agreement. If employment should
terminate due to death or a disability, the salary then in effect shall continue
for two years from the date of termination. If termination should occur without
cause, including a termination upon a change in control, within four years of
the expiration of the term of the agreement, we are obligated to pay Mr. Allen
or Mr. Woods, as the case may be, an amount equal to his salary in effect during
the last five years of the term of the agreement, within ten business days after
the termination. For the purposes of the agreement, a change of control shall be
deemed to occur upon the election of directors constituting a majority of the
board who have not been nominated or approved by Mr. Allen or Mr. Woods and are
not related to Mr. Allen or Mr. Woods. Each of Mr. Allen and Mr. Woods has
agreed that during the period of his employment and for a period of one year
following his employment, he shall not engage or have an ownership interest of
more than 25% in any business directly competitive with us, or take any action
that constitutes an interference with or a disruption of any of our business
activities.
STOCK PLAN
On January 31, 2003, our shareholders adopted the 2003 Stock Plan,
which provides for the granting of both incentive stock options and nonstatutory
stock options and stock purchase rights to officers, directors, employees, and
independent contractors. The total number of shares of common stock that may be
issued under this plan shall not exceed 15% of shares outstanding.
The board of directors or one or more committees designated by the
board administers this plan, and has the authority and discretion to do the
following:
o determine the fair market value;
o select the employees, directors, or consultants to whom options and
stock purchase rights may be granted;
o determine the number of shares of common stock to be covered by each
option and stock purchase right granted under the Plan;
o approve forms of agreement for use under the Plan;
o determine the terms and conditions of an option or stock purchase
right granted under the Plan;
o construe and interpret the terms of the Plan and awards granted under
the Plan;
o prescribe, amend, and rescind rules and regulations relating to the
Plan;
o modify or amend each option or stock purchase right;
o allow optionees to satisfy withholding tax obligations by electing to
have the company withhold from the shares to be issued upon exercise
of an option or stock purchase right that number of shares having a
fair market value equal to the minimum amount required to be withheld;
o authorize any person to execute on behalf of the company any
instrument required to effect the grant of an option or stock purchase
right; and
o make all other determinations deemed necessary or advisable for
administering the Plan.
We may grant incentive stock options with the exercise price being 100%
of the bid price on the date of grant, and nonstatutory stock options with the
exercise price being not less than 85% of the bid price on the date of grant.
The options are subject to any vesting, special forfeiture conditions, rights of
repurchase, rights of first refusal, and other transfer restrictions as may be
determined by the board or committee. Options granted cannot exceed a term of
ten years, except in the case of incentive stock options granted to holders of
10% of more of our total combined voting power of all classes of stock, which
cannot exceed a term of five years. The options terminate upon the earliest of
(1) the stated expiration date, (2) 30 days after the termination of the
optionee's service for any
10
reason other than total and permanent disability, (3) six months after the
termination of the optionee's service by reason of total and permanent
disability, or (4) six months after the optionee's death.
Unless earlier terminated by the board of directors, this plan will
terminate January 30, 2013.
On March 23, 2003, the board of directors declared a bonus to cover
compensation not paid to certain employees and consultants working for the
Company. The options granted under the Company's 2003 Stock Plan were for a
total of 1,150,000 shares of common stock at a price of $0.35 per share, the
fair market value of the stock as of the date of grant.
The options granted expire three years from the date of grant. The
options are subject to a restriction on the sale of the shares issuable upon
exercise. Persons granted 1,000,000 of the options who exercise their options
may sell no more than 25% of the total number of shares covered by their
respective option granted in each six-month period over the next two years.
Peter Fisher, who was granted 150,000 options, may sell no more than 50% of the
total number of shares covered by his option during the first six months.
The Company plans to file a registration statement covering the shares
issuable upon exercise of the stock options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of March 26, 2003:
------------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS (2)
------------------------------------------------------------------------------------------------------------------
Phillip Allen 3,275,000 (3) 15.0%
6290 Hampton Court
Castle Rock, CO 80108
------------------------------------------------------------------------------------------------------------------
Brad Woods 1,425,000 (3) 6.5%
P.O. Box 4476
Frisco, CO 80443
------------------------------------------------------------------------------------------------------------------
Peter W. Fisher 1,514,624 (4) 7.0%
232 Passingham Drive
Sarnia, Ontario N7T 7H4 Canada
------------------------------------------------------------------------------------------------------------------
All officers and directors as a group (3 persons) 6,214,624 (5) 27.9%
------------------------------------------------------------------------------------------------------------------
------------------------
(1) To our knowledge, except as set forth in the footnotes to this table and
subject to applicable community property laws, each person named in the
table has sole voting and investment power with respect to the shares set
forth opposite such person's name.
(2) This table is based on 21,500,000 shares of Common Stock outstanding as
of March 26, 2003. If a person listed on this table has the right to obtain
additional shares of Common Stock within sixty (60) days from March 26,
2003, the additional shares are deemed to be outstanding for the purpose
of computing the percentage of class owned by such person, but are not
deemed to be outstanding for the purpose of computing the percentage of any
other person.
(3) Includes 300,000 shares issuable upon the exercise of stock options.
(4) Includes 150,000 shares issuable upon the exercise of stock options.
(5) Includes 750,000 shares issuable upon the exercise of stock options.
11
CHANGES IN CONTROL
There are no agreements known to management that may result in a change
of control of our company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as disclosed below, none of our present directors, officers
or principal shareholders, nor any family member of the foregoing, nor, to the
best of our information and belief, any of our former directors, senior officers
or principal shareholders, nor any family member of such former directors,
officers or principal shareholders, has or had any material interest, direct or
indirect, in any transaction, or in any proposed transaction which has
materially affected or will materially affect us.
STRATEGIC COMMUNICATIONS PARTNERS, INC.
In November 2002, we remitted $60,000 to Train Top Investment & Trading
Ltd., a company beneficially owned and controlled by Kent Lam, primarily for the
purposes of arranging the set up of the Beijing operations. Mr. Lam is a
shareholder and vice president of marketing of Strategic, as well as a
shareholder of SCPL and president of our Beijing-based China operating company.
This amount is shown on Strategic's balance sheet at December 31, 2002 as a
receivable from a related party.
During the period ended December 31, 2002, Strategic paid amounts to
related parties as follows::
-------------------------------------------------------------------------------------------------------------------
NAME RELATIONSHIP TO STRATEGIC AMOUNT PAID NATURE OF PAYMENT
-------------------------------------------------------------------------------------------------------------------
Phillip Allen Shareholder, Chairman of the $22,500 Consulting fee
Board, President, and Chief
Executive Officer
-------------------------------------------------------------------------------------------------------------------
Iain Stewart Shareholder $21,000 Consulting fee
-------------------------------------------------------------------------------------------------------------------
Blake Ratcliff Shareholder and vice president $52,500 Consulting fee
of operations
-------------------------------------------------------------------------------------------------------------------
StarTele.Com LLC Shareholder $13,000 Consulting fee
-------------------------------------------------------------------------------------------------------------------
Brad Woods Shareholder and vice president
and chief financial officer $12,500 Consulting fee
-------------------------------------------------------------------------------------------------------------------
George Kriegar Sole shareholder of StarTele.Com $7,375 Consulting fee
LLC
-------------------------------------------------------------------------------------------------------------------
StarTele.Com LLC Shareholder $22,750 Commission and related
fees
-------------------------------------------------------------------------------------------------------------------
Peter Wei, one of Strategic's shareholders, is also a major shareholder
of Goldvision.
I-TRACK, INC.
AVL INFORMATION SYSTEMS LTD. AVL Information Systems Ltd., Ontario,
Canada, is a Canadian public company that owns and licenses certain technology
and automatic vehicle location systems. AVL Information Systems Ltd. was our
controlling shareholder. Peter Fisher, our sole officer and a director of our
company up to the acquisition of Strategic, is also an officer and director of
AVL Information Systems Ltd. Tyler Fisher, a relative of Peter Fisher and a
shareholder of our company, is a director of AVL Information Systems Ltd. Peter
Fisher owns
12
approximately 22.6% of the outstanding shares of AVL Information Systems Ltd.,
and is the controlling principal of that company. Up to the acquisition of
Strategic, we relied entirely upon our relationship with AVL Information Systems
Ltd. and Peter Fisher. Our dependence upon AVL Information Systems Ltd. made us
vulnerable to changes in the operations of AVL Information Systems Ltd.
