-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K0xSGoI/ewWq+D0hZoxC0pg0p2zPx/eHL5EqrN6t0Io9NzrZ6MGtlVRsHLuIVXpx SBTy9JC1M9tC6Vrr7nLuIg== 0000944209-01-500403.txt : 20010522 0000944209-01-500403.hdr.sgml : 20010522 ACCESSION NUMBER: 0000944209-01-500403 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOSUN COMMUNICATIONS LTD INC CENTRAL INDEX KEY: 0000832100 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 760238860 STATE OF INCORPORATION: TX FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-18257 FILM NUMBER: 1644660 BUSINESS ADDRESS: STREET 1: 57 WEST 200 SOUTH STREET 2: SUITE 310 CITY: SALT LAKE CITY STATE: UT ZIP: 84119 BUSINESS PHONE: 8013599300 MAIL ADDRESS: STREET 1: 57 WEST 200 SOUTH STREET 2: SUITE 310 CITY: SALT LAKE CITY STATE: UT ZIP: 84101 FORMER COMPANY: FORMER CONFORMED NAME: HOLMES MICROSYSTEMS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BLACK WING CORP DATE OF NAME CHANGE: 19890426 10QSB 1 d10qsb.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001. [_] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______. Commission file number: GOSUN COMMUNICATIONS LTD., INC. ------------------------------- (Exact name of small business issuer as specified in its charter) Texas 91-1939829 ----- ---------- (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification No.) 80 Zhong Shan Er Road Guangzhou, China 510080 T5J 5HJ ------------ (Address of principal executive offices) 011-86-208-387-9773 -------------------------------------------------- (Issuer's Telephone Number, Including Area Code) --------------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 [_] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [_] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of March 31, 2001, there were 17,773,650 shares of common stock issued and outstanding. 2 PART I ITEM 1. FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited financial statements included in this Form 10-QSB reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. [THIS SPACE INTENTIONALLY LEFT BLANK] 3 GOSUN COMMUNICATIONS LTD., INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Page Consolidated Balance Sheets 7 Consolidated Statements of Income 8 Consolidated Statements of Stockholders' Equity 9 Consolidated Statements of Cash Flows 10 Notes to Consolidated Financial Statements 11 - 14 4 GOSUN COMMUNICATIONS LTD., INC. CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
March 31, December 31, 2001 2000 ----------------- ----------------- US$ US$ Current assets Cash and cash equivalents 80,643 158,927 Accounts receivable 289,252 152,498 Advances to suppliers 526,951 224,019 Other receivables 593,583 393,763 Income tax recoverable - 4,272 Inventories 1,190,958 780,798 Amounts due from affiliates 1,216,748 937,319 ----------------- ----------------- Total current assets 3,898,135 2,651,596 Investment in an equity investee 57,196 - Advance capital contribution - 59,179 Deposits 237,192 199,746 Property, plant and equipment, net 509,805 476,551 ----------------- ----------------- Total assets 4,702,328 3,387,072 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable 1,347,881 725,049 Accrued employee compensation and benefits 19,239 34,500 Other payables and accrued expenses 949,944 936,705 Income tax payable 31,686 - Amounts due to affiliates 61,824 17,448 Short term bank loans 1,086,956 483,092 ---------------- ------------------ Total current liabilities 3,497,530 2,196,794 Amount due to stockholder 104,469 156,401 ---------------- ------------------ Total liabilities 3,601,999 2,353,195 ---------------- ------------------ Commitments and contingencies Stockholders' equity Preferred stock series A, par value US$0.001 per share; 100,000 shares authorized; no shares issued and outstanding - - Preferred stock series B, par value US$0.001 per share; 5,000 shares authorized, no shares issued and outstanding - - Common stock, par value US$0.001 per share; 49,000,000 shares authorized; 30,244,284 (2000: 16,973,650) shares issued and outstanding 30,244 16,974 Additional paid in capital 891,946 876,746 Retained earnings 139,373 89,847 ---------------- ------------------ 1,061,563 983,567 ---------------- ------------------ Minority interests 51,236 50,310 ---------------- ------------------ Total liabilities and stockholders' equity 4,702,328 3,387,072 ================ ==================
See accompanying notes to the consolidated financial statements. 5 GOSUN COMMUNICATIONS LTD., INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