We entered into a management services agreement with AVL Information
Systems Ltd. dated as of January 1, 2002. The agreement called for a payment of
$2,500 per month to AVL Information Systems Ltd. and we received manpower,
equipment, and premises from AVL Information Systems in return. Management fees
under this arrangement were $7,500 and $30,000 for the years ended December 31,
2001 and 2002, respectively.
Prior to the closing of the acquisition of Strategic, we transferred
our business to AVL and AVL assumed our assets and liabilities that related to
this business. Accordingly, AVL and we terminated the Management Services
Agreement and confirmed the termination of the Worldwide Distribution Agreement.
In addition, our note receivable from a related party in the amount of $31,345
at December 31, 2002, has been offset against $30,000 owed to AVL for accrued
management fees and the difference has been assumed by AVL. Lastly, Peter
Fisher, our sole officer and a director, and Tyler Fisher, his son, who were
owed $257,410 at December 31, 2002 by us, agreed to accept stock as payment of
this debt. A total of 1,315,153 shares were issued in March 2003.
PETER W. FISHER. On March 20, 2000, Mr. Fisher advanced $15,000 for
working capital. On August 2, 2000, we signed a promissory note to repay Mr.
Fisher by March 31, 2001. Under the promissory note, we were not required to pay
interest on the money and we could prepay Mr. Fisher in whole or in part at any
time prior to March 31, 2001, without penalty. Mr. Fisher forgave this note as
of December 31, 2001.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
2.1 Share Exchange Agreement dated as of March 17, 2003 by and
between i-Track, Inc. and Strategic Communications Partners,
Inc. (1)
--------------------------------------------------------------------------------
3.1 Articles of Incorporation (2)
--------------------------------------------------------------------------------
3.2 Bylaws (2)
--------------------------------------------------------------------------------
3.3 Certificate of Amendment to Articles of Incorporation (3)
--------------------------------------------------------------------------------
10.1 Promissory Note dated August 20, 2000, in the amount of
$15,000, payable to Peter Fisher (1)
--------------------------------------------------------------------------------
10.2 2003 Stock Plan, as amended
--------------------------------------------------------------------------------
10.3 Assignment and Assumption Agreement between i-Track, Inc.
and AVL Information Systems Ltd. dated March 21, 2003
--------------------------------------------------------------------------------
10.4 Sales, Marketing and Operations Agreement between Beijing
Goldvision Technologies Ltd. and Strategic Communications
Partners, Inc. dated December 18, 2002
--------------------------------------------------------------------------------
10.5 Investment Contract between Beijing Goldvision Technologies
Ltd. and Strategic Communications Partners, Inc. dated
December 18, 2002
--------------------------------------------------------------------------------
10.6 Extension Agreement to Investment Contract between
Goldvision Technologies Ltd. and Strategic Communications
Partners, Inc. dated February 7, 2003
--------------------------------------------------------------------------------
10.7 Employment Agreement dated March 25, 2003 with Phillip Allen
--------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
10.8 Employment Agreement dated March 25, 2003 with Brad A. Woods
--------------------------------------------------------------------------------
16.1 Letter from Stark Winter Schenkein & Co., LLP f/k/a Stark
Tinter & Associates (4)
--------------------------------------------------------------------------------
16.2 Letter from Edwards, Melton, Ellis, Koshiw & Company, P.C.
dated January 20, 2003 (5)
--------------------------------------------------------------------------------
21 Subsidiaries of the registrant
--------------------------------------------------------------------------------
99.1 Certification of Principal Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
--------------------
(1) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated March 17, 2003.
(2) Incorporated by reference from the exhibits to the Registration Statement
on Form SB-1 filed on November 6, 2000, File No. 333-49388.
(3) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated March 22, 2003.
(4) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated October 5, 2001.
(5) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated December 19, 2002.
Reports on Form 8-K: A report on Form 8-K dated November 19, 2002 was
filed on November 26, 2002, reporting, under Item 5, a reverse stock split of
our common stock. No financial statements were required to be filed with the
report.
ITEM 14. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of our disclosure controls and procedures as
defined in Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934
within 90 days of the filing date of this report. Based on their evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that the design
and operation of our disclosure controls and procedures were effective as of the
date of the evaluation.
There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in the preceding paragraph.
14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHINA WIRELESS COMMUNICATIONS, INC.
Date: April 7, 2003 By: /s/ PHILLIP ALLEN
---------------------------------------
Phillip Allen, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
President, Chief Executive Officer
/s/ PHILLIP ALLEN and Director April 7, 2003
------------------------------------- (Principal Executive Officer)
Phillip Allen (Principal Executive Officer)
Chief Financial Officer, Secretary,
Treasurer and Director
/s/ BRAD WOODS (Principal Financial and Accounting April 7, 2003
------------------------------------- Officer)
Brad Woods
/s/ PETER W. FISHER Director April 7, 2003
-------------------------------------
Peter W. Fisher
15
CERTIFICATION
I, Phillip Allen, certify that:
1. I have reviewed this annual report on Form 10-KSB of China Wireless
Communications, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 7, 2003
/s/ Phillip Allen
---------------------------------------
Phillip Allen, President
(principal executive officer)
16
CERTIFICATION
I, Brad Woods, certify that:
1. I have reviewed this annual report on Form 10-KSB of China Wireless
Communications, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 7, 2003
/s/ Brad Woods
---------------------------------------
Brad Woods, Chief Financial Officer
17
I-TRACK, INC.
FORT GRATIOT, MICHIGAN
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2002
REHMANN ROBSON
Certified Public Accountants
F-1
I-TRACK, INC.
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-3 - F-4
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 2002
Balance Sheet F-5
Statement of Operations F-6
Statement of Stockholders' Deficit F-7
Statement of Cash Flows F-8
Notes to Financial Statements F-9 - F-13
F-2
REHMANN ROBSON
CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
A member of THE REHMANN GROUP An Independent Member of Baker Tilly
International
INDEPENDENT AUDITORS' REPORT
March 22, 2003
Shareholders and Board of Directors of i-Track, Inc.
Fort Gratiot, Michigan
We have audited the accompanying balance sheet of i-Track, Inc. (the "Company")
as of December 31, 2002, and the related statements of operations, stockholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of i-TRACK, INC. as of December
31, 2002 and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company is dependent on AVL Information Systems, Ltd.
and AVL Information Systems, Inc., (collectively, "AVL") for all management and
administrative functions. In addition, as of December 31, 2002, the Company
ceased being a distributor of AVL's products, which was its sole source of
revenue. The Company also has a stockholders' deficit of $294,034 at December
31, 2002. These conditions raise substantial doubt about the Company's ability
to continue operating as a going concern. Management's plans regarding these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
F-3
5750 New King Street o Suite 100 o Troy, MI 48 98 o 248-952-2676 o
Fax 248-952-5464 o www.rehmann.com
As described more completely in Note 8, in March 2003 the Company entered into a
"Share Exchange Agreement" under which it will issue stock in exchange for the
stock of an unrelated entity. In addition, also subsequent to year end, the
Company entered into an Assignment and Assumption Agreement with its majority
stockholder whereby the stockholder will assume all of the Company's assets and
liabilities.
/s/ REHMANN ROBSON
Troy, Michigan
F-4
i-Track, Inc.
BALANCE SHEET
--------------------------------------------------------------------------------
ASSETS DECEMBER 31
2 0 0 2
-----------------
CURRENT ASSETS
Cash $ 778
-----------------
TOTAL ASSETS - ALL CURRENT $ 778
=================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 37,402
Due to stockholders 257,410
-----------------
TOTAL LIABILITIES - ALL CURRENT 294,812
-----------------
CONTINGENCY (NOTE 6)
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value, 2,500,000 shares
authorized, 1,184,847 shares
issued and outstanding 1,185
Additional paid-in capital 1,367,610
Accumulated deficit (1,661,484)
Due from related companies (1,345)
-----------------
TOTAL STOCKHOLDERS' DEFICIT (294,034)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 778
=================
The accompanying notes are an integral part of these financial statements.
F-5
i-Track, Inc.
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31
2 0 0 2
----------------
Sales $ 301,750
Cost of sales 250,635
----------------
GROSS PROFIT 51,115
Administrative and selling expenses 84,697
Management and other fees to stockholders 258,000
----------------
NET LOSS $ (291,582)
================
Weighted average number of common
shares outstanding 1,184,847
================
Net loss per common share $ (0.25)
================
The accompanying notes are an integral part of these financial statements.
F-6
i-Track, Inc.
STATEMENT OF STOCKHOLDERS' DEFICIT
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DUE FROM TOTAL
----------------------------- ADDITIONAL ACCUMULATED RELATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT COMPANIES DEFICIT
-------------- ------------ --------------- ---------------- ------------- --------------
Balances, January 1, 2002 1,184,847 $ 1,185 $ 1,367,610 $ (1,369,902) $ - $ (1,107)
Advances to related - - - - (1,345) (1,345)
company
Net loss - - - (291,582) - (291,582)
-------------- ------------ --------------- ---------------- ------------- --------------
BALANCES,
DECEMBER 31, 2002 1,184,847 $ 1,185 $ 1,367,610 $ (1,661,484) $ (1,345) $ (294,034)
============== ============ =============== ================ ============= ==============
The accompanying notes are an integral part of these financial statements.
F-7
i-Track, Inc.
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31
2 0 0 2
----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (291,582)
Adjustments to reconcile net loss to
net cash used in operating activities
Management and other fees to stockholders 258,000
Changes in operating assets and liabilities
which provided (used) cash:
Advances to related companies (1,345)
Accounts payable 33,623
Due to stockholders (590)
----------------
NET CASH USED IN OPERATING ACTIVITIES (1,894)
Cash, beginning of year 2,672
----------------
CASH, END OF YEAR $ 778
================
The accompanying notes are an integral part of these financial statements.
F-8
i-TRACK, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
i-Track,.Inc. (formerly AVL SYS International, Inc.), "the Company",
was incorporated under the laws of the state of Nevada on March 8,
1999. The Company was primarily engaged in the marketing and
distribution of an automatic vehicle location system which integrates
global positioning system technology, cellular-wireless communications
and the internet to enable businesses to manage their mobile resources
with location relevant and time sensitive information. These units are
known as the "Chaperone" and "Spryte" systems. The automatic vehicle
location system has been developed by AVL Information System, Ltd., and
its wholly owned subsidiary AVL Information System, Inc. AVL
Information Systems, Ltd. ("AVL") is the majority shareholder of the
Company and determines the prices of the products purchased by the
Company.
GOING CONCERN
The Company has incurred significant operating losses since its
inception, and at December 31, 2002 has a total stockholder deficit of
$294,034. The Company's sole source of revenue was related to products
it sold under an exclusive licensing agreement with AVL. AVL has
cancelled that agreement and the Company has recognized no revenue from
AVL product sales, nor any other revenue, since September 2002. In
addition, the Company is dependent on AVL for administrative and
management services as it has no employees, office space or equipment.
Management of the Company believes that AVL's financial condition is
also uncertain and its ability to continue as a going concern is in
question. These financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Management believes that the Company must merge with or be acquired by
an independent entity, which is itself financially healthy, if the
Company is to continue operating in the normal course of business. As
discussed in more detail in Note 7, the Company signed a "Share
Exchange Agreement" for such a transaction in March 2003.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
The Company grants credit to customers and does not require collateral
for credit granted. The Company recognizes revenue when its products
are delivered or services are provided.
NET LOSS PER COMMON SHARE
The Company calculates net loss per share as required by Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share."
Basic loss per share is calculated by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted
loss per share is calculated by dividing net loss by the weighted
average number of common shares and dilutive common stock equivalents
outstanding.
F-9
i-TRACK, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 income and
expenses during the reporting period. Actual results could differ from
those estimates.
INCOME TAXES
Deferred income taxes are provided based on the differences between the
tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred income tax assets and
liabilities at the end of each period are determined using the
currently enacted tax rates applied to taxable income in the periods in
which the deferred tax assets and liabilities are expected to be
settled or realized.
2. DUE TO STOCKHOLDERS
The Board of Directors adopted a resolution providing for a total
payment of $258,000 to Peter Fisher, a Company director, officer and
stockholder, and Tyler Fisher, a stockholder. The approved liability
represents payment for services rendered by the Fishers on behalf of
the Company, for among other things, arranging the Company's common
stock offering (Note 3), identifying potential business partners (Note
7), and overseeing the Company's operations. The Company expects to
issue 1,315,153 shares of its common stock to be registered on Form S-8
for filing with the Securities and Exchange Commission in full
satisfaction of this liability.
3. COMMON STOCK TRANSACTIONS
In November 2002, the Company's Board of Directors approved a 1-for-20
reverse stock split of its common stock, which was implemented
effective November 30, 2002. Each 20 shares of common stock existing
prior to November 30, 2002 was converted into one share of common
stock. Prior to this split, the Company had 23,696,900 outstanding
common shares; after the split 1,184,847 common shares were
outstanding. In addition, the Company also reduced the number of its
authorized common shares from 50,000,000 to 2,500,000.
F-10
i-TRACK, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. INCOME TAXES
As described in Note 6, the Company entered into a SHARE EXCHANGE
AGREEMENT (the "Agreement") subsequent to year end. Due to the change
in ownership that will result under the Agreement, the Company's net
operating loss carryforwards, which are the only items impacting
deferred taxes, will be forfeited pursuant to Internal Revenue Code
provision.
5. COMMON STOCK OPTION PLAN
On February 19, 2002, the Company's Board of Directors adopted the
"2002 Stock Plan of i-Track, Inc" (the Plan). The Plan covers outside
directors, selected employees, advisors and consultants, and provides
for the direct award or sale of shares and for the grant of options to
purchase the Company's shares. Options granted under the Plan may
include Nonstatutory Options as well as Incentive Stock Options
intended to qualify under Section 422 of the Internal Revenue code. The
Plan is administered by a Committee, which is either the full Board of
Directors and or a committee designated by the Board.
Outside directors may receive only Nonstatutory Options (those which
are not described in Sections 422(b) or 423(b) of the Internal Revenue
Code) with an exercise price equal to 100 percent of the bid price of a
share on the date of grant. Such options terminate at the earlier of
two months after an outside director's termination (as defined in the
agreement), or the fifth anniversary of the grant.
Employees (as defined in the agreement) may receive both Incentive
Stock Options and Nonstatutory Options. The purchase price for employee
shares shall not be less than 85% of the bid price and the exercise
price of Incentive Stock Options shall not be less than 100 percent of
the bid price of a share on the date of grant.
The aggregate number of shares which may be issued under the Plan shall
not exceed 15% of the Company's outstanding shares, subject to certain
limits as defined in the Plan. Employee options generally expire after
five years.
There have been no stock awards issued under this plan as of December
31, 2002.
Although the Plan was approved by the Board of Directors, it was not
approved by the stockholders. Subsequent to year end, a stock option
plan was approved by the Board of Directors and stockholders (Note 8).
6. CONTINGENCY
In December 2002, the Company entered into a Settlement Agreement with
Numerex Solutions LLC ("Numerex") and Cellemetry, LLC ("Cellemetry"),
two businesses which provided services,
F-11
i-TRACK, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
assembly and parts for the Chaperone tracking units. Numerex asserts
that, through a series of transactions, it was owed $654,453 by the
Company. Numerex, Cellemetry, AVL and i-Track sought to resolve these
matters by entering into the Settlement Agreement. Under the terms of
the agreement, Numerex agreed to a settlement of $144,453 in exchange
for, among other things, 1) AVL and i-Track transferring or licensing
the operating software owned and utilized by AVL and or i-Track, 2) AVL
and i-Track granting an irrevocable, non-exclusive license to use,
manufacture, sell and sublicense the right to use, manufacture and sell
the Chaperone asset tracking units, 3) AVL and or i-Track irrevocably
selling, transferring and assigning to Numerex the right to various
domain names, tradenames, trademarks, etc.