January 1, 2001 January 1, 2000 to to March 31, 2001 March 31, 2000 -------------------------- ------------------------ US$ US$ Revenue Sales of cellular phones and pagers, net 6,218,133 1,930,204 Sales of smart cards 3,591,035 - Agency service 362,138 343,929 -------------- -------------- 10,171,306 2,274,133 -------------- -------------- Cost of revenue Cost of cellular phones and pagers 6,003,607 1,724,583 Cost of smart cards 3,337,307 - Agency service 36,455 47,629 -------------- -------------- 9,377,369 1,772,212 -------------- -------------- Gross profit 793,937 501,921 Other operating income, net 50,020 10,329 -------------- -------------- 843,957 512,250 Selling expenses 494,294 249,885 General and administrative expenses 243,768 172,028 -------------- -------------- Operating income 105,895 90,337 -------------- -------------- Other income (expenses) Interest income 686 478 Interest expenses (20,024) (577) Share of loss of an equity investee (1,983) - -------------- -------------- Total other expenses, net (21,321) (99) -------------- -------------- Income before income taxes and minority interest 84,574 90,238 Income taxes 34,122 - Minority interests 926 - -------------- -------------- Net income 49,526 90,238 ============== ============== Earnings per share - - basic and diluted 0.00 0.01 ============== ============== Weighted average common shares outstanding - - basic and diluted 17,773,650 16,973,650 ============== ==============
See accompanying notes to the consolidated financial statements. 6 GOSUN COMMUNICATIONS LTD., INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Additional Total Common Stock paid in Retained stockholders' Shares Amount capital earnings equity ---------- -------- ----------- ---------- ------------- US$ US$ US$ US$ US$ Balance, December 31, 2000 16,973,650 16,974 876,746 89,847 983,567 Options exercised 800,000 800 15,200 - 16,000 Net income for the quarterly period ended March 31, 2001 - - - 49,526 49,526 ---------- -------- --------- -------- --------- Balance, March 31, 2001 17,773,650 17,774 891,946 139,373 1,049,093 ========== ======== ========= ======== =========
See accompanying notes to the consolidated financial statements. 7 GOSUN COMMUNICATIONS LTD., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
January 1, 2001 January 1, 2000 to to March 31, 2001 March 31, 2000 ------------------ ------------------- US$ US$ Cash flows from operating activities Net income 49,526 90,238 Adjustments to reconcile net income to net cash used in operating activities Depreciation 27,501 845 Unparticipated loss of an equity investee 1,983 - Minority interests 926 - Increase (decrease) from changes in Accounts receivable (136,754) (36,428) Advances to suppliers (302,932) 5,993 Other receivables and deposits (237,266) (112,107) Income tax recoverable 4,272 - Inventories (410,160) (12,089) Amounts due from affiliates (279,429) (327,977) Accounts payable 622,832 413,486 Accrued employee compensation and benefits (15,261) (2,582) Other payables and accrued expenses 13,239 397,094 Income tax payable 31,686 - Note payable - (133,399) -------------- ------------ Net cash provided by (used in) operating activities (629,837) 283,074 -------------- ------------ Cash flows from investing activities Acquisition of property, plant and equipment (60,755) (10,943) -------------- ------------ Net cash used in investing activities (60,755) (10,943) -------------- ------------ Cash flows from financing activities Advances from (repayment to) affiliates, net 44,376 (128,994) Proceeds from issuing common stock 16,000 - Repayment to stockholder (51,932) - Proceeds from short term bank loans 845,411 - Repayment of short term bank loans (241,547) - -------------- ------------ Net cash provided by financing activities 612,308 (128,994) -------------- ------------ Net increase (decrease) in cash and cash equivalents (78,284) 143,137 Cash and cash equivalents, beginning of period 158,927 290,493 -------------- ------------ Cash and cash equivalents, end of period 80,643 433,630 ============== ============ Supplemental disclosure of cash flow information Interest paid 20,024 577 Income taxes paid - - Supplemental disclosure of significant non-cash transactions Acquisition of inventories satisfied by a note payable - 295,930 ============== ============
See accompanying notes to the consolidated financial statements. 