Under the agreement, i-Track and AVL are jointly and severally liable
for this $144,453 liability. Subsequent to year end, AVL and i-Track
entered into an Assignment and Assumption Agreement under which AVL
assumed i-Track's liabilities (Note 8). Because of the joint nature of
the liability and the existence of the Assumption agreement, Management
believes this liability is appropriately treated as a contingency as of
December 31, 2002.
7. SUBSEQUENT EVENTS
COMMON AND PREFERRED STOCK
In connection with an anticipated purchase of its common stock (see
below), in January 2003 the Company increased the number of its
authorized $.0001 par value common stock to 50,000,000 shares. In
addition, the Company authorized 1,000,000 shares of $.01 par value
preferred stock.
MERGER TRANSACTION
On March 17, 2003, the Company entered into a "Share Exchange
Agreement" (the "Agreement), under which the Company acquired as a
wholly owned subsidiary, a privately held Wyoming corporation,
Strategic Communications Partners, Inc. (Strategic), in a
stock-for-stock transaction. Under the terms of the Agreement, each
holder of Strategic's common stock received 2.5 shares of the Company's
common stock, such that the Strategic shareholders as a group own
19,000,000 restricted, unregistered shares, or approximately 88.4% of
the Company's outstanding common stock. In connection with the
Agreement, the Company changed its name to "China Wireless
Communications, Inc.". As part of the transaction, all of the Company's
directors, except for Peter Fisher, resigned, and two Strategic
officers were appointed to fill the vacancies. The new board is
expected to appoint the two Strategic directors as Chairman and
President and Secretary and Treasurer, respectively.
BUSINESS ACTIVITIES
On March 21, 2003, the Company entered into an "Assignment and
Assumption Agreement" with AVL whereby the Company distributed to AVL
all its assets and AVL assumed all liabilities of the Company and the
Company will no longer engage in its prior operations.
F-12
i-TRACK, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
STOCK PLAN
In January 2003, the Company adopted the "2003 Stock Plan" which
provides for the granting of both incentive stock options and
nonstatutory stock options and stock purchase rights to officers,
directors, employees and independent contractors. The total number of
shares of common stock that may be issued under this plan shall not
exceed 15% of outstanding shares and the board of directors or one or
more committees designated by the board shall administer the plan.
* * * * *
F-13
i-TRACK, INC.
F/K/A AVL SYS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
YEAR ENDED DECEMBER 31, 2001
WITH
INDEPENDENT AUDITORS' REPORT
F-14
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
December 31, 2001
CONTENTS
Independent auditors' report F-16
FINANCIAL STATEMENTS:
Balance sheet F-18
Statements of operations F-19
Statement of changes in stockholders' equity (deficit) F-20-F-21
Statements of cash flows F-22
Notes to financial statements F-23-F-26
F-15
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
i-Track, Inc.
Fort Gratiot, Michigan
We have audited the accompanying balance sheet of i-Track, Inc. (a development
stage company) as of December 31, 2001, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 2001 and the periods March 8, 1999 (inception) to December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of i-Track, Inc. as of
December 31, 2000 and for the year ended December 31, 2000 and the periods March
8, 1999 (inception) to December 31, 2000, were audited by other auditors whose
report dated January 21, 2001, on those financial statements included an
explanatory paragraph describing conditions that raised substantial doubt about
the Company's ability to continue as a going concern.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of i-Track, Inc. as of December
31, 2001 and the results of its operations and its cash flows for the year ended
December 31, 2001 and the periods March 8, 1999 (inception) to December 31, 2001
in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company is dependent upon AVL Information Systems,
Ltd. and AVL Information Systems, Inc. for purchase of materials it sells,
provision of management services and the repayment of amounts loaned at December
31, 2001. Those conditions raise substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters are also
described in Note 7. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
F-16
Shareholders and Board of Directors
i-Track, Inc.
Page 2
As discussed in Note 9, our opinion on the financial statements at December 31,
2001 as previously stated was qualified because we were unable to satisfy
ourselves regarding the collectibility of $1,289,761 of notes receivable from
related parties included as assets at December 31, 2001. Since the date of our
auditors report, March 7, 2002, the financial condition of AVL Information
Systems, Ltd. and AVL Information Systems, Inc. have deteriorated and these
related parties have been unable to repay the notes receivable or the accrued
interest receivable. Accordingly, the December 31, 2001 financial statements
have been adjusted to reflect the notes receivable and accrued interest from
related parties as uncollectible.
/s/ EDWARDS, MELTON, ELLIS, KOSHIW & COMPANY, P.C.
March 7, 2002
February 24, 2003
F-17
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 2001
ASSETS
Current assets:
Cash $ 2,672
-------
Total current assets and total assets $ 2,672
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,779
Operating advances-related parties -
--------------
Total current liabilities 3,779
Stockholder's equity:
Preferred stock, 1,000,000 shares
authorized, $0.01 par value, none
issued or outstanding -
Common stock, 50,000,000 shares
authorized, $0.001 par value,
23,696,900 issued and outstanding 23,697
Additional paid-in capital 1,493,453
Stock issuance costs (148,355)
Deficit accumulated during the
development stage (1,369,902)
--------------
(1,107)
--------------
$ 2,672
==============
The accompanying notes are an integral part of the financial statements.
F-18
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Statements of Operations
For the period
Year ended Year ended March 8, 1999 (inception)
December 31, December 31, through
2001 2000 December 31, 2001
------------- ------------ -------------------------
Revenue $ 60,000 $ - $ 60,000
Operating expenses:
Bad debt expense 1,301,761 - 1,301,761
Cost of goods sold 51,360 - 51,360
General and administrative expenses 34,165 32,087 69,281
Management fees to related party 7,500 - 7,500
------------- ------------- ---------------
Total costs and expenses 1,394,786 32,087 1,429,902
------------- ------------- ---------------
Net (loss) $ (1,334,786) $ (32,087) $ (1,369,902)
============= ============= ===============
Weighted average number of common
shares outstanding 20,569,863 18,700,000 19,363,085
============= ============= ===============
Net (loss) per common share $ (.065) $ - $ (.071)
============= ============= ===============
The accompanying notes are an integral part of the financial statements.
F-19
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Deficit)
For the period March 8, 1999 (inception) to December 31, 2001
COMMON STOCK
--------------------------------------------
Additional
Paid
Number of In
Shares Par Value Capital
----------- --------- -----------
March 8, 1999 (inception) - $ - $ -
Net (loss) for the period
March 8 through December 31, 1999 - - -
------------ ------------ ------------
December 31, 1999 Balance - $ - $ -
------------ ------------ ------------
Issuance of stock for services 1,200,000 1,200 -
($.001 per share)
Issuance of stock to satisfy debt 15,000,000 15,000 -
($.001 per share)
Issuance of stock for cash 2,500,000 2,500 -
($.001 per share)
Net (loss) for the year ended
December 31, 2000 - - -
------------ ------------ ------------
December 31, 2000 balance 18,700,000 $ 18,700 $ -
------------ ------------ ------------
Net (loss) for the year
ended December 31, 2001 - - -
Issuance of stock and
warrants
($.10 per share) 2,500,000 2,500 247,500
Exercise of stock warrants
($.50 per share) 2,496,900 2,497 1,245,953
Stock Issuance costs - - -
------------ ------------ ------------
December 31, 2001 balance 23,696,900 $ 23,697 $ 1,493,453
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-20
Deficit Accumulated
Stock During the Total
issuance Development Stockholders'
Costs Stage Equity (Deficit)
------------- ------------------- ----------------
$ - $ - $ -
- (3,029) -
------------- -------------- --------------
$ - $ (3,029) $ (3,029)
------------- -------------- --------------
- - 1,200
- - 15,000
- - 2,500
- (32,087) (32,087)
------------- -------------- --------------
$ - $ (35,116) $ (16,416)
------------- -------------- --------------
- (1,334,786) (1,334,786)
- - 250,000
- - 1,248,450
(148,355) - (148,355)
------------- -------------- --------------
$ (148,355) $ (1,369,902) $ (1,107)
============= ============== ==============
F-21
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Statements of Cash Flows
Year ended Year ended March 8, 1999 (inception)
December 31, December 31, through
2001 2000 December 31, 2001
--------------- -------------- -------------------------
Cash flows from operating activities:
Net loss $ (1,334,786) $ (32,087) $ (1,369,902)
Adjustments to reconcile net (loss)
to net cash used in operating
activities:
Write-off of notes receivable 1,301,761 - 1,301,761
Increase (decrease) in liabilities:
Accounts payable 2,884 895 3,779
Issuance of stock for services - 1,200 1,200
--------------- ------------- ---------------
1,304,645 2,095 1,306,740
--------------- ------------- ---------------
Net cash (used in) operating activities (30,141) (29,992) (63,162)
Cash flows from investing activities - - -
Cash flows from financing activities:
Proceeds (repayments) of operating
advance-related party (20,000) 31,500 15,000
Proceeds from stock issuance 398,450 2,500 400,950
Stock issuance costs (148,355) - (148,355)
Advances to related party (201,761) - (201,761)
--------------- ------------- ---------------
Net cash used in financing activities 28,334 34,000 65,834
--------------- ------------- ---------------
Net increase (decrease) in cash (1,807) 4,008 2,672
Beginning cash 4,479 471 -
--------------- ------------- ---------------
Ending cash $ 2,672 $ 4,479 $ 2,672
=============== ============= ===============
Supplemental disclosure of noncash
financing and investing activities:
Issuance of 15,000,000 shares of
stock to satisfy debt $ - $ 15,000 $ 15,000
=============== ============= ===============
Issuance of 1,200,000 shares of
stock for service rendered $ - $ 1,200 $ 1,200
=============== ============= ===============
Net cash from stock proceeds
received by a related corporation
in exchange for note receivable
from that related corporation $ 1,100,000 $ - $1,100,000
=============== ============= ==========
The accompanying notes are an integral part of the financial statements.
F-22
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. NATURE OF BUSINESS
i-Track, Inc. (formerly AVL SYS International, Inc.), "the Company"
was incorporated under the laws of the state of Nevada on March 8, 1999.
The Company has been in the development stage since its formation. The
Company is primarily engaged in the marketing and distribution of an
automatic vehicle location system which integrates global positioning
system technology, cellular-wireless communications and the internet to
enable companies to manage their mobile resources with location relevant
and time sensitive information. The automatic vehicle location system has
been developed by AVL Information System, Ltd., and its wholly owned
subsidiary AVL Information System, Inc. AVL Information Systems, Ltd. is
the majority shareholder of the Company and determines the prices of the
products purchased by the Company.
b. REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
The Company grants credit to customers and does not require
collateral for credit granted. The Company recognizes revenue when its
products are delivered or services are provided. The Company had two
sales of products purchased from AVL Information Systems, Inc. to two
customers in 2001. Based upon an analysis of the collectibility of
accounts receivable at the balance sheet date, the Company does not
consider an allowance for doubtful accounts to be necessary at December
31, 2001.
c. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
d. FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
December 31, 2001. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair values.
These financial instruments include cash, accounts receivable and
accounts payable. Fair values were assumed to approximate carrying values
for these financial instruments because they are short term in nature and
their carrying amounts approximate fair values or they are receivable or
payable on demand. As discussed in Note 4, the fair value of the notes
receivable from related parties of $1,289,761 at December 31, 2001 is
dependent upon the future ability of AVL Information Systems, Ltd. and
AVL Information Systems, Inc. to continue as going concerns and generate
sufficient future cash flows to repay the notes receivable. As discussed
in Note 9, management subsequently determined after March 7, 2002 that
these note receivables were not collectible and restated the December 31,
2001 financial statements to reflect the uncollectibility of these notes
receivable at December 31, 2001.
F-23
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e. NET INCOME (LOSS) PER COMMON SHARE
The Company calculates net income (loss) per share as required by
SFAS No. 128, "Earnings per Share." Basic earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number
of common shares outstanding for the period. Diluted earnings (loss) per
share is calculated by dividing net income (loss) by the weighted average
number of common shares and dilutive common stock equivalents
outstanding. During the periods presented common stock equivalents were
not considered as their effect would be anti-dilutive.
Common shares issued for nominal consideration have been considered
outstanding for the historical period presented in the computation of
earnings per share.
f. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
g. BASIS FOR ASSIGNING AMOUNTS TO EQUITY SECURITIES ISSUED FOR OTHER THAN
CASH
Shares of common stock issued for other than cash have been assigned
amounts equal to the fair value of the services or assets received in
exchange.
2. COMMON STOCK OFFERING
During 2001, the Securities and Exchange Commission approved Form
SB-1/A to offer 2,500,000 units of 2,500,000 shares of common stock and
2,500,000 common stock purchase warrants for $.10 per unit. The offering
resulted in the 2,500,000 units being issued for $250,000. 2,496,900 of
the common stock warrants to purchase common stock for $.50 per share
were exercised in 2001. The common stock proceeds of $1,498,450 were used
by the Company as follows:
Payment of expenses for commissions
and fees associated with the stock issuance $ 148,355
Loans to AVL Information Systems, Ltd. 971,678
Loans to AVL Information Systems, Inc. 88,450
Working capital 289,967
----------
Total stock proceeds $1,498,450
==========
F-24
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
2. COMMON STOCK OFFERING (continued)
A portion of the proceeds for working capital was used to make
additional loans to AVL Information Systems, Ltd. and AVL Information
Systems, Inc.
3. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes", which
requires use of the liability method. FAS 109 provides that deferred tax
assets and liabilities are recorded based on the differences between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax
assets and liabilities at the end of each period are determined using the
currently enacted tax rates applied to taxable income in the periods in
which the deferred tax assets and liabilities are expected to be settled or
realized. The deferred tax asset of $460,900 is offset by a valuation
allowance of $460,900 at December 31, 2001 because it is not more likely
than not to be realized due to the going-concern uncertainty.
The provision for refundable income taxes differs from the amount
computed by applying the statutory federal income tax rate to the loss
before provision for income taxes. The Company's estimated effective tax
rate of 34% is offset by a reserve due to the uncertainty regarding the
realization of the deferred tax asset. The valuation allowance increased by
approximately $448,900 for the year ended December 31, 2001.
As of December 31, 2001 the Company has a net operating loss carry
forward of approximately $1,355,000, which will be available to offset
future taxable income. If not used, this carry forward will expire through
2021. The deferred tax asset relating to the operating loss carry forward
has been fully reserved at December 31, 2001.
4. RELATED PARTY TRANSACTIONS
The Company has a note receivable of $986,378 due from AVL Information
Systems, Ltd. at December 31, 2001. The note receivable is unsecured with
interest at 8% per annum and is due on demand. The Company also has a note
receivable of $303,383 due from AVL Information Systems, Inc. at December
31, 2001. The note receivable is unsecured with interest at 8% per annum and
is due on demand.
As discussed in Note 9, the December 31, 2001 financial statements have
been restated as a result of the inability of these related parties to repay
the $1,289,761 of notes receivable and $14,415 of accrued interest
receivable previously reported as assets.
F-25
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
5. MANAGEMENT SERVICES AGREEMENT
The Company has a management services agreement with AVL Information
Systems, Ltd. for the provision of services including manpower, supplies and
premises for $2,500 per month. The agreement can be cancelled by either
party with 30 days written notice. Management fees under this agreement
amounted to $7,500 for the year ended December 31, 2001. Since the Company
has no employees and all management decisions concerning sales, purchases
and operations are controlled by individuals who are stockholders and
employees of AVL Information Systems, Ltd. there is a potential conflict of
interest.