8 GOSUN COMMUNICATIONS LTD., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to the quarterly period ended March 31, 2001 and 2000 is unaudited) Note 1 - Basis of Financial Statement Presentation Organization Gosun Communications Ltd., Inc. ("GOSUN" or "the Company") was organized under the laws of the State of Texas on January 20, 1998, under the name of Blackwing Corporation. On April 4, 1989, Blackwing Corporation, a publicly held corporation, acquired all of the issued and outstanding shares of a company known as Surface Tech, Inc., which was originally known as Holmes Microsystems, Inc. The transaction had been accounted for as a recapitalization of Holmes Microsystems, Inc. in a manner similar to a reverse acquisition. Accordingly, Holmes Microsystems, Inc. has been treated as the surviving entity. As part of this transaction, Blackwing Corporation changed its name to Holmes Microsystems, Inc. ("Holmes") and the original Holmes Microsystems, Inc. which was then a wholly owned subsidiary, was dissolved. On January 12, 2001, the shareholders of Holmes entered into an exchange agreement with the equity owners of Guangdong Gosun Communication Equipment Sales Co, Ltd. ("GD Gosun"). Pursuant to the exchange agreement, the GD Gosun equity owners transferred all of their equity interests in GD Gosun to Holmes in exchange for 89% of the issued and outstanding shares of Holmes after giving effect to the share exchange. The exchange agreement resulted in the equity owners of GD Gosun obtaining a majority voting interest in Holmes and GD Gosun was treated as the acquiring entity in the transaction for accounting purposes according to generally accepted accounting principles. The reverse acquisition process utilized the capital structure of Holmes and the assets and liabilities of GD Gosun were recorded at predecessor cost. Being the continuing operating entity, the historical financial statements of GD Gosun prior to December 31, 2000 are included for financial reporting purposes. The financial year end date of Holmes has also been changed from January 31 to December 31 effective from the financial year ended December 31, 2000. As part of this transaction, Holmes Microsystems, Inc. changed its name to Gosun Communications Ltd., Inc. Basis of Presentation The consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual audited financial statements for the year ended December 31, 2000. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not necessarily indicative of annual results. 9 GOSUN COMMUNICATIONS LTD., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to the quarterly period ended March 31, 2001 and 2000 is unaudited) Note 1 - Basis of Financial Statement Presentation - Continued Business Conducted The principal activities of the Company and its subsidiaries are the retail sale and distribution of telecommunication equipment including cellular phones, pagers, cellular phone smart cards and value-refill smart cards, and acting as an agent of cellular and paging services providers. The Company is a primary agent of an affiliate, Guangdong Gosun Communication Development Company Limited ("GGCD"), a paging service provider in the PRC and a licensed primary agent of China Mobile Communications Corporation, one of two exclusive cellular communications providers in the PRC. As of March 31, 2001, the Company has nineteen directly owned chain stores operating in the PRC. Note 2 - Inventories Inventories represent purchased finished goods and are stated at the lower of cost or market. Note 3 - Investment in an Equity Investee Dongguan Gosun Network Science & Technology Co. Ltd. ("DGNST") is a company incorporated in Dongguan, PRC. It is jointly established by the Company and an affiliate, Guangdong Gosun Internet Information Industry Co., Ltd. on January 11, 2001 and is owned as to 49% by the Company. DGNST is engaged in retailing of telecommunication equipment and operating ISP business. Note 4 - Short Term Bank Loans Short term loans are obtained from creditworthy commercial banks in PRC to finance operations. The loans are guaranteed by an affiliate, Guangdong Gosun Network Science & Technology Inc.. Details of the bank loans are as follows:
Outstanding Prevailing Maturity Principal interest rate date -------------------------------------- ------------------ ------------------- RMB US$ equivalent March 31, 2001 Loan 1 5,000,000 603,864 6.435% July 19, 2001 Loan 2 2,000,000 241,546 5.3625% August 20, 2001 Loan 3 2,000,000 241,546 5.3625% March 14, 2002 ----------------- ----------------- 9,000,000 1,086,956 ================= =================
10 GOSUN COMMUNICATIONS LTD., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to the quarterly period ended March 31, 2001 and 2000 is unaudited) Note 4 - Short Term Bank Loans - Continued
Outstanding Prevailing Maturity principal interest rate date -------------------------------------- ------------------ ------------------- RMB US$ equivalent December 31, 2000 Loan 1 2,000,000 241,546 5.115% March 25, 2001 Loan 2 2,000,000 241,546 5.3625% August 20, 2001 ----------------- ----------------- 4,000,000 483,092 ================= =================
Note 5 - Income Taxes Income is subject to tax in the countries in which the Company and its subsidiaries operate. The standard enterprise income tax rate in PRC is 33% of which 30% is attributable to the central government and 3% to the provincial government. Newly established commercial enterprises, on application and approval by the tax bureau, are exempted from enterprise income taxes in respect of income earned during their first year of operation. Significant components of the Company's estimated deferred tax assets and liabilities as of March 31 2001 and December 31, 2000 are as follows:
March 31, December 31, 2001 2000 -------------- --------------- US$ US$ Deferred tax assets (liabilities) Net operating loss carry forwards in PRC 22,715 26,527 Pre-operating expenses 7,163 7,223 Accrued expenses (1,033) 7,871 Property and equipment 16,426 15,028 Inventory reserves 5,580 - Accrued income (7,383) - -------------- --------------- Net deferred tax assets 43,468 56,649 Valuation allowance for net deferred tax assets (43,468) (56,649) -------------- --------------- Net deferred tax assets - - ============== ===============
11 GOSUN COMMUNICATIONS LTD., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to the quarterly period ended March 31, 2001 and 2000 is unaudited) Note 5 - Income Taxes - Continued The principal differences between taxes on income computed at the applicable statutory income tax rates and recorded income tax expenses are as follows:
January 1, January 1, 2001 2000 to to March 31, March 31, 2001 2000 -------------- -------------- PRC statutory tax rates applied to income before income taxes 27,910 29,779 Changes in valuation allowance (13,181) - Income tax incentive program - (29,779) Prior year's under accrual 18,739 - Others 654 - -------------- -------------- 34,122 - ============== ==============
Note 6 - Commitments and Contingencies Lease Commitments Future minimum lease payments under operating leases with non-cancelable lease terms in excess of one year are as follows: US$ Nine months ending December 31, 2001 286,927 Year ending December 31, 2002 328,362 2003 231,606 2004 167,029 2005 and thereafter 23,646 ------------- 1,037,570 ============= Other contingencies The Company is a guarantor for an affiliate, Guangdong Gosun Communication Development Company Limited, in respect of a bank loan granted amounting to RMB5,000,000, equivalent to US$603,865. 12 Gosun Communications Ltd Inc. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto, included as part of this Quarterly Report. Organization Gosun Communications Ltd., Inc. ("GOSUN" or "the Company") was organized under the laws of the State of Texas on January 20, 1998, under the name of Blackwing Corporation. On April 4, 1989, Blackwing Corporation, a publicly held corporation, acquired all of the issued and outstanding shares of a company known as Surface Tech, Inc., which was originally known as Holmes Microsystems, Inc. The transaction had been accounted for as a recapitalization of Holmes Microsystems, Inc. in a manner similar to a reverse acquisition. Accordingly, Holmes Microsystems, Inc. has been treated as the surviving entity. As part of this transaction, Blackwing Corporation changed its name to Holmes Microsystems, Inc. ("Holmes") and the original Holmes Microsystems, Inc. which was then a wholly owned subsidiary, was dissolved. On January 12, 2001, the shareholders of Holmes entered into an exchange agreement with the equity owners of Guangdong Gosun Communication Equipment Sales Co, Ltd. ("GD Gosun"). Pursuant to the exchange agreement, the GD Gosun equity owners transferred all of their equity interests in GD Gosun to Holmes in exchange for 89% of the issued and outstanding shares of Holmes after giving effect to the share exchange. The exchange agreement resulted in the equity owners of GD Gosun obtaining a majority voting interest in Holmes and GD Gosun was treated as the acquiring entity in the transaction for accounting purposes according to generally accepted accounting principles. The reverse acquisition process utilized the capital structure of Holmes and the assets and liabilities of GD Gosun were recorded at predecessor cost. Being the continuing operating entity, the historical financial statements of GD Gosun prior to December 31, 2000 are included for financial reporting purposes. The financial year end date of Holmes has also been changed from January 31 to December 31 effective from the financial year ended December 31, 2000. As part of this transaction, Holmes Microsystems, Inc. changed its name to Gosun Communications Ltd., Inc. Results of Operations The following table shows the selected consolidated income statement data of the Company and its subsidiaries for the three-month period ended March 31, 2001 and March 31, 2000. The data should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements and the notes thereto included as part of the Quarterly Report:
Three-Month Period Ended Three-Month Period Ended (U.S. dollars) March 31, 2001 March 31, 2000 Revenue Sales of Cellular Phones and Pagers 6,218,133 1,930,204 Sales of Smart Cards 3,591,035 -- Agency Service 362,138 343,929 -------------- --------------- 10,171,306 2,274,133 Cost of Revenue Cost of Cellular Phones and Pagers (6,003,607) (1,724,583) Cost of Smart Cards (3,337,307) -- Agency Service (36,455) (47,629) -------------- --------------- (9,377,369) (1,772,212) Gross Profit 793,937 501,921 Gross Profit Margin 8% 22% Other Income 48,723 10,807 Selling Expenses (494,294) (249,885) General and Administrative Expenses (243,768) (172,028) Financing/Interest Expenses (20,024) (577) --------------- --------------- Income before Income Taxes 84,574 90,238 Income Taxes (34,122) -- Minority Interest (926) -- -------------- --------------- Net Income (Loss) 49,526 90,238 ============== ===============
13 Three-Month Period Ended March 31, 2001 Compared To Three-Month Period Ended March 31, 2000 Revenue, Cost of Revenue, and Gross Profit Margin Total revenue for the three-month period ended March 31, 2001 increased by US$7.9 million or 347% to US$10.2 million, compared to US$2.3 million for the three-month period ended March 31, 2000. The increase in total revenue was primarily the result of the Company's effort on promoting the corporate image in its respective industry as well as strategies to the opening of larger retail stores for attracting customers. For the three-month period ended March 31, 2001, the Company has three major sources of revenue, namely from selling cellular phones and pagers, selling of smart cards and acting as a licensed primary agent for one of the two cellular communication providers in the PRC, China Mobile Communications Corporation. Of the total revenue of US$10.2 million for the three-month period ended March 31, 2001, 61.1% was generated from the sales of cellular phones and pagers; 35.3% from the sales of smart cards and 3.6% from agency service. Compared with the total revenue of US$2.3 million for the three-month period ended March 31, 2000, 84.9% was generated from the sales of cellular phones and pagers; none from the sales of smart cards; and 15.1% from agency service. As of March 31, 2001, there were 16 stores in the Guangdong Province that generated a total of US$9.6 million in total revenue and 3 stores in Shanghai that generated a total of US$541,000 in total revenue. Comparing to the end of December 2000, there were 17 stores in Guangdong Province and 4 stores in Shanghai. During the three-month period ended March 31, 2001, 3 stores in Guangdong Province and 1 store in Shanghai were closed, but 2 mega stores were opened in Guangdong Province. The management believes that the Company's strategy to open relatively larger store will continue. The management further believes that this strategy can capture the economy of scale and can provide variety of choices for consumers to choose from. Total cost of sales of cellular phones and pagers for the three-month period ended March 31, 2001 was US$6.0 million, an increase of 248% over US$1.7 million for the three-month period ended March 31, 2000. Total cost of sales of smart cards for the three-month period ended March 31, 2001 was US$3.3 million, compared to none for the same corresponding period in year 2000. Total cost of providing agency service for the three-month ended March 31, 2001 was US$36,000, compared to US$48,000 for the three-month period ended March 31, 2000, a decrease of 25%. The cost of sales of cellular phones and pagers represented 64% of the total costs of sales for the three-month period ended March 31, 2001, compared to 97% for the same corresponding period in year 2000. Total cost of sales of smart cards approximated 36% of the total costs of sales for the three-month period ended March 31, 2001, compared to none for the same corresponding period in year 2000. And the total cost of providing agency service represented a very minimal amount for the three-month period ended Mach 31, 2001, compared to 3% for the three-month period ended March 31, 2000. The 14% decreased in gross profit margin from 22% for the three-month period ended March 31, 2000 to 8% for the three-month period ended March 31, 2001 was the result of the increase in competition of selling cellular phones, pagers and smart cards. Management believes that competition on pricing of cellular phones and telecommunication products will continue to increase for the remaining periods in year 2001. However, management plans to increase the number of mega stores in Guangdong Province as well as in Shanghai and Beijing in order to improve sales revenue. Management also plans to offer other value-added 14 services for customers, for example, discounted repair and maintenance bundles when purchasing cellular phones and related products. Other Income Other income for the three-month period ended March 31, 2001 