6. DISTRIBUTION AGREEMENTS
The Company has a worldwide exclusive distribution agreement for
products manufactured by AVL Information Systems, Inc. that is effective for
as long as the Company meets certain performance criteria.
7. GOING CONCERN
The Company has been a development stage company since its inception on
March 8, 1999 and has incurred significant losses since inception. The
Company is dependent upon AVL Information Systems, Ltd. and its subsidiary
to provide all of its products sold and to supply management services.
Because of the uncertainty of AVL Information Systems, Ltd. to continue as a
going concern to supply these products and services and to generate
sufficient cash flow to repay the $1,289,761 of notes receivable, there is
substantial doubt about the Company's ability to continue as a going
concern.
The accompanying financial statements do not include an adjustment that
might result from the outcome of this uncertainty.
8. SUBSEQUENT EVENT
The Board of Directors adopted a Stock Plan in February, 2002 to grant
stock options to officers, directors, employees and independent contractors.
The stockholders of the company have not approved adoption of the Plan.
9. RESTATEMENT OF DECEMBER 31, 2001 FINANCIAL STATEMENTS
The financial statements at December 31, 2001 as previously stated
included as assets the $1,289,761 notes receivable and $14,415 of accrued
interest receivable discussed in Note 4. The financial condition of AVL
Information Systems, Ltd. and AVL Information Systems, Inc. have
deteriorated since March 7, 2002 to the point that management does not
believe either related party can repay the receivables. Accordingly, the
December 31, 2001 financial statements have been adjusted to reflect the
notes receivable and accrued interest receivable as uncollectible and the
previously reported net loss of $16,251 increased by $1,304,176.
In addition, the financial statements at December 31, 2001 included a
$14,359 accounts receivable where management discovered the goods were
returned by the customer to ALV Information Systems, Inc. Therefore,
accounts receivable and sales were reduced by $14,359 and the note
receivable from AVL Information Systems, Inc. was increased by $12,000.
F-26
AUDITED FINANCIAL STATEMENTS
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
PERIOD FROM AUGUST 13, 2002 (DATE OF INCEPTION)
TO DECEMBER 31, 2002
F-27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
We have audited the accompanying balance sheet of Strategic Communications
Partners, Inc. (a development stage company) ("the Company") as of December 31,
2002 and the related statement of operations, stockholders' equity and cash
flows for the period from August 13, 2002 (date of inception) to December 31,
2002. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2002 and the results of its operations and cash flows for the period from August
13, 2002 (date of inception) to December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has been in the development stage since its
inception and has suffered losses from operations, which raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are described in note 2 to the financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ MOORES ROWLAND
MOORES ROWLAND
CHARTERED ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS
HONG KONG
Date: March 14, 2003
F-28
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
NOTE US$
OPERATING REVENUE -
OPERATING EXPENSES
General and administrative expenses (1,015,482)
---------------
LOSS FROM OPERATIONS (1,015,482)
---------------
NON-OPERATING INCOME
Interest income 319
Other income 164
---------------
Total non-operating income 483
---------------
LOSS BEFORE INCOME TAXES (1,014,999)
Income taxes 7 -
---------------
NET LOSS (1,014,999)
===============
NET LOSS PER SHARE:
Basic 3(e) (0.45)
===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3(e) 2,248,290
===============
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
F-29
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
BALANCE SHEET
As of December 31, 2002
================================================================================
ASSETS NOTE US$
CURRENT ASSETS
Cash and cash equivalents 197,576
Due from related party 6(b) 60,000
---------------
TOTAL ASSETS 257,576
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other accrued liabilities 70,775
Notes payable 4 24,500
---------------
TOTAL LIABILITIES 95,275
---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value US$0.001 each,
100,000,000 shares of stock authorized,
5,213,400 shares of stock issued and outstanding 5,213
Additional contributed paid-in capital 1,172,087
Accumulated deficit (1,014,999)
---------------
TOTAL STOCKHOLDERS' EQUITY 162,301
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 257,576
===============
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
F-30
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
COMMON STOCK ADDITIONAL ACCUMU-
---------------------------- CONTRIBUTED LATED
NUMBER AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
US$ US$ US$ US$
Common stock issued for cash at
US$0.001 per share 2,850,000 2,850 - - 2,850
Common stock issued for cash at
US$0.50 per share, net of
offering costs of US$7,250 960,000 960 471,790 - 472,750
Common stock issued for services
at US$0.50 per share 750,000 750 374,250 - 375,000
Common stock issued for cash and
services at US$0.50 per share 653,400 653 326,047 - 326,700
Net loss for the period - - - (1,014,999) (1,014,999)
------------- ------------ ---------------- --------------- --------------
BALANCE AS OF DECEMBER
31, 2002 5,213,400 5,213 1,172,087 (1,014,999) 162,301
============= ============ ================ =============== ==============
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
F-31
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
2002
US$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,014,999)
Adjustments to reconcile net loss to net cash used in
operating activities:-
Common stocks issued for compensation 809,350
Changes in working capital:
Accrued expenses and other accrued liabilities 70,775
----------------
NET CASH USED IN OPERATING ACTIVITIES (134,874)
----------------
NET CASH USED IN INVESTING ACTIVITIES
Advances to a related party (60,000)
----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of common stock 367,950
Proceeds from issuance of notes payable 47,000
Repayment of notes payable (22,500)
----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 392,450
----------------
CASH AND CASH EQUIVALENTS, AS OF END OF THE PERIOD 197,576
================
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Bank balances 197,576
================
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Common stocks issued for compensation 809,350
================
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
F-32
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
The Company was incorporated in the State of Wyoming, the United States
("US") on August 13, 2002 with authorized share capital of 100,000,000
shares at a par value of US$0.001 each. Neither the Company nor its
subsidiary has commenced revenue-producing activities, and,
accordingly, is considered in the development stage. The principal
activities of the Company are investment holding, and provision of
financial, technical and marketing services for its operating
subsidiary in Beijing, China. As of December 31, 2002, the Company had
5,213,400 shares of US$0.001 each common stock in issue. 3,530,000
shares of common stock were allotted for cash at considerations of
US$367,800. 1,683,400 shares of common stock were issued for
compensation and cash consideration with aggregate value of US$809,500.
These issues of shares in excess of their par value resulted in
additional contributed paid-in capital of US$1,172,087.
On December 9, 2002, the Company subscribed 950,000 shares of HK$1 each
of Strategic Communications Partners Limited ("SCPL"). SCPL was
incorporated in Hong Kong on December 9, 2002 with authorized share
capital of 1,000,000 shares at a par value of HK$1 each. As of December
31, 2002, the Company had not yet paid for the shares in SCPL and SCPL
had not yet commenced business. As the investment cost in SCPL was not
yet paid up as at the balance sheet date, no consolidated financial
statements have been prepared. The Company will account for its
investment in SCPL using the purchase method of accounting once it has
paid up the share capital of SCPL.
On December 18, 2002, the Company signed an agreement with Beijing
Goldvision Technologies Ltd. ("Goldvision"). Pursuant to which the
Company would purchase an initial 18% equity interest in Goldvision at
an aggregate consideration of US$4,800,000 from the existing owners of
Goldvision. According to the provisions of the agreement, SCPL shall
contribute a payment of US$200,000 within 60 days of the effective date
of the agreement (i.e. December 18, 2002, the date the parties signed
the agreement), followed by 10 monthly payments of US$170,000 each. On
February 7, 2003, this agreement was modified to extend the effective
date by 60 days, with other terms and conditions remain unchanged. At
the close of the twelvth month from the effective date of the
agreement, SCP will contribute an additional payment of US$2,900,000,
reaching the total of US$4,800,000 within the first twelve months after
the effective date of the agreement. The agreement also stipulates that
SCPL shall acquire a further 6% equity interest in Goldvision by
contributing US$200,000 per month for 12 months from the thirteenth
month to the twenty-fourth month after the effective date of the
agreement, equaling a total of US$2,400,000. Goldvision is incorporated
in the Peoples' Republic of China ("PRC") and is engaged in the
business of providing satellite communication, broadband internet,
content, wireless access and transport in Beijing, PRC.
--------------------------------------------------------------------------------
F-33
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
2. BASIS OF PRESENTATION
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America ("US GAAP").
The Company is in the development stage and has incurred losses of
US$1,014,999 since inception, which raise substantial doubt about the
Company's ability to continue as a going concern. The continuation of
the Company as a going concern is dependent upon the successful
implementation of its business plan and ultimately achieving profitable
operations. However, there can be no assurance that the business plan
will be successfully implemented. The inability of the Company to
implement the business plan successfully could adversely impact the
Company's business and prospects.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF ACCOUNTING
The financial statements have been prepared under the
historical cost convention. Cost in relation to assets
represents the cash amount paid or the fair value of the
asset, as appropriate.
(b) SUBSIDIARY
A subsidiary is an affiliate controlled by the Company
directly, or indirectly through one or more intermediaries.
The term control (including the terms controlling, controlled
by and under common control with) means the possession, direct
or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting shares, by contract, or otherwise.
(c) INCOME TAXES
Current income tax expense or benefit is the amount of income
taxes expected to be payable or refundable for current period.
Provision for deferred taxes requires the recognition of
deferred tax assets and liabilities for the estimated future
tax effects attributable to temporary differences without
regard to the probability of future reversal. As temporary
differences are immaterial, no provision for deferred taxes
has been made.
(d) RELATED PARTIES
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial and
operating decisions.
(e) FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the
approximate rates of exchange on the dates of transactions.
Monetary assets and liabilities denominated in foreign
currencies at year end are translated at the approximate rates
ruling at the balance sheet date. Non-monetary assets and
liabilities are translated at the rates of exchange prevailing
at the time the asset or liability was acquired. Exchange
gains and losses are recorded in the statement of operations.
(f) CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments,
generally with original maturities of three months or less,
that are readily convertible to known amounts of cash and are
so near maturity that they represent insignificant risk of
changes in value because of changes in interest rates.
--------------------------------------------------------------------------------
F-34
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) OPERATING LEASES
Leases where substantially all of the rewards and risks of
ownership of assets remain with the leasing company are
accounted for as operating leases. Rentals payable under
operating leases are recorded in the statement of operations
on a straight-line basis over the lease term.
(h) ORGANIZATION COSTS
Organization costs comprise mainly of consulting expenses,
investment expenses and other start-up cost and are expensed
in the statement of operations during the period/year in which
they are incurred.
(i) USE OF ESTIMATES
The preparation of the financial statements in conformity with
US GAAP requires the Company's 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 financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual amounts could differ from those estimates.
Estimates are used for, but not limited to, the accounting for
certain items such as depreciation, taxes and contingencies.
(j) COMPREHENSIVE LOSS
There were no items of other comprehensive income/loss during
the period, and, thus, net loss is equal to comprehensive loss
during the period.
(k) EARNINGS / LOSS PER SHARE
Basic earnings / loss per common share are computed by
dividing net earnings / loss for the period by the weighted
average number of common shares outstanding during the period.
Diluted earnings per common share are computed using the
weighted average number of shares that were outstanding during
the period.
(l) NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities", which requires costs associated with
exit or disposal activities to be recognized when the costs
are incurred, rather than at a date of commitment to an exit
or disposal plan. The provisions of SFAS 146 are effective for
disposal activities initiated after December 31, 2002.
Adoption of SFAS No. 146 is not expected to have a material
impact on the Company's financial statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions
of Certain Financial Institutions - an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation" which
applies to all acquisitions of a financial institution except
those between two or more mutual enterprises, which is being
addressed in a separate project. The provisions of SFAS No.
147 are effective on October 1, 2002, the Company does not
believe that the adoption of SFAS 147 will have a material
impact on the Company's financial statements.
--------------------------------------------------------------------------------
F-35
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123". SFAS No. 148 amends SFAS
No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. Companies having a year-end after
December 15, 2002 are required to follow the prescribed format
and provide the additional disclosures in their annual
reports. The Company does not believe that the adoption of
SFAS 148 will have a material impact on the Company's
financial statements.
4. NOTES PAYABLE
The notes due to Ms. Margaret Donegan are interest-free, shall be
payable by not more than US$12,500 per month beginning November 2002
and be repaid in full by February 28, 2003. Ms. Margaret Donegan is a
shareholder of the Company.
5. COMPENSATION PAID IN COMPANY STOCK
The Company gave 1,683,400 shares of its common stock as compensation
in lieu of cash. This $809,350 is included in General and
Administrative expenses in the Statement of Operations.
--------------------------------------------------------------------------------
F-36
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
6. RELATED PARTY TRANSACTIONS
In addition to the transactions / information disclosed elsewhere in
these financial statements, the Company had the following transactions
with related parties.
(a) Names and relationship of related parties
NAME EXISTING RELATIONSHIPS WITH THE COMPANY
---- ---------------------------------------
Blake Ratcliff A shareholder and Vice President of Operations of the
Company
Brad Woods A shareholder and Vice President and Chief Finance Officer
of the Company
George Krieger The sole shareholder of StarTele.Com LLC
Kent Lam A shareholder and Vice-President of Marketing of the
Company; a shareholder of SCPL and President of the
Company's Beijing based China operating company.
Peter Wei A shareholder of the Company
Phillip Allen A shareholder, Chairman of the Company's Board of
Directors, President and Chief Executive Officer of the
Company
StarTele.Com LLC A shareholder of the Company
Train Top Investment & Trading Ltd. A company beneficially owned and controlled by Kent Lam
(b) Summary of balance with related party
US$
Due from related party 60,000
===========
In November, 2002, US$60,000 was remitted to Train Top Investment &
Trading Ltd. ("Train Top") mainly for the purposes of arranging the set
up of the Beijing operations.
(c) Summary of related party transactions
US$
Consulting fee paid to:
Phillip Allen 22,500
Iain Stewart 21,000
Blake Ratcliff 52,500
StarTele.Com LLC 13,000
Brad Woods 12,500
George Kriegar 7,375
===========
Commission & related fees:
StarTele.Com LLC 22,750
===========
--------------------------------------------------------------------------------
F-37
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
6. RELATED PARTY TRANSACTIONS (CONTINUED)
(c) Summary of related party transactions (Continued)
Besides, Peter Wei is a major shareholder of Goldvision. For
details of agreement entered into between the Company and
Goldvision, please refer to note 1 to the financial
statements.
7. INCOME TAXES
As the Company is in the development stage and has incurred losses
since inception, there is no current provision for income taxes.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The significant components of the Company's deferred tax
assets as of December 31, 2002 are as follows:
US$
Net operating loss carry forward 16,000
Start-up and costs capitalized for tax purposes 362,000
-------------
Total deferred tax assets 378,000
Valuation allowance for deferred tax assets (378,000)
-------------
Net deferred taxes -
=============
A reconciliation of the Company's effective tax rate to the United
States statutory rate is as follows:
United States statutory rate 34.0%
State taxes, net of Federal benefits 3.3%
-----------
37.3%
Valuation allowance for deferred tax assets (37.3%)
-----------
-
===========
The Company's net operating loss carry forwards will expire in 2023
unless utilized. Due to the fact that the Company has incurred losses
since inception, the Company has not recognized the income tax benefit
of the net operating loss carry forwards. Additionally, the Company's
ability to recognize the benefit from the net operating loss carry
forwards could be limited under Section 382 of the Internal Revenue
Code if ownership of the Company changes by more than 50%, as defined.
--------------------------------------------------------------------------------
F-38
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
8. OPERATING LEASES COMMITMENTS
The Company had no operating leases commitments as of December 31,
2002. Subsequent to the balance sheet date, Phillip Allen has entered
into a non-cancelable operating lease for a term of 6 months ending on
July 17, 2003 on behalf of the Company to lease office premises for the
Company. The total commitment under such lease amounted to US$6,450,
which is payable in the year ending December 31, 2003.