increased by US$38,000, or 351% to US$49,000, compared to US$11,000 for the three-month ended March 31, 2000. The increase was mainly due to additional income generated from in-house repairs and maintenances of cellular phone services. Selling Expenses Selling expenses for the three-month period ended March 31, 2001 increased by US$244,000 or 98% to US$494,000, compared to US$250,000 for the three-month period ended March 31, 2000. The increase was mainly due to the following factors: a) Salaries and wages --- Salaries and wages increased by US$131,000, or 98% for the three-month period ended March 31, 2001 to US$264,000, compared to US$133,000 for the three-month period ended March 31, 2000. The increase was mainly due to the increase in salespersons as a result of the increase in number of retail outlets. b) Rental expenses --- Rental expenses increased by US$48,000, or 90% for the three-month period ended March 31, 2001 to US$102,000, compared to US$54,000 for the three-month period ended March 31, 2000. The increase was primarily due to the increase of number of retail stores in the later part of year 2000. General and Administrative Expenses General and administrative expenses for the three-month period ended March 31, 2001 increased by US$72,000 or 42% to US$244,000, compared to US$172,000 for the three-month period ended March 31, 2000. The Company is in its development stage and aims to employ high caliber individual to continue to improve the efficiency of its operation. Thus, most of the increase in general and administrative expenses was related to the increase in number of manpower and head-counts. The following items contributed to most of the increase: a) Salaries - Salaries for the three-month ended March 31, 2001 increased by US$59,000 or 239% to US$83,000, compared to US$24,000 for the three-month period ended March 31, 2000. The increase was mainly the result of increase number of administrative staff in the later part of year 2000. b) Pre-operating expenses --- Pre-operating expenses increased by US$17,000 for the three-month period ended March 31, 2001, compared to none for the three-month period ended March 31, 2000. The increase was mainly the result of additional stores being opened in the later part of year 2000. 15 c) Audit Fee - Audit fee increased by US$11,000 for the three-month period ended March 31, 2001, compared to none for the three-month period ended March 31, 2000. The audit fee was spent on the preparation of an annual audit for the corporate compliance as a listed company. Financial Expenses Financing expenses was US$20,000 for the three-month period ended March 31, 2001, compared to US$600 for the three-month period ended March 31, 2000. The increase was primarily the result of two short-term bank loans obtained during year 2000 from commercial banks in the PRC for the provision of sufficient working capital. Income Taxes The standard enterprise income tax rate in the PRC is 33% of which 30% is attributable to the central government and 3% to the provincial government. Newly established commercial enterprises, on application and approval by the tax bureau, are exempted from enterprise income taxes in respect of income earned during their first year of operation. Minority Interest Minority interest of US$930 for the three-month period ended March 31, 2001 was the result of sharing profit of the Shanghai Gosun Communication Chain Operation Co., Ltd by minority shareholders. Net Income Net income was US$50,000 for the three-month period ended March 31, 2001, a decrease of US$40,000 or 44% as compared to US$90,000 for the three-month period ended March 31, 2000. The decrease was primarily due to thinner margin on telecommunication products as a result of increase competition. Liquidity and Capital Resources Cash and cash equivalents were US$81,000 as of March 31, 2001. This represents a decrease of US$78,000 from December 31, 2000. The decrease was primarily due to a negative cash flow from operating activities, which was partially offset by positive cash flow from financing activities of proceeds from short-term bank loans. Management believes that the level of financial resources is a significant competitive factor in the cellular phone industry accordingly may choose at any time to raise additional capital through debt or equity financing to strengthen its financial position, facilitate growth and provide the Company with additional flexibility to take advantage of business opportunities. 16 PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K: None. 17 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. GOSUN COMMUNICATIONS LTD., INC. Dated: May 17, 2001 By: /s/ Yi-biao Chen ---------------------------------- Yi-biao Chen Chairman of the Board -----END PRIVACY-ENHANCED MESSAGE-----