Rent expense for operating lease was US$390 for the period ended
December 31, 2002.
9. STOCK WARRANTS
During the period, the Company issued warrants which are exercisable
until on or prior to August 15, 2005. Each warrant entitles its holder
to purchase one share of the Company's common stock, as follows; the
purchase price of one share of Common Stock shall be equal to: US$1 if
exercised on or before 5:00 p.m. Colorado time on August 15, 2003; US$2
if exercised on or before 5:00 p.m. Colorado time on August 15, 2004;
and US$3 if exercised on or before 5:00 p.m. Colorado time on August
15, 2005.
Following is a summary of warrants outstanding:
Non-
Employee Employee
warrants warrants
outstanding outstanding
------------- -------------
Granted during the period and balances as of December 31, 2002 670,000 -
============= =============
10. POST BALANCE SHEET EVENT
(a) On January 16, 2003, the Company entered into a consulting contract
(the "Contract") with Train Top whereby Train Top agreed to operate and
manage the selling and marketing operation of the Company in Beijing,
China for a period of two years. As a condition of the Contract, Kent
Lam agreed to enter into an employment contract with Train Top binding
him to provide the services required of the Company pursuant to the
Contract. In addition to the consulting fees and sales commission, the
Company agreed to issue in aggregate 50,000 shares of common stock to
Train Top during the two years' Contract period.
--------------------------------------------------------------------------------
F-39
STRATEGIC COMMUNICATIONS PARTNERS, INC.
(A Development Stage Company)
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Period from August 13, 2002 (date of inception) to December 31, 2002
================================================================================
10. POST BALANCE SHEET EVENT (CONTINUED)
(b) According to a Letter of Intent entered into between the Company and
I-Track, Inc. ("ITI") on January 28, 2003, both parties intend to
proceed with the development and execution of closing documents to
effect the transfer of shares, pursuant to which ITI will issue
19,000,000 shares of its authorized, unissued common shares to the
Company at a consideration of US$50,000 cash plus good and valuable
consideration. The 19,000,000 shares constitute 88.13% of the issued
and outstanding shares of ITI's common stock. The transaction is
expected to be completed on March 17, 2003.
Upon the above-mentioned transactions being executed on March 17, 2003,
the Company will issue proportional shares to its founders and founding
investors so that the Company shall have an issued capital of
19,000,000 shares.
(c) On February 26, 2003, the Company offered two shareholders of a company
engaged in the provision of internet services (the "ISP Company") a
swap of shares of the Company on the basis of 10 shares of the ISP
Company for 1 share of the Company with 2 warrants both exercisable at
US$1, one in year one and one in year 2. The shares swap and issuance
of warrants will be taken place after the completion of the
transactions as mentioned in note 10(b) to these financial statements.
(d) On March 3, 2003, the board of directors of the Company unanimously
agreed to issue in aggregate 600,000 shares of common stock of the
Company to certain existing shareholders and independent consultants in
exchange for consulting and management services rendered to the
Company. Each share of common stock has 2 warrants which may be
exercised to purchase additional shares of the Company's common stock.
The first warrant is exercisable at US$1.00 on the anniversary of the
grant or any time thereafter and the second warrant is exercisable at
US$1.00 on or after March 1, 2002. The warrants will expire in five
years if not exercised.
(e) On March 4, 2003, SCPL set up a wholly-owned foreign enterprise,
Beijing In-Touch Information System Co. Ltd. ("In-Touch"), in the PRC.
In-Touch is engaged in the business of telecommunication system
integration. The registered capital of In-Touch is US$150,000 and the
operating period is 30 years starting from March 4, 2003. According to
the articles of In-Touch, SCPL is required to contribute 15% and 85% of
the registered capital in cash within 3 and 8 months respectively from
the date of the issuance of the business license (i.e. March 4, 2003).
As of the date of these financial statements, SCPL had not yet made the
contribution.
--------------------------------------------------------------------------------
F-40
I-TRACK, INC.
PRO FORMA COMBINED FINANCIAL INFORMATION
On March 22, 2003, I-Track, Inc. ("I-Track") acquired all of the outstanding
common shares of Strategic Communications Partners, Inc. ("SCP"), for 19,000,000
shares of I-Track common stock.
For accounting purposes, the acquisition of SCP by I-Track will be accounted for
as a reverse acquisition, whereby SCP will be considered the acquiror for
accounting purposes. No goodwill or other intangibles will be recorded, and the
assets and liabilities of I-Track will be carried forward at their predecessor
cost basis. The results of operations for periods prior to the acquisition will
be those of SCP, and the results of operations of periods subsequent to the
merger will be those of the combined entities.
The accompanying unaudited pro forma balance sheet combines the December 31,
2002 balance sheets of I-Track and SCP as if the transaction had occurred on
that date.
The accompanying unaudited pro forma statement of operations combines the
operations of I-Track and SCP for the year ended December 31, 2002, as if the
transaction had occurred as of the beginning of the period presented. As
I-Track's sole source of revenue was related to sales of a product under a
licensing agreement that has since been cancelled, I-Track's operations are
classified as discontinued, except for estimated public company reporting costs.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the transaction been consummated at
the beginning of the period indicated.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto, included
elsewhere in this Form 8-K and in I-Track's Form 10-KSB and Form 10-QSB.
F-41
I-Track, Inc.
Pro Forma Consolidating Balance Sheet
December 31, 2002
Pro Forma Pro Forma
I-Track SCP Adjustments Consolidated
------- --- ----------- -------------
Assets
Cash and equivalents $ 778 $ 197,576 $ 198,354
Receivables, related party 36,536 60,000 (36,536) (2) 60,000
-------------- ------------- ------------ -------------
Total Assets $ 37,314 $ 257,576 $ (36,536) $ 258,354
============== ============= ============ =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 26,402 $ 70,775 $ (26,402) (3) $ 70,775
Due to stockholders 292,601 24,500 (292,601) (4) 24,500
Stockholders' Equity
Common stock 23,697 5,213 (7,410) (1) 21,500
Additional paid in capital 1,345,098 1,172,087 (1,360,607) (1),(3),(4) 1,156,578
Accumulated deficit (1,650,484) (1,014,999) 1,650,484 (1) (1,014,999)
-------------- ------------- ------------ -------------
Total stockholders' equity (deficit) (281,689) 162,301 282,467 163,079
-------------- ------------- ------------ -------------
Total Liabilities and Stockholders' Equity $ 37,314 $ 257,576 $ (36,536) $ 258,354
============== ============= ============ =============
(1) To reflect the issuance of 19,000,000 I-Track shares to the former
shareholders of SCP
(2) To write-off related party receivable as uncollectible
(3) To reflect assumption of I-Track liabilities by AVL.
(4) To reflect exchange of stock for related party payable
F-42
i-Track, Inc.
Pro Forma Consolidating Statement of Operations
December 31, 2002
Pro Forma Pro Forma
I-Track SCP Adjustments Consolidated
Sales $ 301,750 $ - $ (301,750) (5) $ -
Cost of sales 250,635 - (250,635) (5) -
------------- -------------- ------------
Gross profit 51,115 - (51,115) -
Administrative and selling expenses 331,697 1,015,482 (256,697) (5) 1,090,482
------------- -------------- ------------ --------------
Loss from operations (280,582) (1,015,482) 205,582 (1,090,482)
Interest and other income - 483 - 483
------------- -------------- ------------ --------------
Loss from continuing operations (280,582) (1,014,999) 205,582 (1,089,999)
Discontinued operations of I-Track - - (205,582) (5) (205,582)
------------- -------------- ------------ --------------
Net loss $ (280,582) $ (1,014,999) $ - $ (1,295,581)
============= ============== ============ ==============
Net loss per common share $ (0.24) $ (0.45) $ (0.05)
============= ============== ==============
Weighted average shares outstanding 1,184,845 2,248,290 21,500,000
========== ========== ===========
(5) To classify I-Track's former activities in marketing and distribution of AVL
systems as discontinued operations.
F-43